November's pre-rule change spike means that 2015 is set to be the most litigious in US patent history
On 1st December, amendments to the Federal Rules of Civil Procedure came into force in the US. The effect of these is to heighten pleading requirements for parties looking to instigate patent litigation. In the lead up to the new regime there was a significant spike in the number of court filings. Clearly, there were plenty of people out there who did not want to fight cases under the revised rules. We asked the team at Patexia to look at November’s filing activity and to put it into some context. The results show just how big a spike there has been – with 2015 as a whole now certain to be the most litigious ever. It is to be hoped that those who proclaim this come January next year will note what happened in November, and why. We'll see about that, I guess.
Anyway, it seems that the new rules – which were very well trailed - are believed to have some bite. If that were not the case, there surely would not have been such a rush to avoid them. This must vindicate those who have advocated a wait and see approach to possible legislative patent reform. The sum of the rule amendments, plus a series of major judicial decisions and the emergence of the IPR regime in the US have changed the rules of the American patent litigation game. Now is the time to take stock, rather than to press on with yet more major change. Congress may be beginning to get the message.
This is what the Patexia team has to say:
While many industries tend to take it easy around Thanksgiving, US patent litigation took the opposite approach this year with a notable spike in November. Numbers were unusually high, especially coming into the end of the month with 562 cases filed since 20th November 20th. We analysed the data and have drawn some conclusions about the factors behind the burst of activity.
1st December 2015 marked the implementation of a set of important amendments to the Federal Rules of Civil Procedure (FRCP), specifically key reforms that will lead to a heightened standard of pleading for direct infringement cases. After a careful look at the data year over year, it seems clear that the spike seen at the end of last month can be accounted for largely by companies attempting to get litigation on the books prior to the higher standards and increased uncertainty created by the introduction of new rules.
The Judicial Conference of the United States approved a number of key amendments to the FRCP in September 2014 and those changes were then rubber stamped by the Supreme Court in April 2015. While there were a number of amendments implemented, the change expected to have the greatest impact on patent litigation is the elimination of the Appendix of Forms and related Rule 84. The result of this change will be the abrogation of Form 18 which, 1st until December, governed the pleading requirements for patent infringement.
Under Form 18, a plaintiff was required to show that (1) the court has relevant jurisdiction; (2) it is the sole owner of the issued US patent; and (3) that a class of products made, sold or used by the defendant infringes the patent. However, plaintiffs were not required to identify an asserted patent claim or to specify an accused product by name under Form 18.
According to the FRCP Advisory Committee, the standard laid out in Form 18 called for "a simplicity of pleading that has not been used in many years”. They went on to specify that the “increased complexity of most modern cases has resulted in a detailed level of pleading that is far beyond that illustrated in the forms”. By removing Form 18, the Advisory Committee hopes to create a heightened standard of pleading for direct infringement based on the standard set by the US Supreme Court in Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal.
Taking a closer look at the implications of Twombly and Iqbal, together the two cases lay out a solid set of standards, albeit one that will almost certainly be refined by the courts as they become the key basis for direct infringement cases. Under these standards, a claim is required to include sufficient factual matter to “allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged”. Iqbal further stipulates that: "A pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of action will not do. Nor does a complaint suffice if it tenders naked assertion[s] devoid of further factual enhancement."
Taking into account the standards set in Twombly and Iqbal, it seems likely that moving forward plaintiffs will need to provide additional details including (1) specific patent claims that are alleged to be infringed; (2) specific products that are allegedly infringing the patent; and (3) a deeper level of infringement analysis demonstrating how the asserted claims are infringed by the accused products. This analysis could even be extended up to the level of a claim chart.
Visible in the attached chart, there is a clear and observable rise in litigation towards the end of November, with an initial spike from 23rd to 25th (ie, just prior to Thanksgiving) and then a final peak, with 259 cases filed on the 30th closing out the month. November 2015 also saw more patent litigation filed than any previous month of November on record.
Looking at quarterly litigation rates 2013 to 2015, it is clear that 2015 has been another milestone year for patent litigation in the US. While it is still a month before the end of the year, with 1,357 cases filed so far in Q4 2015, it looks likely to be an all time high for the quarter, closing out a record year as a whole.
Given the impending rule changes, this unusual spike in litigation activity can most likely be attributed to a number of related factors. Some companies likely attempted to get their cases filed in November under the existing standard hoping to slip in under lower barriers in terms of initial evidence and, by extension, cost. It could also simply be a factor of trying to avoid the inherent uncertainty that will be introduced as a new set of standards is tested and defined. In either case, it will be interesting to track the impact of the new standards moving forward and to watch how they are further defined by the courts.