A play-by-play on what a patent troll is, how they operate, and what you can do about them to protect your business...
Have you ever heard of "patent trolls?" If not, you probably have heard them referred to as their other, less-scary-sounding names such as patent holding companies (PHC), patent assertion entities (PAE) or non-practicing entities (NPE). But for the sake of drama, let's continue the usage of their pejorative name: patent trolls.
It sounds like some sort of freaky fairy-tale we're about to weave. But, unfortunately, these entities are real-life nuisances. According to law professor Dennis Crouch, a patent troll is a company or a person who "attempts to enforce patent rights against accused infringers far beyond the patent's actual value or contribution to the prior art."
They don't make anything. They don't supply anything. They simply buy up patent rights on existing or latent patents (which are usually vague or ambiguous), scour the world looking for people or companies who supposedly infringe on the patents they have acquired the rights to, and then (a) attempt to extract license fees and (b) sue for patent infringement upon their refusal to pay those fees.
So, what is their end game? Well, clearly: money. Simple as that. They're hoping you, the alleged "infringer," will be willing to pay some type of settlement ("ransom") to keep the suit from going forward. According to Harvard Business Review, patent litigation in the U.S. has cost defendants an estimated $29B per year in direct, out-of-pocket costs.
The evolution of a patent claim: Now what?
So, you receive a demand/cease and desist letter or a Complaint/Summons. Well, first and foremost, get a qualified attorney who has experience with patent troll claims (*ahem*...Hendershot, Cannon & Hisey plug). Typically, a demand letter is a bit vague in nature and is simply a complaint by the patent holder (a.k.a. patent troll, NPE, PHC, PAE...) that you are allegedly infringing upon their purchased patent.
Once a suit is filed, a motion to dismiss may be possible. There are times trolls will file suit without thoroughly investigating the legitimacy of their claim, thus rendering the suit frivolous. If this is the case, then your attorney will often want to file a 12(b)(6) motion to dismiss based on the pleadings.
Hearing before the U.S. Patent Office
Additionally, and increasingly more often, a cost-friendly way to challenge patent infringement allegations is to take the issue before the U.S. Patent Office. This procedure looks a great deal like a trial (with discovery, oral hearings and motions) but the matter of infringement will be determined by three judges within the Patent Office and keeps the case out of the District Courts, which would be significantly more expensive.
Another option, if a suit has been filed, might be to move for summary judgment. This can be done if the 12(b)(6) filing is denied and after discovery has been undertaken. Going through some degree of discovery will give your attorney the opportunity to argue that there are no material issues of fact remaining to be determined by the trier of fact and that you are entitled to judgement based upon the law. The plaintiff (troll) is required to file infringement contentions, being as specific as possible to their claims of infringement. As mentioned before, trolls typically try to get by on superficial contentions. Compelling them to identify these arguments presses them to do their due diligence in ascertaining the exact specifications of how the infringement took place. Additionally, it limits the scope of the case which may help speed things along.
If the case is still not dismissed at this stage it will move to a Markman hearing. A Markman hearing is a pre-trial hearing where the judge examines evidence from all parties and assigns specific meanings of relevant key words used in the patent claim. These hearings are also called Claim Construction Hearings. This is the process where the claim is narrowed down significantly, which is favorable to the defendant as the plaintiff would prefer to have the claim as broad as possible, giving them more leeway for interpretation. The case then moves to trial where a judge or jury will determine if infringement took place and award damages if any.
If no infringement is determined, under recent case law, if the case is deemed an "exceptional case," then the court can award attorney fees and costs against the plaintiff. This statute was implemented as "the only deterrent to the equally improper bringing of clearly unwarranted suits on invalid or unenforceable patents." (Mathis v. Spears, 857 F .2d 749, 754 (Fed. Cir. 1988). In other words, this is a protection for defendants to help mitigate frivolous and extreme patent infringement law suits.
Facing a patent troll in the Eastern District of Texas?
You need an attorney with experience here.
There are 94 US Federal District Courts throughout the nation where patent claims can be filed. In 2015, more than half of the 1,656 new patent lawsuits were filed in the Eastern District of Texas (more specifically: Marshall, TX).
Historically, this district has had the reputation of creating the so-called "rocket docket" - patent trolls who file in this district have a higher chance of expediting the pre-trial process and moving to the trial portion sooner. This district has also been known to be "plaintiff-friendly," issuing larger damage rewards in favor of the plaintiff; however, as of recent, the jurors have become a bit more conservative.
So, all that said, the likelihood of a patent infringement case being filed in this district is high, but defendants DO actually win here. Trends, mainly due to legislative changes, are slowly shifting to a more balanced scale. In February last year, Apple (a company constantly in patent/IP litigation) won a $100M suit filed in Marshall, TX.
It's important to have an attorney who has experience in this district and is well-versed in the proceedings of patent infringement defense (another Hendershot, Cannon & Hisey plug).
What legal protection is on the horizon for defendants?
In June of last year, the House and Senate introduced bipartisan legislation that could possibly curb abusive patent litigation. A combination of the Senate's Protecting American Talent and Entrepreneurship (PATENT) Act and the House's HR9 Innovation Act will aim to:
- Increase transparency, forcing trolls to describe in detail and specifics how their patent is being infringed.
- Limit discovery in both time and cost. The combined bill will place the cost burden of discovery (essentially the most expensive part of patent litigation) beyond submitted core documents on the patent holders. In other words, patent trolls will not be able to "bully" the defendants into a costly discovery.
- Shift attorney fees to losing party which could possibly result in a diminished number of suits.
- Protect users of existing patented products. Currently, trolls make lawsuit threats and licensing demands on even the people who UTILIZE the products they hold patents for. This new Act, if put into law, could enforce a hold on these lawsuits until litigation against the manufacturer/supplier is decided.
Do not hesitate to contact us.
When it comes to patent defense, we have the experience and the understanding of how to proceed with your case. We've been there. And we know how to fight patent trolls. If you've received a demand letter or are being sued for patent infringement, give us a call at 866-398-1856 or contact us online to consult with lawyers of Hendershot, Cannon & Hisey, P.C. Learn more about protecting your business in the fight against patent trolls.