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Obama Anti-Patent Troll Announcement Hits a Nerve in U.S. Business Community

Friday, June 7, 2013
By Tony Dutra

President Barack Obama's June 4 announcement of executive actions and suggested legislation to fight patent trolls hit a nerve among American business organizations and patent attorneys.

Though the bulk of the announcement reflected actions already underway by the Patent and Trademark Office and legislation already introduced in Congress, stakeholders had largely been silent on the issue. Support from the administration for several of the legislative measures under consideration in particular has apparently aroused those interested in a second round of reforms to patent law.

But some of the players may have changed from those that fought the first round, the one that resulted in the Leahy-Smith America Invents Act after six years of debate. While that debate was largely fought between the high technology and life sciences industries, the patent troll problem has generally not affected pharmaceutical and biotechnology patent interests.

Accordingly, the high-tech community may have a different set of allies and adversaries this time around.


BIO Against CPF Redux Unlikely
For example, the Biotechnology Industry Association consistently fought to keep Congress from addressing patent infringement damages issues in the AIA reform bill, much to the displeasure of Silicon Valley.

But when asked for a comment on the June 4 Obama announcement, BIO's chief James C. Greenwood, called it “the administration's proposal on high-tech patent issues,” indicating that the biotech community was unlikely to be affected.

“We share the president's goal of improving incentives for continued innovation and ensuring high-quality patents,” he said. “It is through this lens that we will review the proposal, and we look forward to continuing to work with the administration, the Congress, and other stakeholders to ensure America maintains the strongest, best-run patent system in the world.”

On the other hand, the Coalition for Patent Fairness represented the high tech industry in the AIA debate, and it showed that it was just as interested now.

“President Obama's patent reform recommendations highlight a growing consensus for action against patent assertion entities, or patent trolls, which have expanded their burdensome activities against America's most innovative industries,” the CPF said in a statement.

“President Obama's support demonstrates the importance of patent reform that supports innovation and economic growth,” the group said. “We look forward to our continued work with Congress and with the innovative business community to enact much-needed patent litigation reform.”


New Interest from Other Organizations
Others commenting in June 4 statements included organizations that had not been particularly active in the earlier patent reform debate.

  • American Bankers Association. “The risk of abusive patent litigation and disingenuous license fee demands by non-practicing entities or 'patent trolls' is a serious and growing problem for banks of all sizes,” according to a statement by Francis A. Keating, the ABA's president and a former governor of Oklahoma. “We sincerely appreciate the White House's announcement of a package of executive actions and legislative recommendations designed to protect against frivolous litigation and ensure high-quality patents.”

  • Food Marketing Institute. Erik R. Lieberman, FMI's regulatory counsel, said in a statement, “Patent trolls pose an increasing threat to supermarket retailers and we are heartened that the President is taking major steps to address the enormous burden they are imposing on businesses, and ultimately, consumers.”

  • National Retail Federation. “Retailers have become one of the largest groups of non-tech companies targeted by patent trolls,” according to the NRF's general counsel, Mallory Duncan, who was appearing at a House session on the legislation currently under consideration at the time of the announcement.


“Patent trolls don't target just national brands,” Duncan said. “Small and medium-sized retailers are also being threatened and sued, and they are seen as easy prey because they don't have the legal expertise or money to easily fight back. Congress needs to be sure Main Street businesses that play such a vital role in our local communities are protected.”


Changing ITC Exclusion Order Analysis
The ITC Working Group was recently formed as a coalition of more than a dozen companies focused on preventing abusive patent litigation before the International Trade Commission, and it seems poised to join the new debate.

Obama's fifth legislative proposal was to change the ITC standard for obtaining an order excluding foreign imports of infringing products “to better align it with the traditional four-factor test” in eBay Inc. v. MercExchange L.L.C., 547 U.S. 388, 78 U.S.P.Q.2d 1577 (2006) (97 PTD, 5/19/06).

“A critical element of the patent reform plan announced today is its call for action on the growing abuse of the International Trade Commission by patent trolls,” Matt Tanielian, executive director of the ITC working group, commented. “A more equitable standard for obtaining an injunction, as called for by the White House, would make it far harder for PAEs to use the ITC process as a means to extort licensing fees from legitimate businesses.”


Disagreement on 'Loser Pays' Fee-Shifting
Three of the bills currently under consideration in Congress include some mechanism to encourage courts to award attorneys' fees and costs to the defendant of a patent infringement lawsuit brought by a patent troll. The Saving High-Tech Innovators from Egregious Legal Disputes Act of 2013 (H.R. 845), or Shield Act (40 PTD, 2/28/13), is one such bill.

Obama asked Congress to “[p]ermit more discretion in awarding fees to prevailing parties in patent cases,” suggesting that the fee-shifting should be two-way, including when an infringement defense is deemed abusive.

“Specifically, we applaud the inclusion of fee-shifting as a core principle of the president's plan,” according to the CPF statement. “A strong fee-shifting provision that evens the playing field between trolls and their targets is essential for reducing the incentives for abusive litigation, and we look forward to working with the administration and members of Congress to achieve that goal.”

However, C. Graham Gerst of the Global IP Law Group, Chicago, disagreed. He was a witness at a recent hearing in Congress expressing his opposition to the Shield Act (51 PTD, 3/15/13), and he now told BNA:

It will not get at the types of lawsuits the White House seems to be concerned about, which are the low-value suits brought in large numbers. Those suits rarely get to the stage where a court is in a position to evaluate the merits of the case and award fees. So this proposal will not solve the problem it purports to solve. Instead, this change would make it harder and riskier for small and mid-size companies, our economy's most innovative, to bring patent suits protecting their investments in innovation.

 


Exposing Demand Letter Abuses
These and other stakeholders chose to comment from among the five administrative and seven legislative topics addressed in a fact sheet published by the White House that formed the basis of the June 4 announcement.

For example, two of the suggestions for legislation address a topic that has been a recent impetus to anti-troll interest: trolls sending demand letters to customers of the manufacturer that makes the allegedly infringing product rather than to the manufacturer itself.

Obama proposed to:


  • Protect off-the-shelf use by consumers and businesses by providing them with better legal protection against liability for a product being used off-the-shelf and solely for its intended use. Also, stay judicial proceedings against such consumers when an infringement suit has also been brought against a vendor, retailer, or manufacturer.

  • Use demand letter transparency to help curb abusive suits, incentivizing public filing of demand letters in a way that makes them accessible and searchable to the public.


 

Brad J. Hattenbach of Dorsey & Whitney, Denver, suggested that this is a smaller problem than the president is making it out to be.

“There is little more than anecdote to suggest that consumer purchasers or end users of products are regularly being sued for infringement,” he said. “In reality there is no point in suing a consumer--there are no real damages to make a suit worthwhile.”

Other commenters disagreed.

The ABA's Keating said, “We are particularly pleased the package includes recommendations to address end-user and demand letter issues, which are very important to smaller banks.”

But again Gerst, whose firm represented a company that invested heavily in technology development and sold its patents to PAEs, was concerned.

“The area of use versus manufacturing/producing/sale is perhaps the most complex in the patent world, and how those issues play out has ramifications for almost every area of patent rights and patent law,” he said. “Any attempt by Congress in this area risks upsetting the entire legal structure, producing numerous unintended and undesirable consequences.”

And he added, “If Congress starts regulating and mandating procedures for letters seeking licenses, you simply will see fewer licensing letters sent,” with patent owners making decisions to file lawsuits first instead.

Lawrence Nodine of Ballard Spahr, Philadelphia, was more in line with Keating, though he did say that “the devil is in the details.”

“Anything that would help get the 'right' parties into the dispute and protect purchasers who often are not in a position to evaluate infringement risk when buying technology would be a big step in leveling the playing field,” he said.

Paul Schneck, chairman of Rembrandt IP Management, Bala Cynwyd, Pa., however, differentiated based on who was sent the demand letter:

Such protection could be obtained by requiring that a manufacturer indemnify the consumer purchaser or user of a product or service. Extension of such protection to businesses does not seem reasonable or appropriate. It is customary for businesses to make judgments as to risk. Forcing an indemnity or forcing involvement of the manufacturer might artificially destroy a market opportunity before it had a chance to develop.

 


A Broad Solution?
Sen. John Cornyn III (R-Texas) introduced on May 22 a bill (S. 1013), the Patent Abuse Reduction Act, that addresses abusive patent litigation even more broadly than the president's list (105 PTD, 5/31/13).

“I've heard from entrepreneurs and businesses across Texas that the reforms in my bill are desperately needed to foster innovation and growth,” he said in a June 4 statement. “I am pleased that President Obama is joining this important conversation, and I look forward to working on solutions that allow Texans to overcome the burdens they face from patent litigation abuse.”

At least one attorney commenting to BNA viewed the president's approach as “targeted tweaks to a thriving system--not a revamp or overhaul.” David Long of Dow Lohnes, Washington, D.C., asked Congress to “carefully craft targeted patent legislation to address the perceived patent litigation abuse problem while avoiding foreseeable, unintended consequences--to target the particular cancer without harming the otherwise healthy and thriving patient.”

Though he credited the customer-stay legislation for “go[ing] a long way to cure a lot of the abuse,” he also praised reforms that “address litigation abuse from discovery obligation disparities,” features of Cornyn's bill and a Discussion Draft of an expected bill that Rep. Robert W. Goodlatte (R-Va.) published on May 23 (105 PTD, 5/31/13).

But Schneck questioned the need for comprehensive legislation directed to litigation when the courts are the best place for that kind of change.

“Although it is generally claimed that the courts move slowly, judges throughout the land, at district courts, the U.S. Court of Appeals for the Federal Circuit, and the Supreme Court have acted when faced with patterns of abusive or overreaching litigation tactics,” he said.

“The America Invents Act set in place new procedures,” he argued, reminding others that major provisions of the AIA were implemented only recently. “Now, it is time to stand back and see how the system is functioning.”

Schneck, whose firm would be labeled a patent troll by many, did close his remarks to BNA with one suggestion that was not on Obama's list, though:

Perhaps it is time for a small claims court. One of the underlying reasons for the spate of patent lawsuits is the relatively large fraction that aim to take advantage of the “friction” in the system. That is, the cost of a lawsuit to defendants is often higher than the damages sought. In such a case settling makes economic sense. The availability of a small claims court, which might allow very limited discovery, limited stalling tactics, and a fast time line, would make the filing of nuisance suits uneconomic.

 

The Patent and Trademark Office is actually now reviewing the results of notice-and-comment period on such a proposal (77 Fed. Reg. 74,830).

 


Text of fact sheet is available at /uploadedFiles/Content/News/Legal_and_Business/Bloomberg_Law/Legal_Reports/WHPatentFactSheet13Jun4(2).pdf.

Text of report is available at http://www.whitehouse.gov/sites/default/files/docs/patent_report.pdf.

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