New US legislative initiatives aim to fight patent trolls inter alia by
distinction in the litigation process between plaintiffs who practice inventions
and the Non-Practicing-Entities (NPEs, also know as Patent Assertion Entities
(PAEs) or “patent trolls”). If the proposals are passed, patent trolls may find
themselves reimbursing the dispute-related expenses of entities sued by
Giant trolls like Intellectual Ventures (the “mother of all Trolls”
which owns tens of thousands of patents), Round Rock Research and Inter Digital
will now be required to recruit their intellectual resources to plan and update
their strategy and business plans.
Patent infringement lawsuits filed by
patent trolls have a huge effect on the US economy, and their impact is on the
increase. They are attacking anyone in sight, from major hitech companies to
individual end-users of products.
The title “patent troll” is a
derogatory name for entities that utilize patents solely as a method of
aggressively and opportunistically filing lawsuits against entities which
allegedly practice the inventions covered by the trolls’ patents. The NPEs
themselves, as their name suggests, do not develop, manufacture or sell
In the past two years the number of claims filed by patent
trolls has tripled; 62 percent of US patent infringement lawsuits filed in 2012
were brought by trolls. Estimates are that over the past year NPEs threatened
more than 100,000 companies with claims of patent infringement.
billion (!) is the amount spent in 2011 by defendants and licensees to pay
patent trolls, according to James Bessen and Michael Meurer of Boston
Obama and US legislators declare war One of legislative
initiatives of 2013 (brought by Congressmen Peter DeFazio and Jason Chaffetz)
proposes that in an action for patent infringement, the defendant may argue, at
the very beginning of the judicial process, that the plaintiff is an NPE. If
such argument is raised, a preliminary trial would be held in which the court
would examine the following:
• Is plaintiff the inventor of the patented
invention? • Was plaintiff the owner of the invention at the time a patent
application was submitted? • Has plaintiff implemented the patented invention
through a significant investment in the production and sale of products covered
by the patent? If the answer to at least one of the above parameters is found to
be “no,” the plaintiff could be defined as an NPE. (Academic institutions and
their IP commercialization arms will not be defined as patent trolls, although
such entities do not practice the inventions covered by their patents.) If the
preliminary trial defines the plaintiff as an NPE, the plaintiff would be
exposed to the following consequences: If the patent infringement case results
in a finding of noninfringement or invalidity, the plaintiff will be ordered to
reimburse the defendant’s litigation costs.
Such costs are substantial
(the median cost of managing a patent infringement lawsuit in the US is about
$650,000 in cases considered “small,” and can reach $5,000,000 or more in cases
where the claim exceeds $25,000,000).
To make things even more stringent,
the proposed legislation requires the plaintiff to execute a bond, in an amount
determined by the court, to ensure payment of said expenses.
legislation passes, the rules of the game will change.
The patent troll,
who until now had nothing to lose in bringing a suit for patent infringement,
even if it was ultimately found to be frivolous, will now have to carefully
consider his actions and examine whether its claim is sufficiently solid to
justify the financial exposure of an unsuccessful lawsuit (which, as noted
above, could amount to millions of dollars).
The modern world
increasingly relies on technology vs.goods, intellectual property
vs.tangible property. Intellectual property has broken the limits of its
originally intended framework.
So now, the emerging legislation aspires
to withdraw to the original borders of patent legislation as set by the US
Constitution: “To promote the progress of science and useful arts, by securing
for limited times to authors and inventors the exclusive right to their
respective writings and discoveries.”
The author is a partner in Pearl
Cohen Zedek Latzer Baratz (Israel office).