How ironic that the first post on Global Antitrust should be one about IP and not pure antitrust. I’ll leave it at that for now. I just had this on my mind, and it is timely, so here it is: my 2 cents on NPEs and trolls.
In Europe, positive headway against the continuing onslaught of illegitimate IP lawsuits by so-called patent trolls or non-practicing entities (NPEs) is being made with the EU Universal Patent Court’s proposed regime (starting as early as 2014) of a mandate of losing-party-pays, limits on multiple defendants and on discovery, and the rule of proportionality and fairness.
In the United States, lacking a UPC equivalent other than the Federal Circuit, there are a few (novel) ways of combating the NPE fraud. This is a quick-and-dirty summary of those available to accused infringers, from my personal perspective, to stop trolls dead in their tracks.
One is just basic litigation and discovery strategy and is hardly new. However, I would like to see it used more frequently. It’s not for the faint-of-heart, however — those are advised to settle, quite simply, by good outside counsel. For accused infringers with more to lose (especially in the future) from settling cheaply now rather than litigating with guns blazing, however, they should litigate, and litigate hard-core. Often, trolls use a strategy of contacting hundreds if not thousands of the accused infringer’s clients and product users, thereby adding pressure to the manufacturer, in the hopes of attempting to push a quick global settlement. In that scenario, the NPEs (and possibly the entity that sold or assigned the IP-at-issue to the NPE in the first place) may be accused of a conspiracy to engage in baseless sham patent litigation (maybe even include a RICO claim here?).
While it’s not the easiest thing to prove, one can win a “baseless- or sham litigation” claim, as long as one gets the right discovery from the entities involved. One of the trickiest issues may be to get around any assertion of attorney-client privilege by the IP troll’s law firm – these two parties are often so closely bound together that their claims of attorney-client privilege and work product will cover everything under the sun.
In the end, your success will turn on your legal counsel’s ability to (1) create water-tight discovery requests, (2) pursue discovery shamelessly to the fullest from the NPE, its prior IP-assignors (don’t forget!), and its (non-lawyer) officers and directors even individually – private e-mail accounts etc. – to get around privilege issues, (3) evaluate very closely the NPE’s privilege logs, and (4) challenge each and every suspect claim of privilege you identify. With that, you may have a good factual / documentary basis to get your sham litigation claim off the ground and past the MSJ stage.
Other, newer avenues are more technical and rules-based.
For instance, Rule 11 (against improperly grounded or frivolous lawsuits) and 28 U.S.C. section 285 (for attorney’s fees and costs) can be a powerful combined two-punch against NPEs and their counsel when used appropriately. This was the case in the December 2012 case against NPE Raylon LLC, where the Federal Circuit found that the NPE’s IP claim construction was “a clear instance where no objectively reasonable litigant  would believe its claim construction could succeed,” holding that it was frivolous and sanctionable under Rule 11 and awarding fees and costs under section 285.
Yet another potential shield for accused infringers is use of the new 35 U.S.C. section 299 provisions, in the aftermath of the America Invents Act (AIA). It allows for joinder of multiple [e.g., a slew of NPE-brought] legal actions against distinct defendants, where the IP claims against those parties “arise] out of the same transaction, occurrence, or series of transactions or occurrences relating to the making, using, importing into the United States, offering for sale, or selling of the same accused product or process.” The economies of scale and the avoidance of piece-meal settlements with smaller defendants in individual lawsuits may well help stem the tide of patent trolls suing hundreds of accused infringers in federal court.
Perhaps one day, I’ll write a bit about bringing antitrust counterclaims against IP fraudsters…