Introduction

The legal and political landscape surrounding patent litigation is rapidly evolving, and many of the changes provide new strategic options for defendants (and new challenges for patent plaintiffs). In particular, recent discussion of patent litigation policy changes and patent reform have focused on derogatorily named “patent troll” litigation, often loosely defined as litigation brought by entities whose only business is to acquire and aggressively assert patent rights. Such entities are sometimes more neutrally referred to as “patent assertion entities” (PAE’s), but use of “patent troll” and “patent troll litigation” has primarily caught on in the public consciousness.

Indeed, patent troll litigation has been the focus political and media outrage and calls for reform, often based on assertions that patent troll litigation creates a significant drag on the nation’s economy and the innovation economy in particular. For example, House Judiciary Committee and its Chairman Bob Goodlatte published this video, featuring a menacing cartoon patent troll, to promote patent reform proposals. Bloomberg News likewise published a short cartoon video tellingly entitled “Patent Trolls: What Are These Hideous Creatures?”

Key Dynamics in Patent Troll Litigation

Recent developments are changing the dynamics of patent troll litigation. In the past, it was almost always cheaper for targeted defendants to buy a quick settlement than to fight. These early settlements were widely seen as filling troll’s coffers and bankrolling further litigation.

The tendency for early settlements in patent troll litigation has been driven in part by the high cost of patent litigation, particularly in the discovery phase of litigation. Even if a defendant felt it had a strong defense, for example based on non-infringement or prior art invalidity, it was still necessary to get through some or all of the discovery process before asserting those defenses to dispose of the case. As a result of the front-loaded transaction costs in the early, discovery phase of patent litigation, it was typically less expensive for a defendant to settle patent troll litigation up front than to win the litigation. This dynamic was often compounded by the lack of information in the defendant’s hands at the outset and the high cost of merely understanding the infringement accusations. The defendant could not even judge the probability of success on its defenses, without investing significant resources to gather information and evaluate those defenses.

New Weapons Against Patent Trolls Change the Dynamics

A series of recent legal and legislative changes have substantially altered the litigation dynamics, opening new defensive strategies for patent troll targets. Several changes shift up-front costs away from the target and toward the troll, for instance by providing a strong substantive defense that can be asserted at the outset of litigation (before discovery costs must be incurred). Other changes increase opportunities to recover fees at the end of the litigation (potentially offsetting a defendant’s investment in fighting the case and winning). As a result, the risk of litigation is more balanced between trolls and targets, and potentially much better for defendants facing off against patent troll demands. With the availability of faster and lower-cost defense options, fighting, rather than settling, can be a rational and cost-effective strategy in more patent troll litigations.

These changes are also being reflected on the ground, in changing outcomes and dynamics in ongoing patent troll litigation. For example, the graph below shows that total new patent litigation filings grew dramatically between 1990 and 2013, but may be stabilizing and in fact have declined slightly since then.

Source: Judicial Facts & Figures 2015 (Table 4.7)

Nonetheless, published data suggests that patent troll litigation (broadly defined) has grown sharply even in the last 5 years, both in absolute numbers and as a share of new patent litigation filings (as shown in the graph below), and now represents a clear majority of all new patent case filings.

Source: RPX’s “2015 NPE Activity Highlights” Report (Chart 1).

The remainder of this Report will consider how recent and proposed legal changes have changed and will continue to change patent troll litigation. Each section is summarized and linked below.

Forthcoming Sections

The Public Policy of Patent Troll Litigation. This section evaluates the politics and policies around patent troll litigation, including the effects of risk perception, actual costs, timing, and limited information on settlement. It also describes a series of public policy proposals targeting patent troll litigation, and introduces how policy and strategy changes have altered patent troll litigation in practice.

Game-Changing Legal Precedent. This section of this Report analyzes key changes in the law from the Supreme Court, including limitations on patentable subject matter under Section 101 and indefiniteness of patent claims under Section 112, that provide defendants with strategies to pursue earlier, and potentially less-expensive, resolution of some patent cases, as well as revision to the standard for imposing attorney fees at the end of a case, which can change the relative risk and reward for both parties in settlement discussions.

State Prohibitions on Bad Faith Claims of Patent Infringement. This section discusses the efforts of state legislatures to combat patent troll litigation by prohibiting misleading or vague assertions of patent infringements. It also addresses some of the federal challenges facing these efforts.

Patent Validity Challenge Procedures in the Patent and Trademark Office. This section of this Report considers new post-grant procedures at the U.S. Patent and Trademark Office under the America Invents Act, including covered business method (CBM) reviews and Inter Partes Review (IPR) proceedings, and how the availability of these procedures to challenge patent validity has altered strategy and dynamics in patent troll litigation.

Revisions to the Federal Rules of Civil Procedure. The next section of this Report analyzes how key amendments to the Federal Rules of Civil Procedure are relevant to, and may continue to alter, the dynamics and strategies employed in patent troll litigation.

What’s Next? Legislative Proposals for Additional Patent Reforms. This section of the Report outlines past and current proposals for additional patent litigation reforms in Congress, including key proposals targeting patent troll litigation that have been repeatedly considered, but not yet enacted.