The United States House of Representatives has passed the ‘Innovation Act’ (the Act) with majority support from both sides of the House. The Act is designed to counter the ‘patent troll’ problem.
Patent trolls, or non-practicing entities (NPEs), are firms that acquire broad patents in order to extract licensing fees from companies that are infringing those patents, rather than using the technology themselves. Trolls tend to sue end users, often with little evidence of alleged infringement, leaving the end-user with two options – fight the case, which can be costly, or settle by paying the troll a fee. Patent troll cases rarely go to trial, with studies finding that 75% of infringement actions end in settlement. Regardless of the number of cases that go to trial, ‘patent troll litigation’ made up 62% of all patent litigation in the United States in 2012.
Six major changes, outlined below, have been approved by the House with the aim of discouraging troll tactics. The Act now awaits consideration by the Senate. This is not expected to be completed until late 2014.
Major provisions approved by Congress
- Demand letters will be more closely regulated and if misused, there may be limitations on remedies available to plaintiffs.
- Infringement lawsuits must be more specific about how the defendant allegedly infringed the plaintiff’s patent, removing the ability to file vague lawsuits.
- Plaintiffs must name anyone who has a financial interest in a patent that is the subject of litigation. This means it should be more difficult for trolls to hide behind ‘shell’ companies.
- Discovery (supplying documents to the other side in litigation) will be delayed until the courts have addressed legal questions about the meaning of patent claims and whether they have been infringed, and the USPTO and the US Courts will harmonise their approach to determining the meaning of claims. This means that frivolous lawsuits should be able to be decided before the very significant costs associated with discovery are incurred.
- Courts will be able to stay proceedings against end-users until a decision has been made about manufacturer infringement. Additionally, the courts will be able to bring the manufacturer into suits brought against end users if deemed appropriate. Trolls often sue end users rather than vendors as end users are usually more easily intimidated.
- It will be easier for defendants to recover costs from an unsuccessful plaintiff if the plaintiff’s case is considered to lack reasonable justification, and, related to point 2 above, a judge may order others with a financial interest in the patent to join the lawsuit and pay a defendant’s legal fees if the plaintiff is not able to do so.
While the measures go a considerable distance towards dealing with the patent troll problem, they are unlikely to completely resolve the issue in the United States. Some commentators have expressed concerns that the Act only attends to the low-level ‘bottom-feeder troll’ without addressing more sophisticated non-practising entities.
Also, while there is general agreement that troll tactics should not be allowed, the provisions do not just apply to trolls. All patent litigation in the US will be affected by the Act. Some intellectual property and industry bodies have expressed concern about the implications of the
Act for inventors and small businesses pursuing genuine patent enforcement actions.
If you would like more information about protecting or enforcing your intellectual property in the United States, please contact us.
This article is intended to summarise potentially complicated legal issues, and is not intended to be a substitute for individual legal advice. Please contact a Baldwins attorney or other IP professional before acting on any information contained in this publication.