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Will Congress Succumb to the Sirens’ Song and Take-Over the Judiciary’s Case Management Role in Patent Litigation?


Written by Ron Katznelson, Ph.D.
President, Bi-Level Technologies
Posted: August 13, 2013 @ 10:47 am

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Taken by Gene Quinn, December 12, 2012.

According to mythological accounts, ancient Mediterranean voyagers confronted a subtle danger embodied in alluring form:  the Sirens. The Sirens compelled all who heard their sound to draw near their reef-surrounded isle. “Their song though irresistibly sweet was no less sad than sweet and lapped both body and soul in a fatal lethargy the forerunner of death and corruption.” [1] Those succumbing to the Sirens’ song perished as their boats were wrecked on the submerged reefs surrounding the island. Others escaped this fate, however, by blocking off the sound itself.

The Sirens are now singing a seductive song about how to stop patent “trolls” and their “abusive litigation.”  It appears that several large corporations who cultivated the patent “troll” narrative trill forth their song, promising efficiency and fairness with concomitant benefits for all.  Those giving heed to this modern Siren song are lulled into abandoning or subordinating to concerns of “litigation abuse” other fundamental long-held values and principles of equity, separation of powers, judicial independence and prudent judgment.

The America Invents Act (AIA) is one of the most sweeping patent legislation in over a century, the effects of which are yet to be fully understood.  Even before the full implementation of the AIA, legislators in both chambers of Congress have heard the Siren muses and called for yet additional changes in our patent law, ostensibly to curb purported “abusive patent litigation.”  The majority of the proposed provisions in these bills appear to focus on the patent litigation process, ironically by stripping the Federal Judiciary of their procedural and discretionary case-management tools.

An insidious example of such legislative proposal is a provision titled “Customer-Suit Exception” – Section 5 of a discussion draft” bill introduced by House Judiciary Committee Chairman Bob Goodlatte (the Goodlatte Bill).  I discuss this provision in more detail in my recent article entitled “The mandatory stay provision of the 2013 Goodlatte patent bill” and explain how this provision, if enacted, would strip district court judges of their independence and discretion in handling cases and would introduce delays in judicial enforcement of patents by mandating a stay of some cases while another case involving the same patent is pending.

Federal courts “apply in patent cases the general rule whereby the forum of the first-filed case is favored, unless considerations of judicial and litigant economy, and the just and effective disposition of disputes, require otherwise” [2]  As detailed in my article, courts have exercised their discretionary authority and recognized a “customer suit exception” to the general rule by favoring a manufacturer’s action to resolve patent validity and infringement charges while staying the customer proceeding.  Section 5 of the proposed Goodlatte Bill proposes to turn the exception into a rule – a rule for mandatory stay in essentially every instance of a customer suit.

Motivated by anecdotal accounts of allegedly abusive patent litigation against customers, the proponents of mandating the customer-suit exception stay explain in the Goodlatte Bill’s one-page summary:

“Customer-Suit Exception – allows a manufacturer of the allegedly infringing product to intervene and stay cases against downstream customers and retailers, who are not in the best position to defend an infringement suit. This provision helps protect small businesses and customers from abusive patent suits” (emphasis added).

Undeniably, in some cases, grant of a stay in a customer patent proceeding pending resolution in a manufacturer proceeding of common issues related to the same patent can be efficient and beneficial for all parties.  However, for this to be true, the manufacturer court proceeding must: (i) be dispositive of the common substantive core issues such as claim construction, or invalidity of the patent; (ii) be carried-out with reasonable dispatch; and (iii) have results binding on all parties including at the customer proceeding and in other tribunals.  My article describes in further detail how courts already recognize, and not infrequently apply, stays in patent cases having the conditions for a “customer-suit exception.”  Unfortunately, by its mandatory stay provision, the Goodlatte bill would not only fail to ensure any of the elements (i) through (iii) above, but instead it would facilitate abuse and delay by alleged infringers.  As my article explains, it would deny a patentee’s right for timely preliminary injunction against customer infringers; it would illogically put a halt to a “customer” direct infringement proceeding in favor of a related “manufacturer’s” contributory infringement proceeding, which by law requires a determination of direct infringement – the very determination that can only be made during the “customer” proceeding;  it would gratuitously eliminate the AIA’s prohibitions of Sections 315(a) and 325(a) against a party instituting Inter Partes or Post Grant Reviews (IPR or PGR) at the U.S. Patent and Trademark Office (PTO) after that party files a civil action proceeding for invalidating the patent.  This latter provision would simply end-run and undermine the hard-fought PGR compromise of the AIA.

A troubling fundamental aspect of the proposed mandatory stay is that it would chip away at the quid pro quo of the patent bargain.  To ensure the Constitutionally-protected exclusive right, patent rights have long been recognized as covering multiple and independent separate causes of action: “whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.”  35 U.S.C. § 271(a) (emphasis added).  Strict liability attaches to each one of these forms of infringement independently of the others.  These are separate violations, any one of which being subject to injunctive relief “to prevent the violation of any right secured by patent.” 35 U.S.C. § 283 (emphasis added).



In my article, I show that the factual and logical underpinning of the mandatory stay is suspect at best and that there appears no credible basis for permitting mandatory stays in favor of all downstream infringers.   Should patentees be stripped of their ability to enforce exclusive rights at any point of the infringement chain having the most consequential commercial outcome?  It seems to me that a party engaged in any proven element of infringement should be independently and unconditionally held liable.  What unites all of these elements — formally fault-based and faultless liability alike — is the potential efficiency of motivating a well-situated party to prevent infringement.  It also permits a patentee to timely seek damages commensurate with profits from the infringing activity at whatever level they are gained.

An important goal of the proponents of the customer stay provision becomes clearly evident: it is to limit the royalty base associated with reasonable damages to the smallest saleable component of an infringing activity or product for all infringers in the chain.  This was the notion proposed by the damages “apportionment” advocates who failed to achieve this result during the AIA legislation.  The mandatory stay provision indirectly promotes this result by channeling infringement litigation to the manufacturer/component level of the infringement chain, even though the downstream customer may achieve far greater profits from the infringement.  This dynamic would adversely impact patent rights, as patent owners might have to wait years before being able to seek damages against downstream producers or end-users, or might simply be worn down by monetary attrition.  Infringers would likely use the prospect of limited damages, increased litigation costs and delays, to negotiate reduced licensing fees or settlement value.

The Constitutionally troubling aspect of the Goodlatte mandatory stay provision is that it would undermine federal courts’ independence and discretion to efficiently manage patent cases.  In selectively undermining the procedural rulemaking authority of the federal courts in patent cases only – based on mere allegations of “abusive patent suits” against customers – Congress runs the risk of raising a substantial question of separation of powers by impermissibly impeding the courts’ ability to decide cases effectively and by disturbing the important balance reached 80 years ago for all areas of litigation under the Rules Enabling Act (28 U.S.C. § 2072).

As my article details, the propriety of stays in patent cases involving customer suits are routinely and efficiently addressed by the federal courts.  Courts have decided both in favor and against “customer suit exception” stays in different patent cases by weighing numerous relevant factors.  These factors include (a) whether the same parties and issues are involved in the two actions; (b) whether the “manufacturer’s” case is likely to resolve the issues in the action against the “customer;” (c) whether the patent claims at issue in the “customer” proceeding are at issue in the “manufacturer” proceeding; (d) whether the parties agreed to be bound by the “manufacturer” suit ruling; (e) whether the patentee promised not to sue the “manufacturer” for infringement; (f)  whether the patentee had previously agreed to go forward without the damages discovery information it later sought from the “customer” defendants; (g) whether the “customer” may obtain infringing product from other manufacturers that are not parties to the “manufacturer” proceeding; (h) whether the patentee has a special interest in proceeding specifically against the “customer;” (i) whether the “customer” case also involves alleged tortious conduct liability on a basis other than the patents at suit; (j) whether forum shopping alone motivated the choice of venue for the “customer” suit; (k) whether patentee will be irreparably harmed by staying the action and denying his request for a preliminary injunction against the “customer;” (l) whether the “customer” is accused of direct infringement and the “manufacturer” could be held liable only as a contributory infringer; (m) whether the “manufacturer” was sufficiently solvent to satisfy a judgment; and (n) the convenience of each forum in determining which suit should proceed.

Inexplicably, however, the mandatory stay provision of the Goodlatte Bill leaves no room for courts to weigh any of these factors or consider the relevant circumstances of the particular case – it prescribes a one-sided mandate that the court “shall” issue a stay upon request of an alleged infringer but not upon any request by the patentee.   This ‘cleaver’-blunt intervention of Congress would undermine the ‘scalpel’ requisite precision used by the courts.  My search in the full U.S. Code found no similar statute prescribing a mandatory stay in favor of other civil court proceedings.  It is extreme and far-reaching so as to break new grounds in Congressional intervention in the Judiciary’s dominion, most clearly demonstrating the radical and extreme nature of its proponents’ assault on our patent system.

The proposed mandatory stay provision is wholly unnecessary legislation that sets dangerous precedent for undermining judicial independence and undermining patent rights.  Congress should not succumb to the Sirens’ song; it should tread cautiously and refrain from stepping into the Judiciary’s role.  Read this article in full: “The mandatory stay provision of the 2013 Goodlatte patent bill.

 


[1] Perry W. C., “The sirens in ancient literature and art“, 14 The Nineteenth Century, 109, 117 (1883).

[2] Genentech, Inc. v. Eli Lilly & Co., 998 F.2d 931, 937 (Fed. Cir. 1993), abrogated on other grounds by Wilton, 515 U.S. 277.


7 comments
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  1. Every effort to change our once superior American Patent System is coming from multinational corporations. Since the biggest threat to the vested interest is innovation from an outside party, is it any wonder that all of these changes reduce the ability of the innovator to obtain, maintain, or protect his intellectual property? The final goal is the effective elimination of the rights of the inventor as envisioned by our Founders. This is a huge threat to the future of America.

  2. “Should patentees be stripped of their ability to enforce exclusive rights at any point of the infringement chain having the most consequential commercial outcome?”

    That probably isn’t a question you’d do well to ask those in congress. When they all answer in the affirmative you may find yourself more flabbergasted than you are at the most recent minor proposal.

    “It seems to me that a party engaged in any proven element of infringement should be independently and unconditionally held liable. ”

    I’m going to be honest, I don’t really want to live in a society where consumers like myself are being sued for buying the latest gadget/household item/whatever like the latest incident with the scanner trolls. Reasonable steps could be taken to control that. Surely you must agree that you prefer to not be worried about potential patent infringement liablity whilst strolling the isles at wal-mart.

    “In selectively undermining the procedural rulemaking authority of the federal courts in patent cases only – based on mere allegations of “abusive patent suits” against customers – Congress runs the risk of raising a substantial question of separation of powers by impermissibly impeding the courts’ ability to decide cases effectively and by disturbing the important balance reached 80 years ago for all areas of litigation under the Rules Enabling Act (28 U.S.C. § 2072)”

    I agree, but on the other hand, the courts had plenty of time to start doing this in every case themselves, but they decided, with their discretion, not to. And we do live in a democracy, all branches are ultimately held accountable to the congress and through them to the people.

    “most clearly demonstrating the radical and extreme nature of its proponents’ assault on our patent system.”

    When you start talking like that reasonable people start to tune out whatever else you had to say. If you don’t like their solution as proposed in the bill, then perhaps propose an alternative solution that will accomplish the same ends without the effects you feel will follow from their solution.

  3. JS: “the courts had plenty of time to start doing this in every case themselves, but they decided, with their discretion, not to.”

    Doesn’t the fact that federal judges, who are presumed impartial and mindful of customers’ interests, are not “doing this in every case themselves” an actual objective indicator that it should not be done in every case?

    JS: “I don’t really want to live in a society where consumers like myself are being sued for buying the latest gadget/household item/whatever…Reasonable steps could be taken to control that.”

    The concern here is that consumers are “not in the best position to defend an infringement suit.” But is this patent legislation shielding end-users a “reasonable step taken to control that”? If so, shouldn’t end-users in copyright infringement suits be shielded from enforcement actions also?

    The proposed customer-suit exception provision selectively singles out only patent rights for erosion. No proposals to protect end-user infringers are advanced when copyright owners aggressively pursue downstream parties in copyright infringement suits. For example, no one in Congress proposed a change to Title 17 when music copyright owners have sent thousands of letters to ‘mom and pop’ shops threatening litigation. (see “Licensing groups crack down on restaurants and bars that present music, New Hampshire Union Leader (Sept. 2, 2012) at http://www.unionleader.com/article/20120903/NEWS02/709039935). When in 2003, the RIAA sued 261 individuals (mostly students) as downstream users of MP3 file-copying software application that contributed to their infringement, no member of Congress offered legislation to protect these end-users on the basis that they were “not in the best position to defend an infringement suit.”

    Obviously, the RIAA was more than justified in aggressively going after these individuals accused of infringement; I would be just as critical of any legislative effort to amend copyright law to shield parties based on their position in the infringement chain. My point, however, is that there appears to be a double standard here, as Congress appears to protect only large corporate interests. Hence, large corporate copyright and media content owners including Hollywood interests rest secure from weakening assaults on copyright law and no “troll” narrative is attached to their intellectual property enforcement actions. That is the way it should be.

    The irony of course, is that many of these large corporate content owners fit the “troll” narrative – they do not create but acquire the works of artistic creators, they license merchandize rights but make none of the products embodying the rights, and they sue infringers for monetary damages. In contrast with the rhetorical assault on patent rights, the growth in lawsuit activity for protecting non-patent IP rights is not pejoratively held against preserving these rights despite the fact that since 1970, the number of copyright and trademark lawsuits accelerated faster by a third compared to the rate of growth in patent lawsuits. Furthermore, no one is suggesting the application of the patent “eBay-like” NPE exception rules for copyrights that would preclude ITC exclusion orders from issuing to protect these IP right owners’ domestic licensing industry.

    I would look to how Congress protects copyrights for guidance as to what constitute “reasonable steps taken.”

  4. Well said, Ron, both your article and your reply above.

    Kudos.

  5. John Smith-

    There is absolutely no chance that Congress will decide to strip patent rights away. Don’t fool yourself. The real money is with patent owners, not Silicon Valley elite that don’t provide US jobs and copy innovators. If Congress were to ever consider stripping rights or substantially altering the playing field you would see a lot of large money entities and donors rise. Congress will follow the cash and it is undeniably on the side of patent ownership.

    In terms of Ron saying that there is a radical and extreme attack on the patent system, he is of course 100% true. That is obvious to anyone who is paying attention. Even the Silicon Valley elite who are the ones funding and forwarding the assault are not bashful about saying that they want to remake the patent system with weaker rights. If you go to the conferences where they present they call the patent system a necessary evil and say that they believe they can live happily without a patent system. The only reason they get patents is because they feel compelled, and they are advocating a future where they are not compelled. So they openly advocate and are not at all hiding their assault on the patent system and patent rights.

    So if you want to tune out when Ron says the obvious that everyone knows and agrees that is up to you, but let’s not pretend that Ron is the radical here.

    -Gene

  6. Gene – Thank you for having great postings on the issue of efforts to weaken our American Patent System. I want to respond to your statement that Congress won’t “decide to strip patent rights away.” The danger is that they will continue to vote for changes that make it harder and harder for an individual or small entity to get or defend a patent. The attorneys for the multinational corporations will keep using their influence to push the bar in their favor. One small example is how, according to the America Invents Act, an inventor has 12 months from the first publication of the claims of an invention to petition for a Derivation Proceeding. That deadline will occur, in most cases, before the patent issues. Since individuals and small entities usually don’t have staff keeping up with every 18 month publication, they are pretty much shut out of the process for attaining justice. Every step in the direction the multinational corporations are taking us is harming our future.

  7. Randy-

    You say: “The danger is that they will continue to vote for changes that make it harder and harder for an individual or small entity to get or defend a patent.”

    I agree with that completely. That is why everyone who has a patent budget really should spend a portion of that budget doing whatever they can to make sure this creep, creep, creep stops! Perhaps I should write an article about that.

    Cheers.

    -Gene