Freedom Line Blog

CFIF strongly favors comprehensive patent litigation reform, in particular the Innovation Act that passed by a bipartisan 325-91 House vote in the last Congress.  Venue reform constitutes one important part of that broader effort, which CFIF has also emphasized.

By way of review, current federal rules allow patent lawsuits to be filed almost anywhere, which in turn allows plaintiffs to file in districts where no defendant resides, where no substantial portion of the events in dispute occurred and where few if any relevant witnesses and evidence are situated.

As we have noted, one manifestation that of venue abuse problem is the preposterous overabundance of patent lawsuits in a single federal district – the Eastern District of Texas:

Since 2009  alone the total number of patent lawsuits in the United States has more than doubled from 2,500 to over 6,000 in 2014.  And of that total, a preposterous 44% of new patent lawsuits last year were filed in a single federal court district, the Eastern District of Texas.  Even more preposterously, one judge in that district – Rodney Gilstrap – oversees 900 cases and actually accounts for almost one-fifth of all patent lawsuits in the entire U.S.

Plaintiffs’ attorneys game the system by suing in the Eastern District of Texas for a variety of reasons, including its reluctance to allow transfer of cases to more appropriate districts, its prevalence of high ‘jackpot jury’ awards, its willingness to allow excessive document and witness discovery demands, its friendly verdict rate and its local court rules favorable to plaintiffs.  The district is so notoriously welcoming that plaintiffs create artificial connections such as bogus offices and document warehouses for the sole reason of convincing judges to keep cases there.”

Fortunately, Senators Mike Lee (R – Utah), Cory Gardner (R – Colorado) and Jeff Flake (R – Arizona) have introduced legislation to surgically pursue venue reform.

Their Venue Equity and Non-Uniformity Elimination Act (VENUE Act) of 2016 (S. 2733) would limit litigants’ ability to game the system and play “jackpot justice” when choosing the district in which to sue.  Stated simply, the VENUE Act would now require plaintiffs to sue in districts more appropriate for the case in question and convenient for the parties and witnesses.  No longer would plaintiffs possess almost unlimited ability to drive opposing parties to nuisance settlements by filing in faraway districts untethered to the parties or legal issues.  Instead, patent lawsuits would be litigated in districts where defendants’ principle places of business are located, where the patent holders and important witnesses reside, where the evidence is more centralized or where the more substantial portion of alleged infringements occurred.

It should be noted that the VENUE Act would still allow parties to voluntarily agree amongst themselves to a particular district, so this wouldn’t constitute a one-size-fits-all mandate.

Although comprehensive patent litigation reform remains the goal, the VENUE Act advances the ball on this issue in an important manner.  We therefore encourage our supporters and activists across the country to contact their Senators and express support for this important patent litigation venue reform bill.

In the accelerating debate over patent litigation reform legislation, opponents continue to mischaracterize it as “patent reform,” as if the bill would somehow reorder the system by which patents are granted, the duration of protection and so on.

Whether deliberate or simply careless, that’s simply untrue.

Patent litigation reform legislation, including the Innovation Act that we at CFIF most strongly favor, would reform how patents are litigated, not our patent system itself.  And as Dana Rao, Vice President and Associate General Counsel of Intellectual Property and Litigation at Adobe Systems, details in The Hill, patent litigation abuse remains a serious problem:

The numbers are in.  And they aren’t good.  Patent trolls filed 3,604 suits in 2015, making it the second busiest year on record for abusive patent litigation.  And if anyone had any doubt about the merit of those suits, the busiest filing day last year, by far, came one day before a court rule permitting vague complaints was set to expire.  A record 212 patent infringement lawsuits were filed on November 30.  That is nearly 18 times as many as a normal day.  What kind of patent holder would scramble to file a suit to take advantage of this rule?  A patent holder who knew their suit had no merit.  These recent numbers reveal that court decisions and rule changes do not discourage abuse of our patent system.  In the current system, trolls continue to bring frivolous suits in sympathetic courtrooms around the country.  Only legislation will change these dynamics.”

The Innovation Act addresses that critical need for reform.

The Innovation Act targets patent litigation abuse by:  (1)  Forcing frivolous litigants who can’t demonstrate to the court that their “position and conduct … were reasonably justified in law and fact, or that special circumstances (such as severe economic hardship to a named inventor) make an award unjust”;  (2)  Changing pleading standards so that parties must state their allegations with greater clarity and specificity, instead of relying upon vague and summary allegations that offer little insight into the nature of their claims;  (3)  Reforming the pretrial discovery process (witness depositions, document requests, etc.) in order to reduce the oppressive burdens currently imposed on parties, often as a tactic to drive innocent parties to settle rather than vindicate their rights;  and (4)  Bringing greater transparency regarding true ownership of disputed patents.

Notice what the Innovation Act does not do:  overhaul the patent system itself.  Which is one reason why the bill passed by an overwhelming and bipartisan 325-91 vote in the last Congress.

So why do opponents continue to mischaracterize it as “patent reform?”  Only they possess the certainty of their own minds to explain, but one suspects that it’s a ploy to frighten those of us who support strong intellectual property (IP) protections.  But CFIF takes a backseat to no one in advocating strong IP protections, and we would not support any bill that threatened to undermine them.

Whatever their motivations or confusion, however, it’s important that elected officials, policy analysts and everyday Americans remain clear that patent litigation reform should not be confused with “patent reform.”

In the matter of much-needed patent litigation reform legislation before Congress, provisions targeting abuse of the pretrial discovery process constitute an underemphasized but critical component.

“Discovery,” for those who haven’t suffered the misfortune of practicing law or being sucked into litigation at some point in their lives, refers to the process by which litigating parties obtain relevant documents and information from opposing parties.  Typical methods of discovery include depositions (out-of-court testimony under oath), document requests, interrogatories and requests for admission (to obtain evidence and narrow the scope of questions to be litigated).

As anyone who has participated in the discovery process probably learned, it can become extremely burdensome in terms of time, money and logistical tedium.  Indeed, that’s why some parties abuse discovery in order to drive opposing parties toward settlement or withdrawal, even when those parties actually maintain the superior legal position.  Discovery abuse increases nuisance value and can be exploited as a tactic to harass and intimidate other parties.

Patent litigation is particularly subject to discovery abuse, because the issues litigated are typically complex, document-intensive and within the knowledge of enormous numbers of people.

For that reason, the discovery reform provisions of broader patent litigation reform are especially valuable.  The Innovation Act, which passed by a bipartisan 325 to 91 vote in the House of Representatives, moves toward a system in which discovery is limited to necessary information rather than endless fishing expeditions that lawyers exploit as a negotiating and intimidation tactic.

Importantly, however, the Innovation Act preserves important caveats to its reforms to preserve the interests of justice.  First, it explicitly allows that, “In special circumstances that would make denial of discovery a manifest injustice, the court may permit discovery, in addition to the discovery authorized under subsection (a), as necessary to prevent manifest injustice.”  Second, the Innovation Act allows that, “The parties may voluntarily consent to be excluded, in whole or in part, from the limitation of discovery provided under subsection (a) if at least one plaintiff and one defendant enter into a signed stipulation, to be filed with and signed by the court.”

Thus, the Innovation Act’s important discovery reform provisions can be superseded by court order or voluntary agreement of the parties.

Who could object to that common-sense reform?

Frivolous litigants and their attorneys, that’s who.  Reform of the pretrial discovery process would mean that such vexatious litigants would be less able to extract surrender or settlement from parties unwilling to subject themselves and their companies to the crushing burdens of discovery.  Any party acting in good faith, however, would obviously have nothing to fear.

In this installment of the Freedom Minute, the Center for Individual Freedom’s (“CFIF”) Renee Giachino discusses our nation’s growing epidemic of frivolous patent litigation by illegitimate parties who hope to score “jackpot jury” verdicts or simply frighten legitimate patent holders into costly out-of-court settlements to avoid catastrophic litigation costs, and the bipartisan effort in Washington,  DC, to help address the problem.

In a recent Daily Caller piece entitled “Patents Are Private Property, Too,” Eagle Forum adviser James Edwards throughout most of his column marshals a strong defense of America’s intellectual property (IP) rights system.

Unfortunately, in his final two paragraphs he needlessly and erroneously detours into alleging that patent litigation reform efforts before Congress somehow undermine IP protections.  The truth is precisely the opposite.  Patent litigation reform and IP rights are complementary, not contradictory.

CFIF takes a backseat to no organization in defending IP rights, and Edwards rightly highlights how America’s strong IP system provides the foundation upon which we became and remain the most innovative and prosperous nation in human history.  He correctly notes that our Founding Fathers considered IP a natural right no different than physical property, and how they accordingly specifically protected them in the text of the Constitution.  As Abraham Lincoln later observed, “The patent system added the fuel of interest to the fire of genius.”

And as we have noted repeatedly, it is not by coincidence that America maintains the world’s strongest IP protections while also standing unrivaled as the most inventive, powerful, prosperous and influential nation in history.  That relationship is causal.

Unfortunately, in his final two paragraphs Edwards veers regrettably astray.  Specifically, he claims that patent litigation reform legislation currently under Congressional consideration would somehow undermine patent rights and “make it much more difficult and riskier to defend one’s patent against infringers.”

Respectfully, that is flatly false.

Patent litigation reform legislation, which passed the House two years ago with an overwhelming 325-to-91 majority, addresses how patent disputes are litigated, not patent rights themselves.

Under current law,  as most people know, overly litigious actors can file frivolous lawsuits or baselessly defend against valid claims because it’s highly unlikely under our current system that they’ll be forced to pay the other side’s attorney fees and litigation costs when they ultimately lose.  That’s because American law generally requires each side to pay its own costs and fees, even if the other side’s claim was weak.  As a litigating attorney who defended against innumerable frivolous claims in my legal career, I can confirm firsthand that winning an award of costs and fees from even the most egregious litigants is exceedingly and unfortunately rare.  Accordingly, bad actors often use our court system to extract improper settlements or frighten legitimate patent holders from defending their rights due to the prospective time and costs of litigation.

That’s where patent litigation reform comes in.

The Innovation Act, the bill that CFIF most strongly supports, targets abuse of our court system by:  (1) Holding losing parties accountable for prevailing parties’ attorney fees and costs unless they can demonstrate that their “position and conduct … were reasonably justified in law and fact, or that special circumstances (such as severe economic hardship to a named inventor) make an award unjust”;  (2) Reforming pleading standards to require greater clarity and justification for their case, rather than relying on vague and unintelligible boilerplate allegations;  (3)  Increasing transparency regarding the true owners of disputed patents;  and (4) Streamlining the burdensome discovery process, which too often imposes oppressive burdens and delays resolution of cases.

Those are manifestly common-sense litigation reforms that all Americans, particularly conservatives and libertarians who broadly favor reform of America’s flawed system of litigation, should support.

CFIF simply would not support any bill that undermined America’s patent or other IP protections.  The simple fact is that patent litigation reform would protect legitimate patent holders, and the only people with anything to fear are those who cannot demonstrate that their claims are based upon good faith and valid law – which is not difficult for legitimate litigants to show.  We therefore encourage all of our supporters and activists across the country to contact their elected representatives in Congress to voice their support for badly-needed patent litigation reform legislation.

As we enter 2016 and the presidential race accelerates, it can be tempting and even entertaining for conservatives and libertarians to find themselves divided on an array of issues, from foreign policy to immigration reform to how to improve our tax code.  Respectful debate and disagreement on such matters is both healthy and necessary.

On another issue, however, there should be little disagreement:  the desperate need for litigation reform in America.  That includes patent litigation reform, particularly in light of the fact that , as Wall Street Journal legal reporter Ashby Jones reports, 2015 just witnessed a 25% increase in patent suits in a single year:

Patent litigation brought by so-called ‘non-practicing entities’ continued to flourish in 2015, according to a new study, despite repeated attempts to curtail it.  According to the report, released Monday by RPX Corp., NPEs filed over 3,600 patent cases in 2015.  NPEs, also referred to derisively as ‘patent trolls,’ buy up patents and seek to make money from them through licensing and litigation.  NPEs filed 3,604 cases last year, a sharp increase over 2014, in which NPEs filed 2,891.

Fortunately, a large and bipartisan majority in Congress has recognized the need for patent litigation reform, which CFIF has strongly and consistently supported:

To address those widespread problems in our current patent litigation system, while also protecting legitimate patent claimants, Congressman Robert Goodlatte (R – Virginia) has reintroduced the Innovation Act.   Identical legislation passed the House approximately one year ago by a lopsided 325 to 91 vote, and nothing has changed since that date to justify a reversal.

The bill narrowly targets patent litigation abuses, primarily by introducing several key reforms to the patent litigation process.  Those reforms include:  (1) Greater ability to shift costs and fees to improper litigants than the current system provides;  (2) Heightened pleading standards that require greater clarity and justification for the lawsuit itself;  (3) Greater transparency regarding true owners of disputed patents;  and (4) Much-needed streamlining of the discovery process during litigation, which often imposes oppressive burdens in time and resources upon respondents.

Unfortunately, some opponents of reform have resorted to claiming that patent litigation reform would somehow undermine patent rights or intellectual property rights more broadly.  That is simply not the case, as we have explained exhaustively.  We at CFIF stand among the strongest proponents of IP protections, and we would not support any cause that undermined them.  The reality is that the bills we support target patent litigation abuse, not substantive patent rights themselves.  The Innovation Act, for instance, simply requires that losing parties in a patent lawsuit demonstrate “that the position and conduct of the nonprevailing party or parties were reasonably justified in law and fact or that special circumstances (such as severe economic hardship to a named inventor) make an award unjust.”

That is not a difficult hurdle to clear.

Accordingly, opponents of patent litigation reform must answer why requiring parties who resort to costly and protracted litigation to show that their claim is “reasonably justified in law and fact” is somehow unfair or excessively burdensome.   They cannot, and there is simply no reason for further delay in achieving patent litigation reform legislation in 2016.