Can Patent Reform Prevent Trolling?

On March 13 the latest phase of the American Invents Act (AIA) came into effect.  AIA profoundly changes the way patents are filed by moving the U.S. to a first to file system. The law is designed in part to curb the perceived abuses of the patent system which formerly allowed anyone to file a lawsuit against a patent holder by claiming that they were the first inventors of a product after another entity filed a patent. Now, under AIA the first to file a patent receives exclusive rights to the patented property regardless of whether another can claim to have invented the product before the filing. In addition, the first-to-file system is expected to reduce the cost of patent litigation because these lawsuits will no longer include a fact-intensive inquiry into who was the first inventor.

Saying NO to Patent Abuse

The introduction of AIA establishes modifications to patent law that make it more difficult to abuse the patent system. For example, non-practicing entities (NPEs), sometimes referred to as patent trolls, assert patent rights to intellectual property that the entity may never intend to actually use. These companies, whose secretive nature make them seem all the more nefarious, bring patent infringement cases against dozens of successful commercial enterprises at a time. Often the NPE plaintiff will be nowhere close to being able to bring the patented product to the marketplace at the time the suit is initiated.

Sections of the AIA which took effect in 2011 took a step towards resolving this problem by making it more difficult to bring patent infringement lawsuits against multiple defendants. Before AIA all a plaintiff had to allege was that an actor had infringed on its patents to join it in an existing lawsuit. However, the AIA now only allows a defendant to be joined in an existing suit where the plaintiff can show that the defendant was involved in “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 of the same accused product or process.”  35 U.S.C. § 299(a)(1). Patent infrigment plaintiffs now must also show that “questions of fact common to all defendants . . . will arise in the action.” 35 U.S.C. § 299(a)(2).

Patent Reforms That Do Not Go Far Enough

While AIA is undoubtedly a step in the right direction, some commentators claim that this round of patent reform does not go far enough to curb abuse by NPEs. In fact, empirical research suggests that  AIA appears to have had limited success in curbing the litigation habits of patent trolls, and that more drastic action is needed.

Towards this end Peter DeFazio (D-OR) introduced H.R. 845 in the House of Representatives, which seeks to institute a ‘loser pays’ rule to patent litigation. The bill, entitled Saving High-Tech Innovators from Egregious Legal Disputes Act (SHIELD) of 2013, would give courts the discretion to require losing NPEs in patent litigation to pay the legal fees of the other side if the court did not believe that the claim had a “reasonable likelihood of survival”.

On April 4^th the House Judiciary Committee referred SHIELD to the Subcommittee on Courts, Intellectual Property, And the Internet. What happens next could be key to the future of NPEs and to the commercial enterprises targeted by patent trolls.