October 29, 2013

Emerging Litigation Trend: Patent Trolls

by David R. Clonts, Partner, Akin Gump Strauss Hauer & Feld LLP

When there’s a dollar to be made, an industry will follow. And so will the lawyers. It’s the American Way. 

So it is with patent assertion entities (PAEs), better known as patent trolls. Unlike universities, research institutions, inventors and other companies, PAEs do not exist to engage in research or develop technology or to sell anything. They are companies whose fundamental business model is to acquire patents and then to use litigation to leverage those patents into payments.

These entities and their tactics are starting to attract the attention, not only from the patent bar but also from numerous companies in a variety of industries. State and federal governments have taken notice as well.  While a myriad of potential solutions have been suggested, they all focus on common problems with the PAEs’ approach, including:

  • Avoiding the True Defendants: In many cases, rather than sue the company that actually made an allegedly infringing product, PAEs sue the manufacturers’ customers (or customers of customers).  For example, instead of suing an electronic game maker, they go after the resellers.  The resellers usually aren’t in the best position to defend themselves presenting an easier target from which to extract payment.
  • Mass Notice Letters: PAEs and their law firms send out thousands of demand letters hoping to pick up quick, cheap settlements based on the force of those letters alone.
  • Patent Friendly Jurisdictions: Certain jurisdictions are perceived as both plaintiff-friendly and patentee-friendly. A number of these have gained reputation for being hotbeds of patent litigation with good results for plaintiffs.  PAEs frequently use forum shopping to file lawsuits in these plaintiff-friendly jurisdictions.
  • Leveraging the Cost of Litigation and Discovery: The cost of litigation and discovery is exorbitant due to the highly technical nature of patent cases. This forces defendants to settle for large amounts (which are often below the cost of litigation) even if the patent troll does not have a legitimate case. 

How can we solve these problems without upending 200-plus years of patent law and damaging the very valuable intellectual property rights of legitimate patent holders? 

There are a number of legislative and regulatory proposals, including changes to discovery rules in patent cases, shifting the attorneys’ fees in this type of litigation, and other more substantive reforms. And some state attorneys general are looking for ways to quash mass notice letters. 

At the 14th Annual Legal Reform Summit: Healing the Lawsuit System, I was pleased to serve on a panel discussing the emerging trend of patent trolls. ILR also released a paper, “The New Lawsuit Ecosystem: Trends, Targets and Players,” in conjunction with that panel.

(We also note that House Judiciary Chairman Robert Goodlatte is scheduled to hold a hearing on patent reform legislation later today. You can read ILR’s statement on that hearing here.)

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