Intellectual & Technology Law Journal

Edited by the Technology and Proprietary Rights Group of Weil, Gotshal & Manges LLP

VOLUME 26 • NUMBER 8 • AUGUST 2014

Some Observations on the Troll Litigation Problem

By Christopher Hu

atent infringement cases brought by so-called problem can be addressed. In brief, the problems P patent trolls have received considerable atten- stem from the way nonpracticing entities (NPEs) tion in recent years, enough so that both Congress use or misuse the judicial system, not the US Patent and the White House have chimed in on the sub- Office. Accordingly, the solution primarily involves ject.1 The number of cases filed by patent trolls, the applying existing judicial procedures more vigorously cost of defending or settling these cases, the size with minimal changes to existing substantive law. of some judgments, the perceived frivolousness of some cases, and the use or abuse of litigation as a The “Problem” tool to “extort” settlements have all drawn atten- tion to this issue. Adding to the controversy is the Some Statistics on Patent Troll Litigation sentiment among some that it is inherently unfair NPEs, also known as patent trolls or patent asser- or economically wrong for an entity that does not tion entities (PAEs), are a fact of business life in the practice a patent to profit by asserting it. . Definitions of a patent troll vary but Although there is some statistical data concerning the common element of every definition is that a the assertion of by trolls, and a considerable patent troll is an entity that does not itself practice a amount of anecdotal evidence, there appear to be patent but instead asserts the patent against entities no rigorous studies on the economic effect of trolls. that are actually engaged in a business of provid- Because the real effect is unknown, drastic remedies ing products or services. However, many entities are neither necessary nor appropriate at this time. operate in a gray area, which makes the problem This article contains some observations on the pat- of defining an NPE even more difficult. These ent troll problem and a few suggestions on how the companies mine their patent portfolios to monetize them and, in the process exhibit some troll-like behavior, including assertion of patents that the Christopher Hu is of counsel in Blank Rome’s New York company is not itself practicing. Many well-known office. He represents clients in patent and cases and highly respected companies have been accused and disputes involving a wide range of technologies, including of troll-like behavior, including such giants as Apple e-commerce, computers, telecommunications devices, medical Inc. and Corp.2 Regardless of how they products, chemicals, pharmaceuticals, consumer products, and mechanical devices. He can be reached at [email protected]. are defined, NPEs exist because the ownership 3 The author gratefully acknowledges Ameya V. Paradkar for his and assertion of patents is a way to make money. contributions to this article. For better or worse, that is free enterprise.4 Until rigorous studies show what economic effect NPEs that clearly define the economic impact of NPE- have, judgment should be reserved as to the effects initiated litigation.16 Attempts to analyze the NPE of their existence. issue are inherently limited by the data set chosen NPEs range in size from extremely small entities and the ad hoc criteria chosen by the author in with a single patent to multimillion dollar ventures defining NPEs within that data. Thus, the numer- with extensive patent portfolios and funded by ous proposed solutions that have been offered are sophisticated investors.5 NPEs acquire their pat- directed to a problem whose real scope and effect ent portfolios through various avenues, including are not fully understood. Radical solutions to a direct purchases, patent auctions, and bankruptcy problem of undetermined scope seem inappropri- proceedings.6 ate under these circumstances. Some NPEs are litigation averse; others have no A flaw in some analyses of the troll problem is the reluctance in bringing, maintaining, and ultimately assumption that cases brought trying . Some NPEs routinely file dozens by an NPE are presumptively baseless and that of simultaneous cases, sometimes doing this in the patents asserted have little if any value. Patents multiple waves. NPEs are well-known for forum asserted by NPEs have gone through the same shopping, as evidenced by the disproportionate examination process in the US as number of patent cases filed in the Eastern District other patents. The suggestion that patents asserted of Texas.7 by trolls are somehow inferior or frivolous is not fair In 2012, by some estimates, almost 60 percent of to the US Patent Office, which applies an identical the almost 5,200 patent lawsuits filed were brought statutory standard for , as interpreted by NPEs.8 In 2012, 4,282 companies were sued by the courts, to all patent applicants, regardless by trolls.9 Of these, 55 percent were companies of who the owner or is. Moreover, many with $10,000,000 or less in annual revenues.10 patents asserted by NPEs originally were obtained The median cost of defending a troll case ranges by mainstream companies as part of their regular from $1.25 million for cases with $10 million or research and development activities.17 If there is an less at stake, to $2.4 million for cases with $10 to issue of the quality of issued patents, it has little if $25 million at stake, to $4 million for cases with anything to do with who the applicant was. $25,000,000 or more at stake.11 Consequently, trying to come up with a one- Only a small percentage of cases go to trial. size-fits-all definition of an NPE is fraught with Recent data shows that 97 percent of patent problems. It follows, then, that solutions relying on infringement cases settle before trial and that this such a definition of an NPE may create a cascade number is about the same for troll cases.12 However, of unanticipated repercussions. there is also data that indicates that the median award in cases brought by NPEs is sig- What Is the Real Problem? nificantly greater than in other patent cases.13 This Absent economic studies to the contrary, the statistic is surprising and counter-intuitive because problem is not the existence of investors who seek juries would be expected to be more sympathetic to profit from acquired from to plaintiffs who are actual operating companies others. The problem is that, with a frequency that than to PAEs.14 varies depending on one’s viewpoint, NPEs appear Statistics such as these lead commentators to to bring frivolous or weak cases with significantly conclude that NPEs are a parasitic drain on the greater frequency than regular plaintiffs. Accordingly, economy, a threat to start-ups and going concerns the aspect of patent troll litigation many find most alike and generally an example of free market capi- offensive is the apparent impunity with which trolls talism run amok that threatens America’s techno- bring frivolous or weak cases in which patents are logical and economic preeminence.15 asserted with seemingly little or no regard for the actual “” described and claimed in the pat- Some Considerations in Fashioning ent and/or with little regard for whether the patent a Remedy is valid. Notwithstanding all that has been written on The most egregious troll cases seem to use some the subject, there appear to be no rigorous studies or all of the same plays from a common game plan.

2 Intellectual Property & Technology Law Journal Volume 26 • Number 8 • August 2014 The is filed in a plaintiff-friendly forum The proliferation of cases that should not have which often has little or no connection to the been brought, should not have been maintained, center of gravity of the case, that is, the location and should have been terminated early is the result of relevant evidence and witnesses. Before the of a combination of factors: America Invents Act (AIA), multiple defendants were often named in the same .18 Post-AIA, 1. The law and rules governing jurisdiction, venue, multiple cases with a single defendant often are and convenient forum are too liberal and permit filed at the same time.19 The complaint is typically . These statutes encourage pat- a bare-bones pleading alleging infringement by the ent trolls to sue by giving them access to patent defendant in general terms and often not specifi- friendly districts that often have little connection cally identifying any accused product or method. to the real center of gravity of the case. The specific patent claims allegedly infringed are never identified. Frequently, inconsistent causes 2. The pleading standards already required by the of action are pleaded without pleading them in Federal Rules and case law are not enforced the alternative. Necessary elements of actions for strictly enough in patent cases. indirect infringement, that is inducement of, and contributory infringement, are sometimes not 3. Rule 11 sanctions rarely are assessed against plain- alleged at all. Willful infringement and exceptional tiffs and their counsel who do not perform an case are alleged even though no prior notice of adequate pre-suit investigation and who maintain the patent in suit was given. Broad discovery a case despite clear indications that the case lacks requests are then served to maximize the burden merit. Other sanctions, such as those under 28 on the accused infringer with little or no willing- U.S.C. § 1927, are even rarer. ness to cut back on the scope. The infringement contentions are typically equally vague, often con- 4. The cost of providing discovery places an asymmet- sisting of the words of the claims matched with ric burden on defendant, especially when the NPE language from advertising or marketing materials, can obtain discovery on a wide range of products not with any real analysis or testing of the accused that are not specifically charged with infringement. product or method. When the claim construction phase occurs, the claim construction proposed by 5. District courts often discourage the early filing plaintiff in such cases is typically superficial, often of summary judgment motions, sometimes with consisting of “no construction required,” “plain local or individual rules that specify when sum- and ordinary meaning” or “dictionary defini- mary judgment motions can be filed (typically tion,” with the goal a construction that results in later in the case and after discovery has closed), infringement with some wiggle room to avoid or by limiting the number of summary judgment .20 motions, thereby discouraging the early filing of a What rankles defendants is not so much that motion out of concern for using the only oppor- these marginal, at best, infringement tunity too early and not having another chance continue to be filed, but rather, that it is difficult to after full discovery. get rid of these cases early and that plaintiffs acting in bad faith rarely are punished. Thus, given the 6. The willful infringement doctrine, with the issues cost of litigation, these frivolous cases are cheaper it injects into cases including waiver of privilege to settle because there seems to be no way to get and disqualification of counsel, puts added pres- rid of the case early and no realistic chance of sure only on defendant and its availability in a case recovering attorney fees and costs. However, even brought by an NPE serves no useful purpose. settling has its downside, as a company that settles early becomes a more attractive target for trolls. 7. Damages claims are often inadequately screened Defendants thus encounter a no-win scenario before trial. Excessive damages claims often are when settling. An expensive alternative is to litigate masked by the magnitude of the gross revenues all cases to conclusion, a strategy not appropriate for for an accused product. The Georgia Pacific fac- many companies. tors are out of date and often provide a basis for

Volume 26 • Number 8 • August 2014 Intellectual Property & Technology Law Journal 3 getting excessive claims to the jury through an of any entity to assert a presumptively valid patent expert opinion that appears to have a legal basis. where the patent owner and its counsel have a good faith belief after reasonable investigation that a valid 8. District courts often are reluctant to take swift, cause of action for patent infringement exists. decisive action because of uncertainty over the merits of a claim involving complex technol- Reduce Forum Shopping ogy. Such cases do not usually lend themselves to The statutory law, federal rules and case law on analysis based on application of common sense, jurisdiction, venue and convenient forum makes everyday knowledge, and experience that can be forum shopping too easy. Although a plaintiff’s applied in nontechnical cases. choice of forum should be given some weight, a case filed in a district where there is both per- 9. Historically, the asymmetric application of the sonal jurisdiction and proper venue often is not a exceptional case provision of 35 U.S.C. § 287 genuinely convenient forum. Typically, the accused created increased risk for the accused infringer, infringer has a far greater discovery burden and the which often is charged with willful infringe- proximity of its witnesses to the forum should be ment, and posed less risk to plaintiff because of given far more weight. District courts should be different burdens of proof and the way the issues required to give more consideration to the location are decided. Specifically, the risk of increased of the sources of proof, that is, the real center of damages and attorney fees associated with will- gravity of a case, in determining whether a district ful infringement, and the need to defend against is a convenient forum. Subterfuges used by NPEs, often frivolous charges of willful infringement, such as opening an office in a plaintiff-friendly put added pressure on accused infringers with no jurisdiction should be given little, if any, weight. corresponding risk to plaintiff. This issue has been addressed by the Supreme Court in its recent Stricter Enforcement of Existing Octane Fitness decision in which the standard Pleading Standards for an exceptional case is now symmetric—an District courts should enforce existing pleading exceptional case is now one that “stands out from standards to require, at the very least, identification others with respect to the substantive strength of of the specific accused product or process. The a party’s litigating position (considering both the standards of Iqbal 24 and Twombly25 already require governing law and facts of the case) or the unrea- specificity but enforcement of Iqbal/Twombly seems sonable manner in which the case was litigated.”21 less rigorous in patent cases. Requiring identifica- tion of the specific patent claims that allegedly are Current Proposals infringed also would be appropriate. The patent troll problem has many facets, and a As an adjunct to more rigorous enforcement simple solution does not exist. As discussed above, a of existing pleading standards, Form 18 should be solution that depends on a definition of a troll will updated. Form 18, the sample complaint for pat- not be effective. Trying to define an NPE in a way ent infringement in the Federal Rules of Civil that is applicable in most situations will be difficult, Procedure, dates back to 1963 and may not satisfy but any definition will inevitably be unfair in a Twombly and Iqbal in many situations. Form 18 substantial number of situations.22 simply alleges that defendant infringes a patent by Some of the current legislative proposals are a making, selling, and using a type of product. This step in the right direction because they address fee may be adequate in a simple case but it is too gen- shifting, pleading requirements and the scope and eral for more complex cases. Some district courts timing of discovery.23 There is more that can be are now questioning the adequacy of Form 1826 but done, much of which does not require legislation. courts continue to regard Form 18 as the bench- mark for an adequate complaint.27 Some Suggestions on a More detailed pleading also should be required Comprehensive Solution in indirect infringement cases. When inducement is The suggestions here do not assume that NPEs alleged, district courts should require identification of are inherently bad and do not question the right the direct infringers and the specific acts constituting

4 Intellectual Property & Technology Law Journal Volume 26 • Number 8 • August 2014 inducement. In contributory infringement cases, dis- meritless. A district court’s inherent powers under trict courts should require identification of the direct the Federal Rules also should be exercised more fre- infringers and the specific nonstaple article that is quently to curb discovery abuses, including open- sold that allegedly contributes to infringement. ended requests for discovery directed at products District courts should be more willing to grant or methods not expressly accused of infringement. motions to dismiss or, at least, motions for a more The proposed legislation that would require definite statement where a complaint only alleges disclosure of the real party in interest and those patent infringement by a class or type of product with an interest in the outcome of the litigation is generally. As it is, most practitioners are of the view a positive step.29 This would facilitate the assessment that a motion to dismiss or for a more definite of attorney fees and costs against such entities if the statement is a waste of time. nominal party is unable to satisfy such an award. Requiring strict compliance with pleading stan- NPEs should not be able to judgment-proof them- dards also will address another abuse. Open-ended selves by creating shell companies with limited pleadings often result in open ended discovery resources to avoid satisfying sanctions awards. requests that place an unfair burden on the accused infringer. Discovery should be limited to the products accused of infringement, as the Federal Circuit made There is nothing unfair about requiring clear in Micro Motion, Inc. v. Kane Steel Co., Inc.:28 a plaintiff to conduct an adequate Rule 11 investigation before availing The discovery rules are designed to assist a itself of the federal courts and forcing party to prove a claim it reasonably believes a defendant to spend even more to be viable without discovery, not to fi nd defending itself. out if it has any basis for a claim.

Stricter Enforcement of Rule 11 Level the Playing Field as to the and Other Sanctions Provisions Exceptional Case Provision Rule 11 is not enforced sufficiently in patent Historically, willful infringement awards against cases. Rule 11 does not have a technology excep- defendants were far more common than attorney tion that exempts a plaintiff because it is a patent fee awards against plaintiffs who litigate in bad case and the accused product is a complex, technical faith for several reasons. First, the legal standard for device or system. There is no question that Rule 11 imposing sanctions under 35 U.S.C. § 285 against compliance can be expensive in a complex techni- a plaintiff was extremely high. The defendant had cal case because an investigation adequate under to prove by clear and convincing evidence that the the circumstances may require testing, consulting patent owner’s infringement claim was objectively with an expert, and legal analysis. But the cost of baseless and brought with subjective bad faith.30 Rule 11 compliance is small compared to the cost In contrast, an exceptional case existed when of litigating a patent infringement case. There is a defendant was found to be a willful infringer nothing unfair about requiring a plaintiff to con- under 35 U.S.C. § 284. Proof of willful infringe- duct an adequate Rule 11 investigation before ment also had to be by clear and convincing availing itself of the federal courts and forcing a evidence but the substantive burden was arguably defendant to spend even more defending itself. lower. Willful infringement occurs when (1) the Rule 11 has a built-in safeguard. It gives plaintiff infringer acted despite an objectively high likeli- a chance to cure the pleading defect. But if the hood that its actions constituted infringement of a amended complaint still does not contain the req- valid patent, and (2) the accused infringer knew or uisite detail, dismissal is appropriate and sanctions should have known about the objectively defined ought to be assessed. risk of infringement.31 Second, the issue of will- Courts should also be more willing to award ful infringement, or at least the factual aspect, is sanctions under the statute, 28 usually submitted to the jury.32 A jury that finds U.S.C. § 1927, where it becomes clear that the case for the patent owner also may find for the patent was maintained despite clear indications that it was owner on the willful infringement issue because it

Volume 26 • Number 8 • August 2014 Intellectual Property & Technology Law Journal 5 has concluded defendant was in the wrong. In con- pre-fi ling inquiry made in a patent infringe- trast, the issue of bad faith conduct, or maintenance ment case under Rule 11. of the litigation by the plaintiff is never submitted to the jury.33 By definition, an infringement analysis includes As noted above, this historical asymmetry in construing the claims and comparing the properly the standards for proving exceptional case, at least construed claims with the accused product.35 in theory, has been addressed in the Octane Fitness Requiring plaintiff to disclose the claim con- Supreme Court decision. It remains to be seen struction it used as part of its Rule 11 obligations to what effect the Octane Fitness standard will have on ascertain whether there was infringement will help existing willful infringement case law. For example, assure that there is Rule 11 compliance and docu- will the existing standard for willful infringement ment inadequate compliance for a later motion for survive as the test of whether a case stands out from sanctions. others? Octane Fitness addresses the issue of a double Allocate Some Discovery Costs to Plaintiff standard but whether it completely addresses the District courts should use their authority under problem is an open question. the Federal Rules to require a plaintiff, in appropri- Courts also should consider bifurcating willful ate circumstances, to share the cost of a defendant’s infringement from the liability issues and trying production of massive amounts of discovery. A willfulness only if there is a finding of infringement common complaint is that the disparate amount of liability. discovery in a patent troll case puts unfair pressure on the defendant. Allocating a share of the discov- Require Early Detailed Disclosure ery costs to plaintiff will address this issue, at least of Claim Construction Contentions, to some extent. Not Just Infringement Contentions Although many district courts require early dis- Increase Use of Court Appointed Experts closure of infringement contentions, none require and Special Masters disclosure of a patent owner’s contentions as to District courts should increase their use of court claim construction. The typical claim chart does appointed experts and special masters and use not contain the patent owner’s contentions as to them early in the case, especially in cases involving the meaning of claim terms. Usually, the claim complex technology. Typically, in the infrequent chart contains only the literal words of the claim instances where court appointed experts and special matched up to descriptions of the accused product masters are used, they are involved in claim con- or method. struction. However, court appointed experts and/or But Federal Circuit law requires that plaintiff special masters also can help a court determine have some form of claim construction in mind the adequacy of pleadings and contentions in the before it sues as part of its obligations under Rule 11. context of the specific technology. A common In View Engineering, Inc. v. Robotic Vision Systems, complaint from defendants is that plaintiffs often Inc.,34 the Federal Circuit held that, before asserting are able to satisfy the pleading and contention a claim of patent infringement, Rule 11 must be requirements with a superficial recitation of techni- interpreted: cal jargon that appears adequate to a court not yet familiar with the technology and issues. to require the law fi rm to, at a bare minimum, apply the claims of each and Encourage Simultaneous Consideration every patent that is being brought into the of Claim Construction and Summary lawsuit to an accused device and conclude Judgment that there is a reasonable basis for a fi nd- Under current Federal Circuit law, it is not ing of infringement of at least one claim error for the district court to have knowledge of of each patent so asserted. The presence of the details of the accused product or method dur- an infringement analysis plays the key role ing the claim construction process.36 However, in determining the reasonableness of the this knowledge is not encouraged.37 As a result,

6 Intellectual Property & Technology Law Journal Volume 26 • Number 8 • August 2014 claim construction hearings typically are conducted technical opinions. Even when a court excludes separately from motions for summary judgment of an expert damages opinion on Daubert grounds, noninfringement. Thus, claim construction usually district courts have been seen as too lenient in is done without reference to the accused products. permitting plaintiffs’ damages experts to revise However, knowledge of the accused product reports. Even if the laws and rules of economics are during the claim construction process will sharpen not as easily tested as those in physics, chemistry, the focus on the disputed claim terms and help the and biology, they are laws and rules nevertheless. court understand why there is a dispute. Knowledge Expert damages theories that do not conform of the accused product or process will help the should be excluded. This will deter experts from court analyze the specification to determine what advancing overly aggressive theories in the first the actual invention is and how the claims should be instance. interpreted with specific reference to the ultimate On a related note, the Georgia Pacific41 factors, issue of whether the accused product or method dating from 1970, are too imprecise in today’s practices the invention described in the specification. world and would benefit from a judicial or statu- Frivolous infringement contentions can be identi- tory freshening. For example, the Georgia-Pacific fied earlier and more quickly when the accused factors do not specially address situations common product is also before the court. Simultaneous in today’s technology, including the value of a small, construction of claim construction and summary intangible feature in a complex system that includes judgment of noninfringement will be especially use of the world-wide web. The Georgia-Pacific beneficial as a long as interlocutory appeals of claim factors similarly lack specific applicability to the construction rulings are not permitted. business method patents common today. The large number of factors, together with the imprecision Eliminate Willful Infringement if the of many of them, makes it too easy for an expert Patent Owner is Not a Competitor to create an outlandish damages theory that super- Willful infringement often is pleaded in troll ficially has a basis in law. cases.38 Faced with a willful infringement charge, a Defendants often are unfairly prejudiced by the defendant must decide how to defend itself against absolute dollar amount of sales or products that the allegation. The defendant must decide whether incorporate the accused component or feature. to obtain an opinion of counsel, determine whether Even if some adjustment is made to account for to waive the privilege on the opinion, ascertain the the fact that the patent only relates to a component scope of the waiver and consider whether a waiver or a feature of a larger product or system, the often raises any issue as to disqualification of counsel.39 very large total revenue number tends to make the The existence of the willful infringement doc- plaintiff appear reasonable and the defendant cheap trine gives plaintiffs the threat of increased damages and unreasonable. It usually is very difficult for a as additional leverage. Defendants have to spend defendant to demonstrate that an accused system more time and money to defend against even a embodies more than one “invention” and that, in weak or frivolous claim of willful infringement. most cases, the value of any single invention is small. Egregious, willful conduct should be penalized as a Trying to do this through fact and expert witnesses matter of public policy where the patent owner is at trial is tedious, boring, and probably counterpro- a direct competitor and the willful infringement is ductive for a defendant in front of a jury. There is essentially a self-conferred to compete with no easy way to avoid this problem. District courts the patent owner. These equities do not apply to a should pay special attention to preventing the patent troll. A possible solution would be to limit prejudice that comes from the mere introduction willful infringement to those situations in which the of gross revenue figures. patent owner is entitled to a permanent injunction. The Federal Circuit Should Review Use Daubert Authority to Limit Damages Claim Construction De Novo Claims before Trial The issue of whether a district court’s claim Some practitioners believe that damages theo- construction should be accorded any deference will ries are less vulnerable to a Daubert 40 motion than soon be argued before the Supreme Court.42

Volume 26 • Number 8 • August 2014 Intellectual Property & Technology Law Journal 7 De novo review of claim construction by the Notes Federal Circuit is a good thing. Some of the most 1. of 2013, H.R. 3309, 113th Cong. (Oct. 23, objectionable aspects of patent troll litigation will 2013). The Act targets nonpracticing entities by propos- grow worse if the Federal Court cannot review ing to increase the pleading requirement, shifting fees to claim construction de novo. There are almost 1,000 the nonprevailing party or its parent company, and by federal district judges with widely varying amounts limiting and delaying discovery. Id. of experience with patent cases. There is even 2. See David Drummond, “When patents attack Android,” greater variability in their knowledge of science Official Blog, (Aug. 3, 2011), http://googleblog. and technology. The most common fundamental blogspot.com/2011/08/when-patents-attack-android.html error in district court claim construction is to be (articulating the assertion by Google’s Chief Legal overly literal with respect to the meaning of the Officer that Apple and Microsoft were purchasing a words and phrases of the patent claims,43 even nine patent portfolio from for the expressly anti- years after Phillips.44 competitive motive of filing patent infringement law- suits against Google). Despite the efforts of the Federal Circuit to make 3. See Jason Rantanen, “Slaying the Troll: Litigation as an clear that the claims must be interpreted in light of Effective Strategy against Patent Threats,” 23 Santa Clara the specification and Patent Office prosecution 45 Computer & High Tech. L. J. 159, 165 (2006) (classifying history, too many district courts still regard this NPEs as rent seekers that attempt to leverage their pat- approach as reading limitations into the claims or as ent rights into licensing fees, either through unnecessarily interpreting claim terms. Explicitly or or litigation). implicitly, these courts revert to using the plain and 4. See e.g. James F. McDonough III, “The Myth of the 46 ordinary meaning of the terms. This leads invari- Patent Troll: An Alternative View of the Function of ably to district court claim construction rulings that Patent Dealers in an Idea Economy,” 56 Emory L. J. are far broader than the invention described in the 189, 208-16 (2006). The author argues that NPEs cre- patent. Trolls encourage this. ate a more efficient market by purchasing and enforcing On a related note, district courts often do not patents, which are inherently illiquid commodities. Id. afford the written description requirement of 35 at 213. By purchasing patents and threatening litigation, U.S.C. § 112 sufficient weight. Amending this NPEs thus increase efficiency on the market by pre- requirement to emphasize the direct connection venting entities from taking advantage of inventors who between what is described in the specification as lack the resources to enforce their patents. Id. at 212. the invention and the claim construction may be 5. currently holds over 40,000 - helpful. lectual property assets, applies over $6 billion in District court claim construction that is less capital, and generates over $3 billion in cumulative susceptible to reversal will only exacerbate the pat- licensing revenue. Intellectual Ventures Corporate Fact ent troll problem. The Federal Circuit should not Sheet, (Apr. 14, 2014), http://www.intellectualventures.com/ have to defer in any way to district court claim assets_docs/IV_Corporate_Fact_Sheet_2.pdf. Some of the construction. other largest NPEs, by patent holdings, are Interdigital, Round Rock Research LLC, and Wisconsin Alumni Conclusion Research Foundation. “NPEs with Largest Patent Holdings,” PatentFreedom, (Feb. 7, 2014), https://www. The patent troll litigation problem is to a large patentfreedom.com/about-npes/holdings/. Cf. “New York extent, the result of the failure to vigorously apply bears down on patent trolls, settles with Delaware firm,” existing procedural and substantive law. Drastic Reuters, (Mar. 4, 2014) (identifying MPHJ Technology remedies are not yet necessary expressly because Investments LLC’s patent holdings as five patents the extent of the problem has not been established. initially purchased for $1). Requiring compliance with procedural and sub- 6. See Intellectual Ventures Corporate Fact Sheet, supra n.5 stantive law at every stage of litigation will deter (describing methods by which the company acquires frivolous cases, end bad cases quickly, and reduce intellectual property); “About Rockstar,” Rockstar, (last the cost to defendants. Reducing defendants’ cost accessed Apr. 15, 2014) (highlighting the purchase of of defense also will reduce settlements coerced by Nortel patents), available at http://www.ip-rockstar.com/ the high cost of litigation and current inability to about; Steve Lohr, “Patent Auctions Offer Protections end cases early. to Inventors,” N.Y. Times, (Sept. 20, 2009), available at

8 Intellectual Property & Technology Law Journal Volume 26 • Number 8 • August 2014 http://www.nytimes.com/2009/09/21/technology/21patent. economic loss as well as a decrease in social welfare); html (describing the growing involvement of venture cf. John R. Allison, Mark Lemley & Joshua Walker, capital and private equity in patent auctions). “Extreme Value or Trolls on Top? The Characteristics of 7. See 2013 PWC Patent Litigation Study at p.24, available at the Most-Litigated Patents,” 158 U. Pa. L. Rev. 1, 29-32 http://www.pwc.com/en_us/us/forensic-services/publications/ (finding that the most-litigated patents, held primarily assets/2013-patent-litigation-study.pdf. Thirty-nine percent by NPEs, also are the most valuable, and as such, the of NPE decisions are concentrated in five federal district patent rules should focus on fair compensation, rather courts, with the Eastern District of Texas most preferred. than vilification of NPEs). Id. at 5. Out of a total of 370 NPE decisions indentified 17. See, e.g., Chris V. Nicholson, “Apple and Microsoft Beat between 1995 and 2012, over 12 percent (45 decisions) Google for Nortel Patents,” N.Y. Times, July 1, 2011, were from the Eastern District of Texas. Id. available at http://dealbook.nytimes.com/2011/07/01/ 8. Feldman, Robin and Ewing, Thomas and Jeruss, apple-and-microsoft-beat-google-for-nortel-patents/. An alli- Sara, “The AIA 500 Expanded: The Effects of Patent ance of companies including Apple, Microsoft, and Monetization Entities,” (Apr. 9, 2013), UC Hastings , overcame a bid by Google to purchase Nortel’s Research Paper No. 45 at page 54, available at http://ssrn. extensive patent portfolio, which it had built up dur- com/abstract=2247195. ing its time as a market leader in telecommunications 9. Matt Levy, “Patent Trolls Keep on Suing,” Patent equipment. Id. This alliance operates as an NPE known Progress, (Apr. 15, 2014), http://www.patentprogress. as the . “Spherix to Partner org/2014/03/04/patent-trolls-keep-suing/. with World Famous Rockstar Consortium,” (July 17, 10. Chien, Colleen V., “Patent Assertion and Startup 2013), http://www.marketwired.com/press-release/spherix- Innovation” (Sept. 5, 2013), New America Foundation, to-partner-with-world-famous-rockstar-consortium-nasdaq- Open Technology Institute White Paper, at p.11, available at spex-1811848.htm. http://ssrn.com/abstract=2321340. 18. Chandran B. Iyer & Ryan M. Corbett, “Joinder 11. AIPLA Report of the Economic Survey 2013, American Limitations in the America Invents Act: Big Change?,” Intell. Prop. Law Assoc., (July 2013), at p.35. Amer. Bar Assoc., (Feb. 20, 2012), http://apps.americanbar. 12. Kal Raustalia & Chris Sprigman, “How ‘Patent Trolling’ org/litigation/committees/intellectual/articles/winter2012- Taxes Innovation,” Freakonomics, (July 11, 2011), http:// joinder-limitations-america-invents-act.html. freakonomics.com/2011/07/11/how-patent-trolling- 19. Id. taxes-innovation/. 20. See Joshua Brustein, “Troll Fighting: Anatomy of a 13. See 2013 PWC Patent Litigation Study, supra n.7 at p.25 Patent Lawsuit, Bloomberg Businessweek,” (Sept. 17, (calculating that the median damages award from 1995- 2013), available at http://www.businessweek.com/ 2012 for a nonpracticing entity was over $8.85 million, articles/2013-09-17/troll-fighting-anatomy-of-a-patent- while practicing entities received just over $5.35 million lawsuit (describing the use of typical patent troll tactics during the same time period). in litigation). 14. Id. at 9-10. Between 1995 and 2012, this phenomenon 21. Octane Fitness, LLC v. Icon Health & Fitness, Inc., __ has resulted in nonpracticing entities choosing jury tri- U.S. __ (2014). als 56 percent of the time, compared to only 47 percent 22. See generally Mark A. Lemley, “Are Universities Patent jury trials for practicing entities. Id. at 10. Trolls?,” 18 Fordham Intell. Prop. Media & Ent. L.J. 611 15. See McCaskill Introduces Bill to Crack Down on (2008). Patent Trolls, (Feb. 27, 2014), http://www.mccaskill.senate. 23. See, e.g., Innovation Act of 2013, supra n.1. gov/?p=press_release&id=12097 (quoting Sen. McCaskill 24. Ashcroft v. Iqbal, 556 U.S. 662 (2009). as stating that “[p]atent trolls are stifling innovation, 25. Bell Atlantic v. Twombly, 550 U.S. 544 (2007). endangering jobs, and harming businesses and consum- 26. Halton Co. v. Streivor, Inc., 2010 U.S. Dist. LEXIS 50649, ers); see also Robin Feldman, “Slowing the Patent Trolls,” *6 (N.D. Cal. May 21, 2010) (“On its face, however, N. Y. Times, Mar. 28, 2014, available at http://www. Form 18 is silent as to any theory of patent infringe- nytimes.com/2014/03/29/opinion/slowing-the-patent- ment besides direct infringement.”); Rovi Corp. v. trolls.html (arguing that “[p]atent trolling is an extraordi- Hulu, LLC, 2012 U.S. Dist. LEXIS 10183, *6-8 (D. Del. narily lucrative but singularly destructive practice”). Jan. 27, 2012) (finding that Form 18 pleading was not 16. See James Bessen, Jennifer Ford & Michael J. Meurer, sufficient for the complex infringement matter before “The Private and Social Costs of Patent Trolls,” Boston the court); Tyco Fire Prods. LP v. Victaulic Co., 777 F. University School of Law Working Paper No. 11-45, Rev. Supp. 2d 893, 905 (E.D. Pa. 2011) (arguing that “the Nov. 9, 2011 (arguing that NPE litigation results in an forms purporting to illustrate what level of pleading

Volume 26 • Number 8 • August 2014 Intellectual Property & Technology Law Journal 9 is required do not reflect the sea change of Twombly 38. See, e.g., Telcordia Techs., Inc. v. Cisco Sys., 592 F. Supp. and Iqbal” and that such forms should be updated “to 2d 727 (D. Del. 2009) (in which the nonpracticing entity, clearly comply with existing law”). Telecordia Technologies, Inc., pleaded and successfully 27. Microsoft Corp. v. Phoenix Solutions, Inc., 741 F. Supp. litigated a claim of willful infringement); see also Damon 2d 1156, 1159 (C.D. Cal. 2010), “This Court agrees C. Andrews, “Why Patentees Litigate,” 12 Colum. Sci. & with the Federal Circuit and those district courts that Tech. L. Rev. 219, 245 (2011) (stating that “nearly every have held that a party alleging direct infringement need claim of patent infringement includes an allegation that only comply with Form 18”; W.L. Gore & Assocs. v. the defendant infringed the patent willfully”). Medtronic, Inc., 778 F. Supp. 2d 667, 675 (E.D. Va. 2011) 39. See Christopher B. Seaman, “Willful Patent Infringement (citing McZeal v. Sprint Nextel Corp., 501 F.3d 1354 (Fed. and Enhanced Damages After In re Seagate: An Empirical Cir. 2007)), “[T]he Court agrees with the post-Twombly Study,” 97 Iowa L. Rev. 417, 452 (2011) (outlining holding in McZeal that a litigant who complies with the the various defense strategies to willful infringement provisions of Form 18 has sufficiently stated a claim for claims). direct infringement as contemplated by Rule 12(b)(6).” 40. Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579 28. Micro Motion, Inc. v. Kane Steel Co., Inc., 894 F.2d (1993). 1318, 1327 (Fed. Cir. 1990). 41. Georgia-Pacific Corp. v. United States Plywood Corp., 29. See Innovation Act of 2013, supra n.1. 318 F. Supp. 1116 (S.D.N.Y. 1970). 30. iLOR, LLC v. Google, Inc., 631 F.3d 1372, 1377 (Fed. 42. Teva Phamaceuticals USA, Inc. v. Sandoz, Inc., 2014 Cir. 2011). U.S. LEXIS 2312 (Mar. 31, 2014) (granting writ of 31. Bard Peripheral Vascular, Inc. v. W.L. Gore & Assocs., certiorari). 682 F.3d 1003, 1005 (Fed. Cir. 2012) (citing In re Seagate 43. See Peter S. Menell et al., “ Construction: Tech., LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007)). A Modern Synthesis and Structured Framework,” 25 32. Id. “In considering the objective prong of Seagate, the Berkeley Tech. L. J. 711, 739 (2010) (“Phillips’ identifi- judge may when the defense is a question of fact or a cation of ordinary meaning as the ‘objective baseline’ mixed question of law and fact allow the jury to deter- puts tremendous emphasis on this term, which can mine the underlying facts relevant to the defense in the create unfortunate confusion and error [in claim con- first instance, for example, the questions of anticipation struction]”); see also Lee Petherbridge, “The Claim or obviousness.” Id. at 1008. Construction Effect,” 15 Mich. Telecomm. Tech. L. Rev. 33. Beckman Instruments, Inc. v. LKB Produkter AB, 892 215, 247-248 (2008) (postulating that the competing F.2d 1547, 1551 (Fed. Cir. 1989). procedural and holistic approaches to claim construc- 34. View Eng’g, Inc. v. Robotic Vision Sys., Inc., 208 F.3d tion used by the judiciary are the primary cause of 981, 986 (Fed. Cir. 2000). claim construction modification). 35. Markman v. Westview Instruments, Inc., 52 F.3d 967, 44. Phillips v. AWH, 415 F.3d 1303, 1315 (Fed. Cir. 2005). 976 (Fed.Cir. 1995) (en banc), aff’d, 517 U.S. 370 (1996). “The specification is always highly relevant to the claim 36. Wilson Sporting Goods Co. v. Hillerich & Bradsby construction analysis. Usually, it is dispositive; it is the Co., 442 F. 3d 1322, 1331 (Fed. Cir. 2006). The rule single best guide to the meaning of a disputed term.” Id. against using the accused product as extrinsic evidence 45. See, e.g., Paragon Solutions, LLC v. Timex Corp., 566 to supply limitations “does not forbid awareness of the F.3d 1075, 1084-1085 (Fed. Cir. 2009) (prescribing use accused product or process to supply the parameters and of the specification and prosecution history in its inter- scope of the infringement analysis, including its claim pretation of the claim language). construction component.” Id. 46. See Menell, supra n.43 at 744 (noting that because “the 37. The court may not “tailor[ ] a claim construction to fit Federal Circuit failed to expressly disavow the ‘heavy the dimensions of the accused product or process and presumption of ordinary meaning’ ” in Phillips, “many to reach a preconceived judgment of infringement or district courts are [still] unduly wedded to what they noninfringement.” Id. perceive to be the ‘ordinary meaning’ of a claim term.”)

10 Intellectual Property & Technology Law Journal Volume 26 • Number 8 • August 2014 © 2014 CCH Incorporated. All Rights Reserved Reprinted from Intellectual Property & Technology Law Journal, August 2014, Volume 26, Number 8, pages 10-19, with permission from Aspen Publishers, Inc., Wolters Kluwer Law & Business, New York, NY, 1-800-638-8437, www.aspenpublishers.com