Many times, I’ve acknowledged there is a real problem with so-called “patent trolls,” and that the heart of the problem is frivolous lawsuits.
To a company accused of infringement, every allegation seems frivolous. And some critics come close to arguing that every patent assertion by a "non-practicing entity" – a firm that doesn't manufacture the patented inventions itself – is frivolous. But that's not the case.
A frivolous assertion is one that wouldn’t come close to holding up in court. The really bad suits get thrown out of court on summary judgment, before they even get close to a trial. Other frivolous claims survive longer, but ultimately get shredded. Judges can recognize cases that should never have been filed, and they have been doing it for a long time.
The bad actors tie up both companies and the courts with unfounded allegations of patent infringement. They don’t expect to win in court; they’re just betting that many of their targets will pay them money to settle. That’s bad for just about everyone.
Ok, you may be thinking: Peter, tell me something I don’t know. How would you improve things?
Fair enough. Today’s topic: the right and wrong ways to crack down on frivolous patent litigation.
President Obama has proposed giving judges more discretion, but he hasn’t been specific. Meanwhile, two House lawmakers – Rep. Peter DeFazio, a Democrat from Oregon and Rep. Jason Chaffetz,, a Republican from Utah – recently introduced the so-called SHIELD Act that would single out specific kinds of companies for punishment. The short-hand phrase for this idea is “loser pays,” but distinctions are important.
The right way is to punish bad behavior itself. This would include allegations that get dismissed on summary judgment, wasteful delaying tactics, and assembly-line lawsuits against hundreds of companies at a time.
The wrong way to fix this problem is to penalize particular categories of participants but not others – plaintiffs, but not defendants or companies that only own patents, but not those who manufacture things.
This is where the proposed SHIELD Act goes off the tracks. It wouldn’t do anything to expand the definition of bad-faith litigation. Instead, it would push judges to punish companies with certain characteristics: those that are (a) plaintiffs; (b) happen to be on the losing side; and (c) own and license patents but don’t manufacture the actual products.
This is wrong-headed in all kinds of ways. Patent infringers can be as ruthless with frivolous litigation tactics as any alleged “trolls.” Some infringers even fire the first shot.
Think about the ordeal Robert Kearns went through. Kearns was the inventor of the intermittent windshield wiper (as immortalized in the movie “Flash of Genius"). He took his idea to the major car companies, which rejected it and then used the idea themselves. Kearns fought for decades to collect royalties, and it cost him $10 million before he finally won.
I’m not saying the car companies mounted frivolous defenses. But under the SHIELD Act, they would have been protected from penalties simply because they were on the defending side and because they were actually manufacturing Kearns’s invention. Think about that: a company would get a tactical courtroom advantage if it actually manufactures the invention it’s stealing. Talk about turning incentives on their head!
Congress can help crack down harder by identifying tell-tale signs of bad-faith patent litigation. Here are just three examples:
- Look for companies that send dozens or even hundreds of identical, cut-and-paste “demand letters” at the same time;
- Look for companies that file lawsuits without attempting to enter into negotiations or doing any pre-filing analysis;
- Look for companies that make big financial demands, without any attempt to justify the numbers.
Some complain that the SHIELD Act (and other similar proposed legislation) doesn’t go far enough, as it would only affect filed litigation and not the many assertion letters sent each year. However an increased level of scrutiny by judges in these cases should embolden those who receive assertion letters to take a more aggressive stance when appropriate.
Judges aren’t fools, and they know feckless lawsuits when they see them. We should give them more clout to identify and punish bad behavior. But it’s the behavior that counts, not the business model of the company filing a lawsuit.
Patents and Policy
This post is part of a larger series on patents and legislative reform. To read the other posts in this series, see below: