After getting a leg up on innovators, Patent Trolls may see their advantage shrinking.
By Adam Seitz & Carrie Bader
Abusive patent litigation has become a major problem for CEOs and corporate counsel from America’s biggest corporations to the smallest start-ups. One of the biggest problems facing companies right now is the threat from Patent Assertion Entities, or “Patent Trolls,” who use questionable patents to extract significant settlements.
The problem is so significant that even Congress and President Obama have begun discussing ways to fix the system.
The problem of abusive patent litigation is so significant that even Congress and President Obama have begun discussing ways to fix the system. Abusive patent litigation rests largely on two assumptions: (1) that smaller companies are less “patent savvy” and won’t know how to fight; and (2) that larger companies would rather pay a settlement fee than spend money in litigation.
The America Invents Act, however, has provided new weapons to help swing the litigation pendulum back in the defendant’s direction. One of the newest and most effective weapons is challenging a patent’s validity through the inter partes review (“IPR”) process at the Patent Office.
IPRs offer defendants several potential advantages. First, they are much faster than district court litigation. IPRs must be completed within 12 to 18 months from initiation. Second, the standards are different than litigation, which results in a high success rate if your challenge is accepted. In fact, of those IPRs to reach final written decision, 72.8 percent of the challenged claims instituted have been cancelled. Third, IPRs cost far less than full-blown patent litigation.Finally, the accelerated timing of IPRs often leads to a “stay” of the district court litigation while the Patent Office experts address the validity of the patent. When used effectively, IPRs have resulted in a paradigm shift for the defense because they freeze the plaintiff’s ability to subject a defendant to lengthy and costly district court litigation.
Unfortunately, not all district courts are staying litigation while the validity of the patent is challenged at the Patent Office. Nonetheless, the IPR process can still provide a major benefit in the litigation that helps swing the pendulum towards the defendant.
In normal district court litigation, it is not uncommon to wait more than 12 months after the case is filed to obtain a claim construction ruling defining the true scope of the patent claims. Though this claim construction often can be dispositive, its impact on the case is lessened because the parties have expended significant time and money in reaching that point.
An IPR, however, is different. Within 6 months of filing, the Board will issue a preliminary claim construction if it decides to implement the IPR. Not only is this far quicker than litigation, but it can lead to a vastly superior bargaining position early in the litigation before significant resources have been expended. It also provides another benefit in the district court litigation. In the event a favorable claim construction is received in the IPR, the defendant can immediately file motions in this district court litigation challenging the sufficiency of the infringement allegations using the Board’s decision for support.
By forcing the plaintiff to defend his case in two different forums very early in the litigation, the defendant can effectively shift the litigation paradigm in its favor. Moreover, the IPR process allows for a defendant to make such a shift in a faster and less expensive means than could otherwise be achieved through district court litigation.
Outside of the options at the Patent Office, another recent “weapon” for challenging the validity of questionable patents is the Supreme Court’s recent holding in Alice Corp. In a major change for the patent landscape, the Supreme Court held that ideas and abstract concepts implemented using a computer are not eligible for patent protection. An “Alice Attack” (when done separately or combined with an IPR) gives the defendant yet another way to shift the litigation paradigm by forcing the patent troll to defend his patent early in the litigation.
These options for early attack on an asserted patent often will remove the patent troll’s best leverage—delay and the “cost of litigation.” Staying the district court litigation and dismissing patent claims under Alice puts the defendant into the driver’s seat and opens a number of options that previously didn’t exist for defending patent cases.