Death Knell for Patent Trolls?

May 1, 2012

Hunter Keeton, Edmund J. Walsh

(as published in Asia IP)

Overview

“Patent trolls” is the term widely used for entities that acquire patents solely to try to obtain settlements from companies who have invested substantially in product development. They are a serious problem for Asian companies that operate or sell goods in the United States (US).

Recent patent reform in the US is intended to reduce troll activities, but will these reforms really work to the benefit of Asian companies? This article describes some of the provisions of the America Invents Act (AIA) that should give Asian companies the advantage when facing patent trolls.

Background

The patents that trolls buy are frequently of questionable validity, yet are selected because large numbers of companies with significant sales can be accused of infringement. Even the equivalent of a small royalty paid by each company to dispose of a troll’s suit adds up to a sizeable return on an acquired patent.

Trolls strike with suits in US federal district courts and before the US International Trade Commission (ITC), seeking to force a settlement. Either can result in what is effectively an order barring Asian companies from exporting products to the US. A suit in district court can additionally result in an order to pay damages, but an action before the ITC often proceeds much more quickly.

To persuade their targets to make payments, trolls frequently rely on a company’s fear that a court or the ITC will accept the troll’s patent as valid just because it was issued by the US Patent and Trademark Office (USPTO). In fact, trolls frequently initiate suit in places where juries are known to be sympathetic towards patent holders and are rumored to be biased against Asian companies.

This potential for abuse of the US patent system caught the attention of the US Congress, which, after many attempts at patent reform, passed the America Invents Act last September.

Key AIA Provisions

The AIA provides new tools accused infringers can use to defeat unfounded claims of patent infringement. Below are some of the most important provisions.

Joinder. The AIA changes whether unrelated defendants can be joined in a single lawsuit, making it difficult for a troll to sue multiple defendants in one lawsuit, even if their individual products are similar. Not only does this provision increase the cost for trolls to sue multiple parties, it also makes it easier for individual defendants to transfer cases to friendlier courts and ensures each defendant gets a separate trial on infringement and damages.

While this change does not affect whether trolls can file suit, it does make initiating suit more expensive and imposes more burdens on trolls to coordinate multiple cases. It also reduces the amount trolls can recover in any suit and increases the chances a troll’s loss in one suit will be used against it in other cases.

Pre-Issuance Submissions. To address the problem of trolls enforcing patents of questionable validity, the AIA seeks to limit their issuance by allowing third parties to submit earlier – or “prior art” – patents or printed publications believed to be relevant to a patent application to the USPTO. Previously, third parties had such a limited ability to provide information to a patent examiner that there was no practical choice but to wait until the patent issued before challenging it.

Taking effect September 16, 2012, this new provision could help companies stop – or at least limit – a troublesome patent application. Submitting prior art this early in the process might stop an application, or at least cause the applicant to narrow the scope of the patent, possibly avoiding any infringement potential. It should be noted these kinds of submissions have their limits and are not entirely without risk; if used judiciously, however, they can reduce risk.

Post-Issuance Review. Some of the AIA’s most significant changes provide for new proceedings to enable a company threatened by a troll to have the USPTO – not a jury – determine whether the troll’s patent is valid. Because the USPTO interprets a patent’s scope differently than courts, and gives no consideration to the prior decision to grant the patent, trolls may not be able to avoid a finding of invalidity through word games.

The first of these proceedings, Post-Grant Review, must be initiated within nine months of a patent’s issuance. The grounds on which validity can be challenged can be almost anything related to patentability. Special rules apply to “business method” patents, which are viewed with particular suspicion, allowing challenges to those patents without the nine month limitation. Inter Partes Review is procedurally similar to post-grant review, but can only be initiated after the time for post-grant review, and is limited to invalidity proven by prior art patents or printed publications.

For years, two procedures have been available to challenge the validity of issued patents – ex parte and inter partes reexaminations – but the AIA’s new proceedings should be faster and will expand the types of issues that can be raised to show a troll’s patent is invalid. In addition, an opportunity to negotiate a settlement is created early in the proceedings, when a troll has no immediate prospects of recovery and is uncertain of its patent’s validity.

Under the inter partes review proceedings, the decision of the USPTO is required within a very tight time frame of about 18 months. This timing is faster than most US district courts can resolve a patent case and is on par with the speed at which the ITC can reach a decision. Moreover, once the USPTO makes its decision, it is immediately binding on district courts and the ITC. As a result, if the USPTO decides a troll’s patent is invalid, it may be early enough to end any district court proceeding and may even foreclose a decision by the ITC. This timing, and the review’s more litigation-like process as compared to reexamination, will make courts – and possibly the ITC – more willing to suspend proceedings while awaiting the outcome of the USPTO’s review. In sum, these proceedings are intended to neutralize a troll’s main weapon against a prospective defendant: fear of a costly and unpredictable result in litigation.

Though there are many benefits to these new proceedings, they should not be undertaken causally. Though less costly than litigation, they will not be inexpensive. In addition, choosing to challenge the validity of a troll’s patent through the USPTO may limit options for challenging validity in court. Further, the rules that make these proceedings so fast will drive a need for decisive and swift action. But in the right circumstances, these proceedings will provide significant value in responding to trolls.

Conclusion

The recent US patent reform law puts powerful new tools at the disposal of Asian companies facing patent trolls. However, given the complexity of the law’s new provisions and the need for quick responses in certain cases, Asian companies now selling products in the US, or considering doing so in the future, should seek the assistance of experienced intellectual property counsel to remain prepared for threats from patent trolls.