Chief Judge Rader Speaks Out About Patent Litigation Abuse

Chief Judge Rader at AUTM, Feb. 27, 2013

Chief Judge Randall Rader of the United States Court of Appeals for the Federal Circuit kicked off the public programming at the annual meeting of the Association of University Technology Managers (AUTM) in San Antonio, Texas, last night. He participated in a question and answer session in front of a packed theater at the Henry B. Gonzalez Convention Center in downtown San Antonio, Texas, just a block away from the famed River Walk and only several blocks from the Alamo.

The event was billed as a fireside chat with Chief Judge Rader, sans fire. Nevertheless, those familiar with the fireside chat genre get the feel for the evening. It started out a bit biographical before it turned to an in depth discussion of the patent system and heavy issues of the day. The conversation was lead by Sean Flanigan, who is President-Elect of AUTM. Questions were also taken from the audience, which I would estimate at well over 500.

Chief Judge Rader is known for his frank discussions, and he is not afraid to defend the patent system. He did not disappoint with his candor. Very early on in response to a question from Flanigan, the Chief Judge said matter-of-factly: “Yes, I do think there is a litigation abuse problem.” Game on! Chief Judge Rader would go on to discuss the blackmail-like shake-downs that are plaguing the industry and giving the patent system an unjustified bad name.

If within the first several minutes Chief Judge Rader was going to tackle litigation abuse this was going to be far more than just a typical discussion with a Judge. As Chief Judge, Rader has more latitude than others perhaps because he is not only a judge but he is also the face of the Federal Circuit, and by proxy one of the primary leaders within the patent community.  Additionally, he is the advocate for the Court within the federal government and judiciary. In terms of advocacy, at one point Rader mentioned the fact that in the AIA the Congress found plenty of resources for additional Administrative Law Judges to do the work thrust upon the Patent Office, but didn’t find any additional resources for the Federal Circuit who will be reviewing more cases from an expanded ALJ corps that will likely soon reach 300 administrative patent judges.

Chief Judge Rader (left) and Sean Flanigan (right), on stage at the Henry B. Gonzalez Convention Center.

But before I digress too far, let me return to the remainder of Chief Judge Rader’s opening salvo into the issue of patent litigation abuse. The Chief immediately went on to say:

Interestingly, that has been misdirected towards the patent system. Even earlier this afternoon I received an invitation from a House Committee to come and talk about abuse of the patent system. I’m not sure I’ll be able to attend, but if I could attend I’ll tell you exactly what I would say: There is nothing wrong with the patent system.

The patent system has a narrow focus. It is not a consumer affairs program. It is not a manufacturers guarantee compliance program. It’s not a competition program.  It has one objective, summarized well by the Constitution: promote the progress of science and the useful arts. It’s there to create more investment and more incentive for innovation and invention. The things that the patent system is criticized for is not its job.

[Patent-Litigation]

Now, the abuse they are talking about is not an abuse of the patent system. It is an abuse of the patent system by litigators. The abuse always takes the same character. They assert a patent far beyond the value of its contribution to the field of technology in which it is found. That is the abuse. That is what we need to target. We do not need to reform the patent system. We need to reform the expense and burden of the litigation system.

Chief Judge Rader would also go on to address the question of what is a patent troll. He said:

Let me tell you my definition of a patent troll — A patent troll is anybody who asserts a patent far beyond the value of its contribution to the art. That means that any institution can be a troll. We all understand that there are entities that are created solely for the purpose of litigating patents, which is not intrinsically bad. Again, if they are properly valuing and properly using the system to vindicate the incentives in investment and opportunities on behalf of the Patent Act there is no problem in that.

The problem comes when they will sue on a minor, minor patent… and then keep the infringement contentions very vague. Then approach and say “wink, wink, you know this is going to cost you $2 to $3 million in discovery expense alone. I’ll be happy to save you money by settling at far less than that.” And, of course, that it litigation blackmail. That’s the tactical use of the expense of the system, which is abusive. And I’m happy to say that the Federal Circuit and its Advisory Council is targeting for some kind of correction.

Frequent IPWatchdog contributor, Eric Guttag asked a question, first acknowledging his question (about joint infringement) may be akin to a “legal hand grenade.” The Chief joked back by building a wall of water bottles.

Later Chief Judge Rader would explain that in the coming months we will see more from the Federal Circuit Advisory Council. It will be a four-step process. Step one has already been put forward – the model order limiting eDiscovery. Step two, expected out some time this year, will be another model order requiring particularization of issues within a certain limited time after filing.  This will limit issues and prior art to be asserted, which will focus the lawsuits rather than making them a never-ending “strategic tug-o-war over details.” Step three will be urging earlier valuation of lawsuits so they resources can be put behind those cases that need and deserve more time. Finally, Chief Judge Rader explained that the final step will be a reversing of the fees when it is clear there has been litigation abuse, which will likely be a few years down the road. In other words, the final step will be some movement toward the so-called British Rule where the loser pays in those situations where there has been litigation abuse. That would presumable include those situations Chief Judge Rader referred to as “litigation blackmail,” where there is a miniscule offer to settle and only the most vague assertions.

Continuing with the theme of patent litigation abuse, I went to the microphone to ask the Chief if he could give us his thoughts on requiring more substance in the complaint that gets filed, which to me seems to be in keeping with the Supreme Court direction on the issue. He pointed out that he thought that a strict requirement that might mandate claim charts could violate due process, but he certainly seems to think that such information ought to be able to be produced relatively quickly by the plaintiff, perhaps within a few months of a lawsuit.

After introducing myself and exchanging niceties with the Chief, our exchange went as follows:

QUINN: With respect to going back to the abuses, one of the things that I am hearing from a lot of folks is about the shakedown. Where they get sued and then very quickly in the lawsuit they are offered 25, 35, 50 thousand.

RADER: Yeah, that is the litigation black mail I was talking about.

QUINN: Maybe you can’t speak to this, but I wonder about creating more rules for particularizing the complaint. Because it seems like the last two times the Supreme Court had the opportunity they have said they really want a particularized complaint that maybe is more than what is in the Federal Rules of Civil Procedure. And a lot of these complaints, I think that if the defendant didn’t even respond the judges couldn’t even enter a default judgement because they don’t make enough assertions in the complaint. Because you can’t infringe a patent, you have to infringe a complaint. So I wonder if they were forced to provide some kind of claim chart, even a basic claim chart that tells what product and which claims.

RADER: Gene will you be happy if we do that three months into the trial?

QUINN: Yeah, I would be very happy.

RADER: I think so too. And that’s probably a little easier to justify. To ask somebody to make all of their allegations at the outset is a little against our system. And I don’t think we have to go that far to achieve the goal that you’re seeking.

QUINN: For me three months would be fine if we had —

RADER: Or four or five.

QUINN: Whatever. It could be 12 months really if everyone of the 94 district courts would apply the same rule then the defendants would know that we don’t have to cave for $35,000 right now. We know in two or three months down the road they are going to have to show us their cards. And then everyone will know if this is a shakedown or not. It seems to me, at least by the people I talk to, that they shake them down before they get to anything substantive so that the shake down price is pocket change. It’s like less than a week of lawyer time.

RADER: Let me seize on one little aspect of what you said. That the key to the success of this as you say, is getting all 94 districts and frankly there’s no easy way to achieve that. What the Federal Circuit is doing is trying to use the patent pilot project and encourage changes there in those districts. With the model eDiscovery order we have six or eight of those districts who have already taken some steps to limit eDiscovery costs. Now I get to make my pitch to you. We need you, the litigants in the case demanding that the courts implement these model orders. They are just that, they are model orders. They have to be explicitly adopted by a judge or a court. You can have an influence on that if you are standing up through your counsel in front of the district judges and saying “This would make things more efficient your honor. Would you consider it? The federal circuit seems to be urging that result.”

On reflection, I’m not sure I’d be OK with particularization coming 12 months into the case, although that was what I said in the moment. I do think there needs to be uniformity and if Chief Judge Rader and the Federal Circuit can influence the district courts to require particularization within the first 3, 4 or 5 months that would be major progress. It would allow those defendants who want to fight to stay in the fight at least long enough to see whether the case is the shakedown that they believe it to be. It would make those engaging in what several district courts and the Federal Circuit have referred to as “extortion-like” litigation activities.

Conclusion

What a way to star the AUTM annual meeting! I have long been preaching that the patent system is not the problem, and that even the patent litigation system is not the problem. The problem is the bad actors who give the entire system a bad name.

It is good to know that Chief Judge Rader is engaged publicly and behind the scenes. In addition to all the talk about patent litigation abuse, the Chief also urged the audience to become engaged (politically and by filing briefs) over the issue of personal medicine, saying that those innovations are to important to lose.

Indeed, the patent system is far to important to allow bad actors and those with an anti-patent agenda to manipulate the mass-media, public and policy makers into believing that patents are inherently evil and deserving of the blame. Patents are objectively good by any fair and factual assessment of history. We just need to get the message out.

And on that note a plug for my panel at AUTM. I will be speaking about Bayh-Dole and how there are forces that seek to dismantle this most successful innovation policy. It is all about getting the message out, but thankfully the truth is on our side. Innovations save lives, cure pain and lead to greater quality of life, and patents are at the heart of the incentive equation. We shouldn’t have to struggle like we do to win hearts and minds, but sadly we do.

The fight continues!