Stanford Technology Law Review - Predictably Expensive: A Critical Look at Patent Litigation in the Eastern District of Texas

Brian Love of Santa Clara University Law School and James Yoon of Wilson Sonsini Goodrich & Rosati's article Predictably Expensive: A Critical Look at Patent Litigation in the Eastern District of Texas to be published in the Stanford Technology Law Review is worth review.

Here is the abstract:

"In this Essay, we compare U.S. patent litigation across districts and consider possible explanations for the Eastern District of Texas’s popularity with patent plaintiffs. Rather than any one explanation, we conclude that what makes the Eastern District so attractive to patent plaintiffs is the accumulated effect of several marginal advantages — particularly with respect to the relative timing of discovery deadlines, transfer decisions, and claim construction — that make it predictably expensive for accused infringers to defend patent suits filed in East Texas. These findings tend to support ongoing efforts to pass patent reform legislation that would presumptively stay discovery in patent suits pending claim construction and motions to transfer or dismiss. However, we also observe that judges in the Eastern District of Texas tend to exercise their discretion in ways that dampen the effect of prior legislative and judicial reforms that were aimed (at least in part) at deterring abusive patent suits. Given the broad discretion courts have to control how cases proceed, this additional finding suggests that legislation restricting venue in patent cases may well be the single most effective reform available to Congress."

Copyright © 2016 Robert Moll. All rights reserved.

Supreme Court - Amended Federal Rules of Civil Procedure - Effective December 1, 2015

The amendments to the Federal Rules of Civil Procedure (FRCP) become effective on December 1. The amendments will impact non-practicing patent owners who are used to filing form patent infringement complaints with little pre-filing research and leveraging the fact they have little to produce in discovery compared to the defendants. 

The amendments eliminate the patent infringement form, and require patent owners state additional facts in support of infringement, and in some cases file claim charts.

The amendments will also reduce the scope of discovery to "any non-privileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit."

Copyright © 2015 Robert Moll. All rights reserved.

Supreme Court - Amendments to the Federal Rules of Civil Procedure - Reducing Litigation Costs

Chief Justice Roberts of the United States Supreme Court submitted amendments to the Federal Rules of Civil Procedure to Congress on April 29. The amendments most likely to impact US patent litigation are as follows:

1. Rule 26 is amended so that it no longer permits discovery of any information that may reasonably lead to the discovery of admissible evidence. Further, discovery must be proportional to the needs of the case. This sounds like a helpful change, but it's hard to predict if this will reduce the discovery costs in patent litigation.

2. Rule 84 is deleted, including Form 18, the standard patent infringement complaint form. This may promote greater specificity in the patent infringement complaint, which is helpful.

Unless Congress objects the amendments become effective on December 1, 2015. I expect lobbyist to face an uphill battle if they challenge these two amendments given they are intended to make litigation less costly.

Copyright © 2015 Robert Moll. All rights reserved.

WSJ - Patent Reform Bill Arises Again in Congress

Tonight, I suggest reading the Wall Street Journal article Patent Reform Bill Arises Again in Congress, discussing Congress' latest effort to change US patent law to address patent litigation abuse.

If you want details, here's Innovation Act 2015, which I will refer to as the Bill. If you want a brief account of Congress' latest patent reform, here's the key changes with brief comments:

1. Attorney Fee Awards - Current law permits the recovery of attorney fees to the prevailing party in an exceptional case, while the new law would require an award attorney fees to the prevailing party unless a judge finds that (1) the legal position and litigation conduct of the non-prevailing party was reasonably justified in law and fact; or (2) special circumstances (e.g., severe hardship to inventor) make attorney fee awards unjust. If the patent owner cannot pay the attorney fees, the court can make "the interested parties" (e.g., investors) pay the attorney fees.

My comment - This is a major change from the American rule where each party pays its own attorney fees. It will reduce patent litigation by smaller companies as they will now have to bear the risk of paying all of the attorneys if they lose and a court decides the legal position was unjustified and cannot establish special circumstances. No doubt many defendants may want this, but the Supreme Court's Highmark and Octane decisions adequately protect the "poor defendants" who hope to reduce patent litigation to just a "sport of kings."

2. Complaints Need Claim Charts - When a patent owners sues for patent infringement, the complaint will need to include a claim chart showing how the claim(s) read on the accused product or process except if it cannot be reasonably known before filing the complaint. Form 18 governing the content of complaints is eliminated, but not if you are pharmaceutical company.

My comment - this higher pleading standard will eliminate some patent infringement suits, because preparing a claim chart makes one stare at the infringement case. If you can't do a claim chart, maybe the case should not be filed. Placing the initial cost of a claim chart on the patent owner is better than asking a court to take on a poorly researched case that wastes court resources and defendant's money. Not sure eliminating Form 18 is useful. The Judicial Conference already says it plans to eliminate Form 18 in 2015 and why give pharmaceuticals "a free pass" on Form 18?

3. PTAB Claim Construction - The Bill proposes to replace the Patent Trial and Appeal Board (PTAB)'s broadest reasonable interpretation (BRI) for claims in inter partes review, post-grant review, and covered business methods with the court's narrower interpretation of claims.

My comment - This will help patents survive invalidity challenges in the USPTO, and better corresponds to the reality that patent owners rarely succeed on motions to amend claims.

4. Limit Discovery - This has a couple of parts: (1) claim construction must happen before much discovery occurs; and (2) only large companies or posting a bond will get discovery of non-core documents.

My comment - Claim construction before significant discovery sounds right, but saying a large company gets discovery without posting a bond only increases their advantages over a smaller company, and may raise disputes on whether certain requested discovery is "core" or "non-core."

5. Willful Infringement  - The Bill would require demand letters identify the patent, the patent owner, accused product, and importantly how the product infringes at least one claim of the patent.

My comment - This imposes another claim chart into the process of patent enforcement, which of course helps defendants avoid treble damages by merely showing a claim chart did not accompany the demand letter.

6. Transparency of Ownership - This penalizes a patent owner who fails to update the USPTO within 90 days on changes of ownership with no enhanced damages, or attorney fees and an award of attorney fees to the defendant who spent money researching the ownership information.

My comment - Patent ownership should be transparent during enforcement, but the consequences of missing the 90 day window sounds draconian. Paying the attorney fees to find out the actual ownership should suffice.

7. Stay of Customer Suits - Courts may stay (suspend) a patent infringement suit of a customer lawsuits when the manufacturer of the product challenges the patent.

 My comment - Why would anyone sue a customer?

Copyright © 2015 Robert Moll. All rights reserved.

Dolak - Patent Office Contested Proceedings and the Duty of Candor

Tonight, I suggest reading Professor Lisa Dolak's Patent Office Contested Proceedings and the Duty of Candor. Professor Dolak has been speaking on ethics issues in intellectual property for years, and this is a nice contribution to AIA trial work.

Here's the abstract: "The implementation of post-grant trial proceedings in the U.S. Patent and Trademark Office is one of the most significant aspects of the Leahy-Smith America Invents Act. Practitioners have a great deal of new subject matter to master, including the governing statutes and rules, and instructive Patent Trial and Appeal Board decisions. All of this new law is superimposed, however, on an existing legal landscape relating to the practitioner’s duty of candor and potential consequences for candor violations. Furthermore, the new law creates additional candor and disclosure obligations specifically applicable in post-grant contested proceedings.

This paper discusses the “old” and “new” candor obligations of practitioners – their sources, their reach and applicability, and the potential consequences for their breach – in the context of the representation of clients in the new USPTO post grant contested proceedings. It identifies several examples of statements and conduct in post-grant proceedings that may particularly implicate the practitioner’s duties of candor and/or disclosure and, accordingly, warrant heightened care on the part of practitioners (registered and unregistered) and parties who participate in the new proceedings."

Copyright © 2014 Robert Moll. All rights reserved.

PTAB - Guidance on Discovery in AIA Trials

The PTAB published guidance on discovery practice in America Invents Act (AIA) trials:

Message From Administrative Patent Judges Jacqueline Bonilla and Sheridan Snedden: Routine and Additional Discovery in AIA Trial Proceedings: What Is the Difference?

Briefly, the article discusses routine and additional discovery, PTAB considerations in deciding whether to grant motions for additional discovery and how to succeed on discovery motions in AIA trials.

Copyright © 2014 Robert Moll. All rights reserved.

Professor David Hricik's Legal Ethics and Non-Practicing Entities Article

Much of the press talks about the lack of ethics of patent trolls, but like many things there is more to the story.

For example, Santa Clara University Law School invited Professor Hricik to speak on legal ethics that face a "patent troll" or non-practicing entity's (NPE) counsel. It sounds like the assumption was to focus on this side, because NPE's have much less discovery than defendants which can be leverage to extract a nuisance settlement.

In preparing for the talk, Professor Hricik realized, and called it counter-intuitive, that the legal ethics issues extend to defendant's counsel in a big way, because they have significant control over how discovery is scheduled, but are typically paid by the hour. For example, they could bifurcate discovery and schedule determinative issues like infringement at the front end of discovery to save money. Yet the NPE's desire the suit not be quickly adjudicated aligns with defendant counsel's desire to "earn" fees during discovery. So if the NPE counsel makes comprehensive discovery, the defendant's counsel may act in a cost ineffective way.

Professor Hricik notes Rule 11 and 35 USC 285 require counsel act ethically. My observation is courts rarely use Rule 11 and Section 285 to police how parties manage discovery. And without court limits, discovery in patent litigation is too often a law firm money maker.

Anyway, I agree with Professor Hricik about ethics obligations running to all parties in NPE litigation, and recommend reading: Legal Ethics and Non-Practicing Entities: Being on the Receiving End Matters too.

Copyright © 2013 Robert Moll. All rights reserved.