Litigation Abuse: The “Problem” of Patent Trolls


Gene QuinnThe term “patent troll” conjures up all kinds of images and ideas, but what is a patent troll?  The answer is that there is really no universally accepted definition of what a patent troll is.  In the most common sense of the term, it is usually reserved for those who acquire patents from inventors or companies, perhaps through bankruptcy, auction or otherwise, and then turn around and sue giants of industry for patent infringement.  In this situation, patent trolls are typically extremely well funded, they are not engaging in any commerce, so they do not fear a patent infringement counter-claim because they are not infringing, or doing, anything.

Over time, however, as the debate has matured and many with a patent reform agenda seek to weaken patent rights in hopes of solving their short-term litigation concerns, the term patent troll has morphed to mean any non-practicing entity. Such a definition of patent troll is overly broad, though, because it collects many entities that are simply not doing anything other than pursuing the American dream. These individuals and entities include universities, independent inventors, research & development companies, and federal laboratories. Indeed, such a list of innovators has typically been one that has been celebrated, not reviled.

But there are, of course, bad actors.

Indeed, the worst actors are the ones who manipulate the system in search of litigation inefficiencies, which they then turn into near extortion-like demands. I have recently heard that demands go as low as $500 or $1,000 prior to filing a lawsuit. This is astonishing given the reality that patent litigation on average costs into the millions of dollars, and virtually all patent attorneys that engage in litigation defense would require an absolute minimum $25,000 retainer, and typically much closer to 10 times that amount, before they would even consider getting involved in representation.

So why are the bad actors turning their attention to small businesses and individuals? Small businesses and similar players are typically easy targets because many do not have the funding, or desire, to engage in litigation, and they scare easily. If sending out 1,000 letters can net you a 5% pay rate at $1,000 each, that is a quick $50,000, which then gives you at least some capital to sue others in search of larger settlements.

But does this mean that new laws are needed to combat the problem? No.

The GAO report released on August 22, 2013 explains that the number of patent litigations only slightly fluctuated between 2000 and 2010, with a one-third increase in 2011, which the report attributed to changes to patent laws ushered in by the America Invents Act and not as the result of any substantive increase in litigations initiated by patent trolls. This increase in patent litigation was by design of the AIA, thanks to the joinder provisions that make it much more difficult to sue large numbers of defendants in a single case. So, many suits were filed that year, before the AIA effectively barred such suits.

Furthermore, the GAO found that “companies that make products brought most of the lawsuits and that nonpracticing entities (NPE) brought about a fifth of all lawsuits.” So there isn’t a patent troll problem at all, despite the protests of those who wish to weaken the patent system and chip away at the exclusive rights granted to the patent owner. Indeed, those who are seeking new laws typically think every patent they get sued on is invalid and every patentee plaintiff is a patent troll, but that is simply not the case.

As Chief Judge Rader explained several months ago in a New York Times op-ed titled Make Patent Trolls Pay in Court, there are bad actors who abuse the patent litigation system by buying up and then seeking to enforce dubious patents with vague allegations of infringement that don’t seem to pass muster. See Defending Chief Judge Rader. The article goes on to explain that District Court Judges have latitude to rein in the truly nefarious conduct and “make trolls pay for abusive litigation.” The authors specifically cite 35 USC 285 and Rule 11 of the Federal Rules of Civil Procedure.

I agree with Chief Judge Rader and would further cite to Section 1927 of Title 28, which says:

“Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.”

In Roadway Express v. Piper, 447 U.S. 752 (1980), the United States Supreme Court addressed the question of “whether federal courts have statutory or inherent power to tax attorney’s fees directly against counsel who have abused the processes of the courts.” The question arose specifically in relation to Section 1927. In that case, the Supreme Court recognized that the general rule is that a litigant cannot recover attorney’s fees, but that the general rule “does not apply when the opposing party has acted in bad faith.” Further, the Supreme Court recognized that a bad faith “award of attorney’s fees is not restricted to cases where the action is filed in bad faith.” Ultimately, the Supreme Court upheld the award of attorney’s fees against counsel.

If bringing lawsuits on dubious patents for the purpose of forcing a quick nuisance settlement without regard to the merits of the case is not bad faith, vexatious litigation,then what is?

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