1 Aug
2017

Litigation cools in the United States, while the political action hots up

The first six months of the year saw a continuing decline in patent litigation in the United States, although the same cannot be said for political developments in June and July

And so the downward trend continues. Data published by both Unified Patents and RPX on patent suit filings for the first half of this year in the United States shows that the slump in litigation, which last year saw the number of new suits fall to their lowest point since 2011, is continuing. Filed cases dropped below 2,000 to levels not seen for over a decade. The numbers for the last quarter – comprising April, May and June 2017 – also provided the first glimpse of the impact of the Supreme Court’s decision in TC Heartland, with Delaware eclipsing East Texas as most plaintiffs’ venue of choice.

According to Unified Patents, the number of new district court cases came in at 1,914, down 12% on the first half of 2016. For its part, RPX found that litigation is at its lowest level since 2008, when the firm first started collating the numbers.

Instead of counting new suits, RPX tracks the total of defendants added in litigation campaigns. This means that its findings can be compared on a like-for-like basis with the years preceding 2011, when the America Invents Act became law and changed joinder rules, forcing plaintiffs to file individual suits rather than grouping large numbers of defendants together.

RPX found that a total of 1,861 new defendants were added in litigation campaigns in the first half of 2017 — 1,035 in suits brought by non-practising entities (NPEs) and 826 in cases lodged by operating companies. By comparison, just over 2,000 defendants were added to new litigation campaigns in the second half of 2008, the next lowest six-month total.

Both Unified and RPX also analysed the impact of TC Heartland, the landmark SCOTUS case concerning venue (see IP lawyer, page 72), revealing the dramatic impact it is already having on district court litigation. According to RPX, the number of defendants added in cases brought by NPEs dropped by about half in the weeks after the Supreme Court’s May 22 decision.

Meanwhile, Unified’s analysis shows that the Eastern District of Texas remained the most popular venue for new suits in the first half, with 597 filed there compared to 291 in Delaware. However, in the weeks following TC Heartland this was reversed, with Delaware seeing a total of 77 new cases filed while 55 were brought in East Texas.

STRONGER legislation

The data was made public just a few days after a bipartisan group of legislators – Democrats Chris Coons (Delaware), Dick Durbin (Illinois) and Mazie Hirono (Hawaii), and Republican Tom Cotton (Arkansas) – introduced the STRONGER Patent Act into the Senate.

Proposing to “to strengthen the US patent system through implementing measures to make it easier and less costly for patent holders to enforce their patents”, the legislation builds on the STRONG Patent Act championed by Coons in the previous Congress. Its provisions include several which would:

  • make injunctive relief more common and available to all types of entity;
  • significantly reform the inter partes review regime in favour of patent owners; and
  • put a permanent end to fee diversion from the US Patent and Trademark Office.

The STRONGER Act is the first significant patent-related piece of legislation to be introduced in the current Congress and unashamedly advocates a pro-patentee position. Ronald Reagan once stated that “if you’re explaining, you’re losing” and that has been the pro-patent lobby’s big problem up until now. In previous Congresses over the last 10 years, it is those seeking to rein in patent owners who have seized the initiative; putting their opponents on the back foot and forcing them into negative and technical arguments about why it is wrong to claim that the United States is overrun by trolls whose excesses are causing significant harm to the innovation process – the kinds of argument which all too often cause the eyes of non-patent people to glaze over.

This time, though, the pro-patent lobby has taken Reagan’s words to heart. Accompanying the introduction of the act were strong statements in support from the likes of BIO, the American Conservative Union and the Innovation Alliance. All were clearly designed to set the agenda and frame the debate around the idea that the rights of US patent owners have been diminished, and that this is harming the US economy.

By getting in first on patent reform in this Congress, Coons and his colleagues have ensured that the debate is on terms they have set. That will make introducing anti-patent legislation look reactive and render it much less potent.

US legislators are extremely busy already so it is highly unlikely that they will send anything patent-related to President Trump’s desk for sign-off in the foreseeable future – although this will not always be the case. It has been a struggle to build a pro-patent narrative among political decision makers in the United States over recent years. The STRONGER Patents Act may just change that. It is smart politics.

Pro-reform lobbying

Another savvy move followed in July when eight major tech businesses – Adobe, Amazon, Cisco, Dell, Google, Intel, Oracle and Salesforce – announced the formation of a new group to advocate further changes to the US patent system through Congress, the courts and the USPTO.

The High Tech Inventors Alliance (HTIA) claims that it will focus on four main areas:

  • improving patent quality;
  • supporting the inter partes review process;
  • making litigation fair and efficient, with more equitable damages; and
  • supporting innovation.

HTIA’s focus will not simply be on change via Congress. “The scope is not just legislative,” commented John Thorne, a partner at Kellogg Hansen Todd Figel & Frederick, and the new group’s general counsel. “It’s also going to be in the courts and the patent office, and where these issues are being debated.”

He pointed out that the USPTO and the courts continue to confront some of the most pressing issues facing the patent system, including possible changes to inter partes reviews. Following the departure of Michelle Lee (see box below) there is no permanent director of the agency and the identity of her eventual successor could have a significant bearing on how post-grant reviews develop in the coming years, as well as on examination guidelines. Ensuring that their voices are heard as such a potentially crucial decision is taken makes complete sense for HTIA’s members.

Then there is the Supreme Court, which is set to address the constitutionality of the review process later this year in Oil States Energy Services. Any influence which can be exerted on the nine justices’ decision making will be worth its weight in gold.

The HTIA companies have welcomed most of the changes to the US patent system which have taken place in recent years through high-profile court decisions and the America Invents Act. These include lowering the bar for fee shifting in patent cases, changing the pleading standards for plaintiffs in infringement suits, changing the law around patent eligible subject matter to make it easier to invalidate patents and, most recently, the decision in TC Heartland altering the rules around venue.

That may prompt some to query why another patent group representing big tech is necessary. Using language that many might deem controversial, to say the least, Thorne insisted that improvements are still possible. “If you cured a couple of types of cancer you wouldn’t stop working on the others,” he argued. Thorne highlighted TC Heartland as an important decision, but one which still left grey areas, such as what constitutes a “regular and established” place of business in the relevant statute, which are still open to interpretation by the courts.

Thorne has not ruled out signing up more members, although he pointed out that there are advantages to being small: “There are big tent groups out there with hundreds of members and those organisations are very effective in ways that big organisations can be effective, but sometimes smaller groups can do things a little bit differently, move a little faster, be a little more focused.” As things begin to heat up in Washington DC, that could turn out to be extremely sound thinking.

Search begins for a new USPTO director

It was a surprise that Michelle Lee stayed on at the US Patent and Trademark Office (USPTO) when the Trump administration took over and it was a surprise that she then suddenly decided to quit the post with no notice at the beginning of June.

According to the Politico website, Lee resigned over disagreements with her superiors in the Commerce Department over the shared services programme – now known as Enterprise Services – which is designed to pool various back-office functions for the disparate departmental agencies (of which the USPTO is one). It is a strategy which may end up with USPTO user fees essentially subsidising other parts of the government – fee diversion by any other name. While this has been strenuously denied by Commerce Secretary Wilbur Ross, there is no doubt that it remains deeply unpopular with parts of the patent community; the Intellectual Property Owners Association has been particularly outspoken about the subject.

Lee’s temporary replacement is Joe Matal, a former staffer in the US Senate who had been acting as the USPTO chief of staff immediately after the new administration came in and who had previously served as an associate solicitor in the USPTO’s Office of the Solicitor. Matal is understood to be one of many who has been interviewed for the director’s role on a permanent basis, although he has not been considered one of the favourites.

How long Matal remains as acting head now depends on the speed with which the White House names its pick for director and then how quickly he or she can be confirmed by the Senate. That process usually takes several months – former director David Kappos was officially nominated in June 2009 (although vetting had started in April) before he was confirmed by the Senate in August – but this administration has been moving particularly slowly in making appointments and the US legislature currently has more than a few things on its plate.

That could mean that Matal is in place for a fair amount of time. There is a recent precedent for a supposedly temporary appointment ultimately taking the director’s job on a permanent basis. Lee was initially appointed acting director and was nominated only after a strong backlash from parts of the tech community against the possible appointment of then Johnson & Johnson IP head Phil Johnson. Should the current administration’s favoured candidate also meet with staunch resistance, then Matal, as the incumbent, may suddenly appear to be the best option.

Until a permanent successor to Lee is announced, major behind-the-scene lobbying efforts designed to influence the decision can be expected. While many in the US patent community will be pleased to see Lee go, believing that she presided over a regime that deliberately and effectively undermined patent rights, others will be extremely worried about what comes next – this will particularly be the case among many of the larger tech companies.

In April a number of these – including Amazon, Facebook, Google and Samsung – wrote to President Trump and Secretary Ross urging them to leave Lee in place or to appoint someone who will continue the work she began at the agency. You can see why: the Supreme Court’s Cuozzo decision in 2016 made clear that the USPTO director has substantial power to revise the rules under which the Patent Trial and Appeals Board (PTAB) operates, while a new director could also choose to revisit examination guidelines created in response to recent Supreme Court judgments such as Alice and Mayo. Any moves away from the status quo to a more patentee-friendly approach at the PTAB and among the examiner corps would be highly unpopular in many parts of Silicon Valley. Conversely, from the perspective of extremely welcome.

Thus, whoever does end up with the USPTO director’s job permanently stands to have a fair bit of power; he or she will probably be able to do much as they like without having to worry too much about being second-guessed further up the government chain. Depending on the identity of individual in question, this could mean steady as it goes or radical change.

Patents have become a political subject over the last 10 years, which makes the USPTO director’s job important in a way that it never was previously. If left to themselves, those with the deepest pockets may end up having a large say in who gets to shape the US IP environment over the coming years. Those who feel strongly about this would be well advised to hold their breath and dive down deep into the swamp in order to ensure that their voices are heard.