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House Passes “Anti-Troll” Legislation

Intellectual Property Law Update Carl R. Schwartz

There has been growing concern regarding “abusive” patent licensing and patent litigation practices by non-practicing, non-academic entities (commonly referred to as “trolls”), most often in doing business method technologies. The president responded by recommending a series of executive and legislative modifications, and as a result both houses of Congress began to work on bills to address these concerns.

On December 5, 2013, a bill (entitled the “Innovation Act”) passed the House by a wide margin. Given that many of the same or similar provisions are in a corresponding Senate bill, given the largely bipartisan nature of the House vote, and given that the legislative activity started out as a White House initiative, it now seems quite likely that legislation based upon many of the concepts in the House bill will be enacted into law before the end of 2014 (albeit in some cases with some Senate modifications).

The major provisions of the House bill are:

  1. In more patent cases the losing party will have to pay the winner’s attorneys fees (when the loser’s position is deemed not reasonably justified). This loser-pays provision may be the most controversial provision of the bill because the intention is to shift the standard to make it more likely fees will be shifted. While willfully infringing defendants and frivilous plaintiffs are already exposed to the potential for an attorneys fees award exposure if a case is deemed “exceptional” by a court — a high standard — under this new bill that standard is arguably lowered with the intent that plaintiffs who are not careful about who they sue and why (e.g. some trolls) will now have to more often pay the attorneys fees of who they sue if they lose. Further, some owners of the loser can be dragged in to help pay (to avoid having trolls operate via shell corporations to avoid the liability).
  2. Patent owners will now have to include in their court complaints a laundry list of specific additional items (e.g. which products infringe, which claims are infringed, who is the real party in interest, etc.) designed to ensure that the litigation is well thought out rather than speculative, and that the parties understand the plaintiff’s specific contentions from the outset. This provision is designed to reign in the shifting-sands approach to identifying what the case is about — a frustrating situation that often prolongs litigation and increases cost for defendants. Because plaintiffs will have to show their cards early, this provision has the potential to reduce the discovery costs of the defendant.
  3. Courts are encouraged/empowered to better control and limit discovery. For example, some discovery can be delayed until after claim construction. This reduces a troll’s ability to use the threat of high discovery costs to extract a settlement.
  4. Non-specific/vague demand letters will now be regulated. If demand letters are misused, they can trigger loss of certain remedies if litigation later ensues.
  5. If a patentee plaintiff sues a customer rather than a manufacturer, and the dispute centers on the manufacturer’s activities, the bill provides ways of bringing the manufacturer into the suit and/or staying the customer suit.
  6. Standards for claim construction will be harmonized between the Patent Office post-issuance boards and courts (so that patent owners won’t be able to assert one construction to keep their patent alive in the Patent Office, and another in court when pursuing infringement).
  7. There are also a number of other provisions in the bill which probably are not focused on troll activities. They correct technical errors in other legislation, or address largely non-controversial intellectual property issues (e.g. there will be less estoppels in certain patent proceedings because an issue “could have been raised” in another proceeding; trademark licensees will have more protection in bankruptcy if their licensor goes bankrupt).

A famous saying is that where you stand depends on where you sit. Independent inventors that either don’t produce product, or have a very small business, may have significant concerns about whether this bill goes too far in effectively cutting off the willingness of investors to put their money behind enforcing the patents. On the other hand, companies operating, for example, in the business method field that have been facing the costs of having to reply to and/or defend a slew of patent troll matters may be largely supportive.

If you have questions concerning this legislation, please contact Carl Schwartz at (414) 277-5715 /, or your Quarles & Brady attorney.