Taming the Troll: The America Invents Act and Its Impact

Taming the Troll: The America Invents Act and Its Impact

01.26.2015

"Patent trolls" have been an increasing problem for businesses, costing legitimate business as much as $83 billion each year. Patent trolls are suing restaurants, supermarkets, airlines, casinos, real estate agents and other brick-and-mortar businesses, most of which weren't traditionally involved in patent debates. Many such companies agitated for patent reform, which led to a patent bill that overhauled the patent landscape. Discussed below are a few major provisions of that bill and their impact on the patent troll and the patent(s) it asserts.

The pejorative term, "patent troll" is also known as a non-practicing entity or ("NPE"). An NPE is also known as a patent assertion entity ("PAE") or a patent monetization entity ("PME"). The NPE is defined as person or company who enforces patent rights against accused infringers in an attempt to collect licensing fees, but does not manufacture products or supply services based upon the patents in question.
 
In 2011, Congress took some steps to address the patent troll problem by enacting the America Invents Act ("AIA"). The AIA became effective on March 16, 2013. Many of the provisions aimed at not only stemming the conduct of patent trolls but also added additional scrutiny to granted patents and pending applications. A few key provisions of the AIA are highlighted below as well as recent decisions from the United States Supreme Court that directly impact patent troll conduct and the patents they assert.
 
The United States patent system is supposed to promote pioneering innovations and represent a bargain between inventors and the public. In exchange for dedicating a novel and non-obvious invention to society patent applicant gets a 20-year monopoly, essentially allowing the patent holder "the right to exclude others from making, using or selling the invention throughout the United States" and its territories and possessions. Article I, Section 8, Clause 8 of the United States Constitution grants to the Congress the power to grant patents.
 
The emergence of "patent trolls" has captured the ire of the community and has been the subject of recent debate. In a nutshell, the complaint is that patent trolls are corrupting the U.S. patent system and endangering innovation and commercialization. It is commonly stated that NPEs often buy up patent(s) cheaply from distressed companies who are looking to monetize assets. Unfortunately, the United States Patent and Trademark Office ("USPTO") has also been known to issue patents that are neither new nor revolutionary, and sometimes these patents can be very broad, covering everyday or commonsense methods or processes.
 
Armed with overbroad and vague patents, the NPE will then send out threatening letters to those they argue infringe their patent(s), sometimes in the hundreds. These letters often threaten legal action unless the alleged infringer agrees to pay a licensing fee, which can often range to the tens of thousands or even hundreds of thousands of dollars. Patent litigation, being extremely expensive, forces many who receive infringement letters to pay the licensing fee even if they believe they do not infringe the patent or that it was wrongly granted. Given the expense and the protracted litigation, it is just faster and easier for companies to settle.

THE JOINDER PROVISION OF THE AIA

Patent plaintiffs have long used the procedure of joining multiple defendants in a single lawsuit, which both allows them to use the heavy weapon of litigation at reduced costs through the aggregated process. The legislative history of the AIA makes it clear that NPEs were the intended target of the new joinder provision.

In typical pre-AIA litigation filed by NPEs, a NPE would file a patent infringement suit against numerous defendants that had nothing in common, other than the fact that each had been accused of infringing the same patent. The implementation of the AIA altered the ability of plaintiffs to file one lawsuit against numerous defendants in situations such as these.

Joinder of defendants is now permitted only where the claims against the defendants arise out of "the same transaction, occurrence, or series of transactions, or occurrences relating to the making, using, importing into the United States, offering for sale, or selling the same accused product or process" and requires that questions of fact common to all defendants or counterclaim defendants arise in the same action. Absent waiver, defendants may not be joined together in a patent infringement lawsuit based solely on allegations that they each have infringed the patents-in-suit under 35 U.S.C. § 299(b). While the AIA seemingly made it harder to sue multiple parties in a single lawsuit, NPEs responded by filing more lawsuits.

Unfortunately, the law does not address the pre-trial phases of litigation, so unfortunately, courts in the Eastern District of Texas, for example, in an attempt to conserve judicial resources, have severed defendants scheduled for trial, but have consolidated all other pretrial issues among the defendants given their common issues. Now, in response to 35 U.S.C. § 299, NPEs simply file multiple suits in the same court with the hopes that through the vehicle of Multidistrict Litigation under Fed. R. Civ. P. § 42, (“MDL”) they become consolidated. In essence, the effect of the joinder provision did not produce the result on the NPE as Congress had intended: a reduction in patent cases filed by NPEs.

POST GRANT AND INTER PARTES REVIEW PROVISIONS OF THE AIA

Other AIA provisions may have more of an impact on the NPE. Patents granted under the new AIA procedures are subject to new forms of review called Post-grant Review and Inter Partes Review. Either can be used as an alternative or a co-pending strategy to litigating patent validity in federal District Court.

Post-grant review is a trial proceeding at the Patent Trial and Appeal Board (“PTAB”) to review the patentability of claims. This type of review allows the petitioner (usually defendant) a larger set of grounds in which to invalidate an asserted patent.

To invoke post-grant review, a challenge must be filed within nine months of a patent’s issuance (or reissuance), establishing that at least one challenged claim is more likely than not to be found unpatentable, or that the request raises a novel or unsettled legal question that is important to other patents or patent applications.

Unlike other types of proceedings in the PTAB, post-grant review can be sought based on any grounds that can be used to challenge the validity of a patent claim. In addition to patents and printed publications, the subject of other patent review proceedings, post-grant review can be sought by alleging unpatentability based on evidence of public use, on-sale activity, or other public disclosures. Moreover, post-grant review can be sought based on an alleged lack of compliance with written description, enablement, or patent eligibility requirements.

Further, revamped rules for Inter Partes Review (replacing Inter Partes Reexamination) provide an optional way to attack a patent before becoming too embroiled in traditional patent litigation. Challenges under this streamlined procedure goes to the PTAB as well and can be thought of as a trial proceeding to review the patentability of claims, but using only prior art consisting of patents or printed publications.

The process begins when a party other than the owner of the patent files a petition for review after the later of either: 1) nine months after the grant or re-issuance of a patent; or (2) the termination of any post-grant review. Unlike the previous Inter Partes Reexamination, the review proceedings allow for discovery by the parties and quicker resolution. The PTAB aims to issue a final determination within one year — significantly faster than typical civil litigation (and Inter Partes Reexamination).

Challengers also enjoy a lower burden of proof than in court. Although these challenges must be based on other patents or printed publications, challengers retain the right to raise other invalidation arguments in court proceedings.

UNITED STATES SUPREME COURT WEIGHS IN ON PATENT LITIGATION

In the past couple years, the United States Supreme Court has opined in several cases making it easier for defendants to obtain attorneys’ fees in frivolous lawsuits as well as easier to invalidate an asserted patent.

In two unanimous opinions, Octane Fitness, LLC v. ICON Health & Fitness, Inc. and Highmark Inc. v. Allcare Health Management Sys., the Court liberalized the award of attorneys’ fees in patent cases under 35 U.S.C. § 285. The Court defined an exceptional case in which reasonable attorney fees may be awarded to the prevailing party as "one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated." The Court further reduced the evidence required from clear and convincing or a preponderance of evidence; and increased the deferentiality of appellate review of such awards from de novo to abuse of discretion.

The United States Supreme Court has repeatedly and consistently stated that there are only three categories of subject matter for which one may not obtain patent protection: (1) laws of nature; (2) natural phenomena; and (3) abstract ideas. From time to time the United States Patent Office does attempt to breathe new life into rejections for want of patentable subject matter, but ultimately the legislative history and the guidance of the Supreme Court is clear.

In Alice Corp. v. CLS Bank International, the court pushed back against the rise in patent claims by providing a new test for rejecting patents that try to claim "abstract ideas." Here, Alice Corp’s patent claims involved (1) a method for exchanging financial obligations, (2) a computer system as a third-party intermediary, and (3) a computer readable medium containing program code for performing the method of exchanging obligations. The Court held that Alice’s patent claims did no more than require a generic computer to implement this abstract idea of intermediated settlement by performing generic computer functions, which is not enough to transform an abstract idea into a patent-eligible invention.

In Nautilus v. Biosig Instruments, the court set a more demanding test for patent "definiteness." The claim term at issue related to the relative placement of electrodes, specifically that they are "mounted . . . in spaced relationship with each other." The Federal Circuit applied the "insoluably ambiguous" test first enunciated by that Court in Datamize, LLC v. Plumtree Software, Inc., 417 F. 3d 1342, 1347 (Fed. Cir. 2005). However, the United States Supreme Court applied a more stringent standard, stating, "we read §112, ¶ 2 to require that a patent's claims, viewed in light of the specification and prosecution history, inform those skilled in the art about the scope of the invention with 'reasonable certainty.'"

These opinions may eventually make it tougher to obtain vague and overreaching patents — the type most ripe for abusive litigation by NPEs. The developments discussed above have already given business owners more tools to fight back. Most importantly, when faced with a demand from a patent troll, businesses should contact experienced intellectual property counsel to advise how recent developments could help.

Reid E. Dammann (213) 629-7611 r.dammann@mpglaw.com

View Attachment (PDF)