The Norwegian fairy tale “Three Billy Goats Gruff” was far ahead of its time and the moral of that story has a very relevant, modern application. In short, the story introduces three goats that want to cross a river to eat some luscious grass. To do so, however, the goats must first cross a bridge; under which lives a fearsome troll, who is so territorial that he eats anyone who dares to cross it. By working together, the goats are able to plot against the troll, and ultimately knock him off of the bridge. After knocking the troll off the bridge, the three goats lived happily ever after. So, if these goats can figure out how to get rid of trolls, why can’t sophisticated companies do the same?
One of the biggest fears for any company is the danger of an event that is highly unpredictable and cost intensive. This fear is further magnified when the danger poses a risk of preventing the company from making, using or selling their core goods and services. In many cases, it is easier and more cost effective to just settle with a patent assertion entity (PAE), often pejoratively referred to as a “patent troll.” Companies sometimes prefer to settle due to the inherently defined nature of settlement. These issues are exacerbated when patents are asserted, mainly due to the: a) highly technical nature of many patents; b) potential for inventive obfuscation; and c) lack of finality with respect to scope, considering that claim construction does not occur until later in the litigation process. Indeed, from the company’s perspective, settling early for a “reasonable” amount comes down to making a business decision. Thus, the cycle persists, and trolls continue to troll.
Fortunately, at least three “goats” (read: legislative and judicial recommendations) are provided in the FTC’s Patent Assertion Entities Report.
The first proposed recommendation is to “develop rules and case management practices to address discovery burden and cost asymmetries in PAE litigation.” In most patent cases involving a patent troll, discovery is an entirely one-sided proposition. In other words, it is usually the client that has the relevant materials, documents and information that are the subject of discovery. Propounding discovery on the patent troll is usually a necessary, albeit futile exercise. How many relevant materials can you even request when the opposing entity does not invent, develop, or manufacture products incorporating the patented technology?
To ameliorate these challenges, the FTC Report suggests that early disclosure of asserted claims and infringement and invalidity contentions in PAE litigation would help to “balance the asymmetries of plaintiff and defendant-side discovery costs.” Theoretically, the concept has teeth, but perhaps the teeth are not sharp enough to be practical. Let’s dive a bit deeper – to cover simple Rule 11 bases, the PAE would necessarily conduct some diligence via drafting of infringement charts (for example) to provide notice to the accused entity. However, in practice, the infringement charts typically received from patent trolls are low-quality and ripe for back-and-forth motion practice. The real impact of such practice is that the patent trolls effectively sue multiple parties using relatively poor infringement analyses, and the cases still proceed. In that sense, the burden on patent trolls is very low.
From the accused entity’s perspective, prior art still needs to be researched, analyzed and applied with respect to the asserted claims. This can involve very heavy lifting and corresponding expense. Thus, by accelerating this aspect of the discovery timeline, settlement with the patent trolls is even more foreseeable because the targeted entity will be faced with tremendous front-end costs with respect to the litigation. Perhaps one modification to the FTC’s recommendation is to include a mechanism that requires higher quality and more narrowly tailored infringement analyses from the trolls before discovery is warranted on behalf of the accused entity. See also Orders On New Patent Rules Show Plaintiffs Have Higher Bar.
The FTC’s second proposed recommendation suggests “[a]mend[ing] Federal Rule of Civil Procedure 7.1 to reach a broader range of non-party interested entities or persons.” From a practical standpoint, this recommendation makes sense, but it is arguably the weakest of the bunch. When dealing with PAEs, most experienced IP counsel will be well aware of the manufactured operations that are designed purely for venue purposes. Thus, while full disclosure of a PAEs organizational structural would be beneficial, the fact remains that the substantive merits of the case would still be in controversy – requiring the targeted entity to settle or continue the fight. To be sure, when a PAE is involved, clients pay less attention to “how the PAE is structured” and focus their attention on the bottom line: “what do they want for this to go away?”
The third proposed recommendation is to “establish procedures encouraging courts to stay a PAE’s infringement action against a customer or end-user, where the PAE has also sued the manufacturer of the accused product under the same theory of infringement.” From an implementation standpoint, this is a fantastic recommendation. Having parallel cases arising out of the same nucleus of facts serves to do nothing more than usurp our precious judicial resources. Nobody wins in that circumstance, and for that reason alone, I concur that “Congress and the Judicial Conference should enact provisions that encourage a district court to stay actions against end-users until the manufacturer suit has been resolved.”
Just like the goats we discussed earlier, it is unlikely that any one of these proposed recommendations can independently get us across the proverbial bridge. Indeed, analyzing the patent landscape and the FTC’s provision of these recommendations is definitely a great start. However, from a practical standpoint, the narrative needs to shift to the topic of patent quality more than any other singular point. For example, even a brief analysis will show a dramatic shift in how PAEs have asserted software patents – if at all – post Alice. Perhaps that is a discussion for a different day, but if change is seriously desired, then initiatives should be crafted so as to balance inventive protection while simultaneously curbing the potential for PAE activity.
Finally, from a perception standpoint, one of the best aspects of the FTC’s Report is its careful approach with respect to focusing attention on PAEs, instead of other economically and culturally significant entities that procure, utilize and assert patents (e.g., solo inventors, companies that develop their own patent portfolios, and universities.) The FTC’s Report defines a “PAE” as a firm that primarily acquires patents and seeks to generate revenue by asserting them against accused infringers. Critically, the FTC’s definition of PAEs excludes non-practicing entities (NPEs), that is, “firms that, for various reasons, do not make or sell products and therefore are not vulnerable to a countersuit for patent infringement when they sue on their own patents.”
In closing, it is imperative to applaud the efforts that are being made to curb PAE activity. Admittedly, it is easy to be critical of the judicial and legislative recommendations provided for by the FTC because a one-size-fits-all solution simply does not exist. And, if one is ever proposed, it will likely ignore the complex, symbiotic relationships that exist in order for the United States to “promote the progress of science and useful arts” as required by our constitution.
If we intend to get across the bridge to safety one day, all goats will need to work together.