Focus and Law

Patent trolls beware

Changes in patent law seem to favor accused infringers, according to local expert, but there are drawbacks, too.

May 31, 2013
| By Pete Daly |
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Matt Gipson
Matt Gipson
The America Invents Act, which took effect Sept. 16, 2012, entailed sweeping changes in the U.S. patent process, with one aspect in particular reshaping the legal landscape when it comes to patent infringement litigation.

Matt Gipson said one of the most obvious changes is “the proliferation of challenges to patent validity in proceedings at the Patent and Trademark Office, instead of or in addition to your typical District Court litigation.”

Gipson is a partner at Price Heneveld in Grand Rapids Township, one of the region’s best-known firms specializing in intellectual property.

In a patent infringement suit, the alleged infringer often will challenge the validity of the patent as a key part of his or her defense. Years ago, the U.S. Patent and Trademark Office in Washington came up with re-examination, a process of studying previously issued patents to determine their validity. It was open to third parties, including inventors who wanted to challenge someone else’s patent, and was seen as a less expensive way than challenging a patent in court. It was also quicker.

If the PTO did rule a patent invalid, any pending claim of infringement on it would simply disappear.

Around 2008, according to Gipson, the legal industry began seeing a major increase in each successive year in requests for reexamination by the PTO, and Price Heneveld was involved “in a lot of those reexaminations,” he said.

Last September, the AIA changed the inter partes re-examination to inter partes review, which according to the PTO is a new trial proceeding conducted by a three-person Patent Trial and Appeal Board. The fee for the service jumped from $8,800 to $23,000 today. It is still perceived as cheaper and faster than federal district court, but if an accused patent infringer lost at the Patent Office, any arguments that were raised or could have been raised were subject to estoppel — meaning those arguments could not be raised again in a subsequent trial in federal court.

“If you lose (trying to invalidate a patent at the Patent Office), you’re going to have your hands tied,” said Gipson.

He said patent litigation now is “a whole new ballgame. It’s a little bit of the Wild West right now because there is very little case law on it, and they’re interpreting the rules that were just created.”

However, he added that the proceedings at the Patent Office “seem to have become proceedings that are more favorable to patent challengers than anticipated.”

None of the cases that began with the patent challenges at the PTO since September 2012 have gone all the way through trial to completion — “although they’re close,” he said. Patent suits in most states can take 18 to 24 months from filing to trial end, he said, and sometimes longer.

“Many of the petitions for inter partes review (at the PTO) are being granted. So the Patent Trial and Appeal Board appears to be looking at validity very closely and taking a very broad interpretation of the claim” that it is invalid, said Gipson.

“The rules have been set such that the patent challenger gets a lot of opportunity to argue about the validity of the claims,” said Gipson.

In April, a report in the online publication Corporate Counsel (www.law.com) stated that more than half of the patent litigation filed in the U.S. in 2012 was “brought by companies whose sole purpose is to license patents — so-called ‘patent trolls’ — according to a new study.”

There’s been a lot about patent trolls in the news, said Gipson, who prefers to refer to them as a “non-practicing entity” or NPE. That means they are owners of a patent who do not actually make or sell the product covered by the patent. However, if the NPE owner of a legitimate patent wants to make money licensing it to others who would make money from that product, one may argue that is a proper business strategy.

When asked if there are any regions in the United States where there is more patent litigation than others, Gipson said yes.

“There are a ton — thousands — of cases pending in the Eastern District of Texas,” he said, and many times neither the plaintiff nor the defendant resides in Texas. It is sufficient if the product is sold in Texas.

“A lot of the NPEs would file down in the Eastern District of Texas,” he said, because local court rules there make it “very friendly” to the patent owners.

Other federal court districts, particularly in Virginia, are popular for patent infringement filings because they have “rocket dockets,” meaning the courts handle them quickly, according to Gipson. Obviously, if a company is losing money to a patent infringer, it wants it stopped as soon as possible.

The Consumer Electronics Association, with members representing such well-known corporations as Samsung, IBM and 20th Century Fox, recently published an opinion piece by Lee Cheng, chief legal officer at Newegg.com. Newegg is an online retailer of electronic products — a service provider, not a manufacturer, he noted. Several years ago, Newegg began to be sued by entities claiming they owned the rights to patents “on obvious, Web-ubiquitous functionalities like an online shopping cart, or a drop-down menu, or a search box. I thought they were joking. Unfortunately, the trolls were not joking.”

Newegg, said Cheng, decided not to settle with the patent trolls and has fought two cases to verdicts in their favor in the Eastern District of Texas. Since 2006, Newegg has not lost any cases after appeal.

Cheng said patent trolling costs American businesses roughly $30 billion to $80 billion per year, and exacts a tax on every person who uses intellectual property.

Gipson has advice for both those being sued for patent infringement, or for patent owners planning to bring suit.

For the patent owner, Gipson would mention there is a chance the accused infringer is going to file for enter review “and you’re going to end up for the next year in front of the Patent Trial and Appeal Board, talking about the validity of the patent.”

For entities accused of infringement, Gipson said he would urge they strongly consider going to the Patent Office to challenge the validity of the patent, while also weighing the risks involved. The accused infringer must also be able to present published material (“prior art,” in legal terms), which demonstrates that the patented feature was actually in commercial use prior to the issuance of the patent in question. Publicly published material can range from magazine articles to product catalogues.

Gipson did just that last year, when his client had an ex parte reexamination of a design patent pertaining to a motorcycle carburetor. Gipson had an actual carburetor that could have been used as prior art in a federal court room, but the Patent Office will only consider published material, so he successfully produced catalogues that showed various views of the carburetor. Gipson’s client won, and the patent was declared invalid.

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