When witnesses appear before committees of the British House of Commons, they are not told in advance what the questions will be. When IP Draughts and Dr Daniel Nelki of Wellcome Trust appeared before the Science and Technology Committee in December, we were not expecting to be asked “what is a patent troll?”, but we tried our best to answer the question.
IP Draughts burbled on for a while about non-practising entities, pointed out that universities fell within this description but should not usually be considered as trolls, and suggested that (a) it was a particular, aggressive way of pursuing patent litigation that was troll-like, rather than the assertion of patents per se; and (b) patent trolls were more of a US than a European phenomenom.
In IP Draughts’ understanding, though he is not a litigator and certainly not a US litigator, a number of factors create a favourable environment for patent trolls in the USA:
- The poor quality of some patents in the USA, which should not have been granted. These sometimes claim developments that are used widely across an industry, thereby creating a large pool of potential infringers.
- The pro-patent bias of some courts in the USA; the United States District Court for the Eastern District of Texas is a particular favourite for patent owners. Or just a lack of understanding of patents in some non-specialist courts, which creates uncertainty of outcome of patent actions.
- The possibility of jury trials in patent cases, which also adds to uncertainty.
- The cost of litigation in the USA, partly as a result of very extensive discovery procedures.
- The absence of a general “loser pays” approach to legal costs (except in “exceptional” cases – see below). This reduces the risk to a patent owner who bring a speculative law suit; he won’t be hit with a large bill for the defendant’s legal costs if he loses the case.
- The availability of legal representation on a contingency fee basis, where the patent owner has no obligation to pay its lawyer’s legal costs other than a percentage of any damages that the owner wins in the litigation. This also reduces the risk to a patent owner who brings a speculative law suit.
These factors sometimes encourage patent owners to bring spurious claims, and make it easier for a defendant to pay a “nuisance value” amount to a patent owner rather than defend a patent claim, no matter how weak the patent.
Occasionally, IP Draughts’ UK clients have asked him about letters from US law firms asserting patents in terms that were considered troll-like. In one case, many years ago now, the patent was for a method of testing for a chemical compound. It was a US patent, probably weak, and the client was based in the UK so it was unlikely there would be any immediate infringement. However, the patent had broad claims that included products discovered using the testing method, known as reach-through claims. If these claims were upheld in relation to the client’s products, and if the products were sold in the USA as was hoped, the patent could have done significant harm to the client’s (future, hoped-for) business.
The client consulted specialist patent attorneys, who advised that the risk of infringement of a valid patent was low.
But how should the client respond to the US lawyer’s letter? The letter claimed that many companies in the industry had taken licences and that a good deal could be struck if the client responded promptly. It also claimed that the inventor (who had assigned the patent to a non-practising entity) was a US academic who was going to use the royalties for the benefit of science. This last part seemed designed to position the plaintiff as a “good guy” in any future jury trial.
In the end, the client decided to ignore the letter and subsequent follow-up letters and eventually the US law firm stopped writing. Perhaps a small biotech company in a foreign land was not the primary focus of the patent owner’s efforts.
An alternative approach to dealing with a non-practising entity is to stand up to it and devote resources to fighting any litigation. If you have enough money, and the right judge, this may work.
It is heartening, in this context, to read the recent decision by Judge Denise Cote, of the United States District Court for the Southern District of New York, in the case of Gust, Inc v Alphacorp Ventures, LLC and Richard Suarez, of December 8, 2016, reported here.
Not only did the judge decide the patents were invalid, she awarded costs against both the patent owner and their lawyers. It seems from the report that the patent owner is unlikely to be able to pay the approximately $500,000 awarded to the defendant, so their attorneys may be forced to pick up the tab.
Her reasons for awarding costs, on an exceptional basis, included the fact that the patents were clearly invalid, and the aggressive way in which the patent owner, via his attorneys, had conducted the litigation. From a quick scan of the decision, this seems to have included:
- The patents claimed methods of raising money via crowdfunding, albeit dressed up as the use of software for this purpose.
- It was obvious in light of the Supreme Court’s 2014 decision in the Alice case that these patents claimed unpatentable material. The patent owner had “attempt[ed] to masquerade its otherwise abstract idea by highlighting allegedly ‘inventive’ elements… But these generic computer elements do not confer patent eligibility”.
- The case was initially brought in the Eastern District of Texas (and, according to a press report, a jury trial was sought) “a venue that bears no relationship to the parties or facts at issue in this case …further supports a finding of inappropriate motivation”.
- When the defendant managed to get the case transferred to New York, the patent owner tried to withdraw its case by providing a covenant not to sue (see article about that subject on this blog). However, the defendant didn’t accept that this brought the matter to an end.
- The patent owner, which was a non-practising entity, had pursued the case in an aggressive way despite acknowledging that it was “not worth litigating”. Its goal was “not to secure a reasonably royalty for infringement of a valid patent, but rather to extract a nuisance settlement …on the theory that Gust would rather pay an unjustified albeit minimal license fee than bear the costs of the threatened expensive litigation in a distant venue”.
- Awarding costs against the patent owner’s attorneys, the judge commented on the attorneys’ “bad faith motivation” in bringing the case in Texas, and conducting it in the way that they did.
Heady stuff. This is just one case, though according to the final paragraph of the judge’s Wikipedia entry she has form in awarding costs in patent cases. It will be interesting to see if other US judges follow this judge’s approach and make the USA a less attractive environment for non-practising entities bringing patent infringement actions.