Improving The Patent Enforcement Process?

On September 27, 2011, Chief Judge Randall Rader spoke to a group of, primarily, lawyers and judges attending a combined meeting of the Federal Circuit Bar Association and the Eastern District of Texas Bar Association to share his visions on improving the patent system. Professor Dennis Crouch’s article on the subject includes a link to the text of Rader’s speech, but once in the room, his spoken comments varied slightly.

For example, Rader’s written speech says:

In colloquial terms, the court may adjust timing and procedures of the case to make sure a billion-dollar case gets a “billion-dollar’s worth” of process—adequate time and witnesses and confidential information protections and more—and a thousand-dollar case gets . . . well, less.

However, I personally do not recall Rader phrasing his comments quite like this. Standing before hundreds of Texans, Rader’s suggestion that a class of lawsuits deserve something “less” than “adequate time” would not have been well received. Nevertheless, Rader did encourage judges to conduct an early case evaluation to determine whether a case was worth billions or only thousands, and tailor the discovery and process accordingly. Rader’s point comports with the views of a judge on record as believing “in a little injustice.”

Rader also pitched some model discovery rules that he mentioned in comments several months ago in Singapore that could potentially shift significant costs onto patent owners. Helpfully, the text of the proposed rules has also been posted at PatentlyO, and was the subject of lunchtime discussion during yesterday’s meeting. Admitted defenders of accused infringers (literally) cried “Hallelujah!” Meanwhile, other lawyers pointed out the model rules’ arbitrary treatment of email and equally arbitrary limits of five email custodians and five search terms for email selection.

Some attendees explained that certain companies rely heavily on email to document decisions about product design. Rader’s plan seems admirable, but ignores the view that the risk of burdensome discovery compliance costs should be borne by the party in the best position to control them. If companies use disorganized documentation methods , such as email, the added expense of compliance should be borne by the companies making that choice. Similarly, if a patent owner purposefully over-reaches in its requests and insists on production of largely irrelevant material, cost shifting may be appropriate. However, the latter problem is likely overstated. Patent owners (and their counsel) don’t care to read 3,000,000 emails any more than defending companies care to produce it.

Rader’s other suggestions for “improvement” included asking judges to end patent infringement cases without holding a trial, asking lawyers to consider spreading patent cases around to more diverse jurisdictions, and implementing cost and fee-shifting rules to curtail bad faith litigation (on both the offensive and defensive sides). Of course, jury trials are protected by our Constitution, lawyers are obligated to put their client in the best possible position within the rules of ethics, and fee-shifting is too blunt an instrument to provide adequate justice.

Much modern patent litigation results from a failure to negotiate, and such failure permeates both patent owners and accused infringers. Many times, the patent owner files suit without giving adversaries any opportunity to negotiate. Granted, the reasons for this are obvious. Giving the adversary an opportunity to negotiate generally also gives the adversary an opportunity to pre-emptively file suit to gain a procedural advantage. However, even many of these cases end in settlement. Rader’s broad fee-shifting proposal is unlikely to distinguish the reasonable and unreasonable parties in the current system. Instead, rules should be adopted that punish the failure to negotiate.

At the same time Rader gave his speech, ICAP Patent Brokerage was busily implementing some improvements to patent enforcement of its own. Yesterday, in Los Angeles, ICAP conducted the first ever “IP Rights” auction, attracting companies to bid for “covenants not to sue” for dozens of patent portfolios. Expectations were already high when ICAP released a statement identifying over 400 companies interested in (at the time) on 22 available covenants. In the weeks that followed ICAP’s initial statement, six additional lots were announced.

After the auction, ICAP continues to hold the results in confidence, but a source indicated that program “exceeded our expectations.” Plans are already in the works for next auction. Patent owners interested in pursuing the auction method for enforcing and licensing their IP rights should contact ICAP’s Kevin Fiur for more information. Rumors are circulating of an apparent “sabotage” attempt by RPX, who would prefer their clientele not participate in the process. Unfortunately for them, companies continue to show a willingness to negotiate which reduces the need for litigation (in turn, reducing the effectiveness of RPX).

In the end, both Rader and ICAP share an indirect goal in reducing patent litigation. But while ICAP’s proposal provides an alternative process for patent commercialization, Rader’s plan threatens the viability of patent ownership in the first instance.