Recently Chief Judge Rader of the United States Court of Appeals for the Federal Circuit made a strong defense of the patent system in a chat billed as a fireside chat at the AUTM annual meeting in San Antonio, Texas. In his opening salvo into the issue of patent litigation abuse, the Chief explained:
Interestingly, that has been misdirected towards the patent system. Even earlier this afternoon I received an invitation from a House Committee to come and talk about abuse of the patent system. I’m not sure I’ll be able to attend, but if I could attend I’ll tell you exactly what I would say: There is nothing wrong with the patent system.
The patent system has a narrow focus. It is not a consumer affairs program. It is not a manufacturer’s guarantee compliance program. It’s not a competition program. It has one objective, summarized well by the Constitution: promote the progress of science and the useful arts. It’s there to create more investment and more incentive for innovation and invention. The things that the patent system is criticized for are not its job.
The meeting to which Chief Judge Rader probably refers is the House Subcommittee on IP, which held a hearing two weeks ago in search of answers for patent litigation abuse. According to the AIPLA summary of the hearing, the witnesses at the hearing agreed that, when confronted, PAE demand letters on frivolous claims, settlements by and large are economically unavoidable. The Chief was not a witness at the hearing.
In his discussion at AUTM, Chief Judge Rader also went on to address the question of what is a patent troll. He explained:
Let me tell you my definition of a patent troll — A patent troll is anybody who asserts a patent far beyond the value of its contribution to the art. That means that any institution can be a troll. We all understand that there are entities that are created solely for the purpose of litigating patents, which is not intrinsically bad. Again, if they are properly valuing and properly using the system to vindicate the incentives in investment and opportunities on behalf of the Patent Act there is no problem in that.
The problem comes when they will sue on a minor, minor patent… and then keep the infringement contentions very vague. Then approach and say “wink, wink, you know this is going to cost you $2 to $3 million in discovery expense alone. I’ll be happy to save you money by settling at far less than that.” And, of course, that it litigation blackmail. That’s the tactical use of the expense of the system, which is abusive. And I’m happy to say that the Federal Circuit and its Advisory Council is targeting for some kind of correction.
Now it was time for questions from the audience, and I could not resist. The substance of our exchange went as follows:
QUINN: With respect to going back to the abuses, one of the things that I am hearing from a lot of folks is about the shakedown. Where they get sued and then very quickly in the lawsuit they are offered 25, 35, 50 thousand.
RADER: Yeah, that is the litigation blackmail I was talking about.
QUINN: Maybe you can’t speak to this, but I wonder about creating more rules for particularizing the complaint. Because it seems like the last two times the Supreme Court had the opportunity, they have said they really want a particularized complaint that maybe is more than what is in the Federal Rules of Civil Procedure. And a lot of these complaints, I think that if the defendant didn’t even respond, the judges couldn’t even enter a default judgement because they don’t make enough assertions in the complaint. Because you can’t infringe a patent, you have to infringe a complaint. So I wonder if they were forced to provide some kind of claim chart, even a basic claim chart that tells what product and which claims.
RADER: Gene, will you be happy if we do that three months into the trial?
QUINN: Yeah, I would be very happy.
RADER: I think so too. And that’s probably a little easier to justify. To ask somebody to make all of their allegations at the outset is a little against our system. And I don’t think we have to go that far to achieve the goal that you’re seeking.
QUINN: For me three months would be fine if we had —
RADER: Or four or five.
QUINN: Whatever. It could be 12 months really, if every,one of the 94 district courts would apply the same rule then the defendants would know that we don’t have to cave for $35,000 right now. We know in two or three months down the road they are going to have to show us their cards. And then everyone will know if this is a shakedown or not. It seems to me, at least by the people I talk to, that they shake them down before they get to anything substantive so that the shakedown price is pocket change. It’s like less than a week of lawyer time.
RADER: Let me seize on one little aspect of what you said. That the key to the success of this, as you say, is getting all 94 districts, and frankly there’s no easy way to achieve that. What the Federal Circuit is doing is trying to use the patent pilot project and encourage changes there in those districts. With the model eDiscovery order we have six or eight of those districts who have already taken some steps to limit eDiscovery costs. Now I get to make my pitch to you. We need you, the litigants in the case, demanding that the courts implement these model orders. They are just that, they are model orders. They have to be explicitly adopted by a judge or a court. You can have an influence on that if you are standing up through your counsel in front of the district judges and saying “This would make things more efficient, your honor. Would you consider it? The federal circuit seems to be urging that result.”
It is good to know that Chief Judge Rader is engaged publicly and behind the scenes. Indeed, the patent system is far too important to allow bad actors and those with an anti-patent agenda to manipulate the mass media, public and policy makers into believing that patents are inherently evil and deserving of the blame.