Andrew Baluch

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Patent Legislation Gives FTC Power to Regulate Demand Letters

Sen. McCaskill introduced S. 2049 in February 2014 which would require the FTC to promulgate rules to prohibit unfair and deceptive acts and practice in the sending of patent demand letters, including requiring each such letter to identify the patent number, the claims, a description of the manufacturer and model number of each accused product or service, notice that the recipient may have the right to have the manufacturer defend against the infringement, the identity of the person with the right to enforce (including each owner, co-owner, assignee, exclusive licensee, and entity with the authority to enforce the patent, and the ultimate parent entity), any FRAND licensing commitments, any basis for a specific license amount, and each PTO proceeding or litigation involving the patent. Bad faith assertion would be enforceable by the FTC or attorney general of a State in federal court.

Patent Legislation Compared: Joinder of Interested Parties

Opponents of the rule point out that it could lead to unwilling and unnecessary joinder — a point raised particularly by universities and venture capitalists who fear they may be hauled into costly patent litigation against their will if their licensees/startups ever need to enforce their patent rights in court. Still others point to the fact that these joinder provisions would only apply to patent cases — and only against plaintiffs — and would thus create a litigation process unique to patents in district courts. Furthermore, district court judges would lose most of their existing broad discretion to determine whether the facts truly warrant joinder in each unique case.

Congress and the Court: Loser-Pay Fee Shifting

U.S. patent litigation has followed the centuries-old “American Rule” under which each party to a litigation pays its own legal fees and costs, regardless whether it wins or loses the litigation. A narrow exception exists in patent cases, but only in “exceptional cases” under 35 U.S.C. § 285, such as where the losing party engaged in litigation misconduct, or if the patent was fraudulently procured, or if the losing party raised arguments that were both objectively baseless and made in bad faith. Despite the long tradition of litigants paying their own legal fees and costs, Congress has shown interest in changing the playing field and deviating from the American Rule in patent cases. This comes at a time when the U.S. Supreme Court is already considering two cases that relate to the definition of “exceptional cases” in § 285 that may well alter how this existing exception to the American Rule is applied in practice.