Have you ever heard of "patent trolls?" If not, you have probably 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). Nevertheless, let's continue the usage of their pejorative name: patent trolls.
We know - 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."
Patent trolls have existed for as long as patents have existed, but the term patent troll originates from an educational video released to corporations in the early 1990s. It is a derogatory term used to describe people or companies that attempt to enforce patent rights against accused “infringers” far beyond the patent’s actual value or purpose.
Patent Troll Explained: How They Operate
They don't make anything. They don't supply anything. Patent trolls 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.
In today’s modern era and in reference to patent infringement, the term patent troll is used to describe when a person or business takes any of the following actions:
- Purchases a weak patent and sues other companies by claiming infringement
- Enforces patents against “infringers” without intending to manufacture the patented product or service
- Enforces patents but has no manufacturing or research base
- Focuses its efforts only on enforcing patent rights
- Asserts infringement claims against non-copiers or against a large industry composed of non-copiers
Your HQ might be in Silicon Valley, but patent trolls can sue you in any jurisdiction in the U.S. The ability to pick the forum for litigation is unique to patent trolls, and a bit of a headache for entrepreneurs and executives.
These people or businesses tend to concentrate on obtaining additional money from existing uses rather than seeking out new applications for the technology. They also spend time reviewing published patent applications for signs that another company is developing infringing technology, possibly unaware of their own patents. They also target particularly vulnerable businesses that have much to lose or have little money to defend themselves in the hopes that an early win or settlement will establish a precedent to encourage other companies to acquiesce to licenses.
What Evil Patent Trolls Want
Patent trolls essentially buy a patent to own it with no intention to actually use it to produce a product. Their end game is simply– money. They’re hoping you, the alleged “infringer”, will be vulnerable and willing to pay a settlement (which is essentially a ransom) to keep the suit from going forward. Because of this, most infringement suits or patent troll cases are settled before trial – which is what the evil patent troll wants. 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 advantage to "forum shopping," as it's called in the legal world, is that patent trolls get to choose the forum most advantageous to them. In patent litigation, that would be a forum where the perceived benefits are a "plaintiff-friendly" district with an expedited pre-trial process and, ultimately, larger damage awards.
If you've received a demand letter or are being sued for patent infringement, don’t give in or feed the troll! Learn more about protecting your business. Speak to a business law attorney at Hendershot Cowart P.C.
How to Deal with Trolls
There are several ways to defeat a patent troll in court, such as design arounds, patent watch, clearance search, or patent infringement insurance.
While some companies will cave to patent troll demands, others will use litigation to their advantage by challenging the patents themselves. They could do so by finding prior art that calls into question patentability or challenges whether the technology in question is infringing. If successful, the company not only wins its case, but also prevents the patent troll’s ability to sue.
If you have a patent troll claim, make sure you know what to expect from the legal process. After you receive a demand or a cease and desist letter from the patent troll, it may set the following into motion:
- Dismissal: Even after the troll files a suit, 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.
- Summary Judgment: 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.
- Markman Hearing: 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 lawsuits.
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 of 2015, 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. Our team at Hendershot Cowart P.C. can help.
Two Principle Defenses When Facing a Patent Troll
Patent law is one of the most specialized branches of law. A patent infringement case has many unique characteristics that are not found in normal business litigation or breach of contract cases. That said, there are a number of principles of patent infringement litigation that are helpful to know. Two of the principle defenses to utilize in patent infringement litigation are (1) the defense of non-infringement and (2) the defense of an invalid patent.
There are two types of alleged infringement:
- Direct infringement - the accused infringer practices each element of the patent holder's patent claim;
- Indirect infringement - the accused infringer does not practice each element of the patent holder's patent claim, but either (a) contributes to direct infringement by another party or (b) induces another party to engage in direct infringement.
A party can only be liable for indirect infringement if another party is a direct infringer.
The Non-Infringement Defense
The defense of non-infringement is one of the most often utilized defenses. Simply as the name states, the defense is that the alleged infringer does not include or perform one or more of the required claim limitations set forth within the patent and as result, does not infringe on the asserted patent claim. In basic terms, the accused product or process is not the same as the patented invention.
The Prior Art Invalidity Defense
The next most common defense is to establish that the patent claim is invalid. One of the most common ways of addressing this is through prior art invalidity. Prior art invalidity focuses on establishing that someone else came up with the exact claimed invention prior to that claimed by the patent holder. Hence, prior art. Also, prior art can be established by an obviousness defense. An obviousness defense asserts that the claim is obvious to a person of skill in the art at the time of the filing of the patent.
While there are many additional defenses to patent infringement, these tend to be the most commonly asserted.
SCOTUS Deals Blow to Patent Trolls
The Supreme Court of the United States recently dealt a heavy blow to patent trolls. In the Alice Corporation v. CLS Bank International case, SCOTUS addressed patentable subject matter. The Court held patents invalid because the claims were drawn to an abstract idea, and implementing those claims on a computer was not enough to transform that idea into patentable subject matter. This has helped strengthen the defense against patent trolls.
SCOTUS also aided in defending against patent trolls by its ruling in the Octane Fitness, LLC v. ICON Health & Fitness, Inc. case. The Octane Fitness decision issued on April 29, 2014, and it dealt with fee shifting in patent lawsuits. SCOTUS made it easier for lower courts to make the losing party pay for all attorneys' fees and costs. In frivolous or baseless claims, in other words, the judge could order the patent troll to pay for it.
On a final note, it's worthwhile to mention that the U.S. Congress and Texas Legislature have taken this judicial cue and have begun to implement legislation to curb the filing of frivolous Patent Troll suits.
What Legal Protection Is On the Horizon for Defendants?
In June of 2015, 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.
Our Firm Can Help Fight Against Patent Trolls
If you’re being targeted by a patent troll, give our law firm, Hendershot Cowart P.C., a call. Our philosophy on defending patent infringement claims is straightforward: We simply don’t stand for a claim brought against you or your business based on an invalid patent. Managing Shareholder, Simon ("Trey") Hendershot, personally has over 25 years of experience representing clients facing intellectual property disputes and leads our award-winning business litigation team. Patents can be one of the most critical assets of your business - so do not delay in contacting our law firm when you need legal help.
Let us help you protect what matters to you. Contact us at (713) 909-7323 or fill out our online form to schedule a case consultation. We look forward to working for you.