Patent litigation is out of control in the United States. Hundreds of parasite companies have been created specifically for the purpose of launching patent lawsuits against any business that dares to develop a new product or service. This war on innovation is led by nonpracticing entities, or patent trolls, which buy up patents not for the purpose of producing an invention or a technology, but rather for suing people who do.
The term patent troll was created by Peter Detkin when he was the assistant general counsel for Intel Corporation. According to Detkin, a patent troll is somebody who tries to make a lot of money off a patent that they are not practicing and have no intention of practicing and in most cases never practiced. Researchers at Boston University estimate that patent trolls impose $29 million in direct costs on the private sector every year.
Last year, President Obama spoke out against patent trolls when his Council of Economic Advisors released a report titled Patent Assertion and U.S. Innovation. He warned that true innovators must be protected from frivolous litigation that often results in multimillion-dollar verdicts and settlements for the NPEs.
Jury consultants have revealed that NPEs seek out and exploit juries unfamiliar with complicated technologies and processes. The Ground Zero for patent troll litigation is the Eastern District of Texas, which is home to dozens of patent troll companies, many of which have neither employees nor officesjust P.O. boxes that entitle them to sue in a friendly venue with low-information jurors.
East Texas differs from more urban venues because of the paucity of large companies based there. Thus, corporations are likely to be viewed with more suspicion in East Texas than they are in places like Austin or Dallas, just a few hours away.
In some of the major counties that supply jurors to the East Texas courthouses, college graduation rates are as low as 15 percent. Not to sound elitist, but are these the ideal jurors to decide a case such as TLIF LLC v. Biomet Spine & Bone Healing Tech and Biomet Spine LLC? They are, if you happen to be a plaintiff attorney with a talent for oversimplifying complex questions and appealing to populist sentiment. Its easy to paint a locally based patent troll as David doing battle against a distant corporate Goliath.
According to jury consultants at Julie Blackman & Associates, East Texas juries liken patent cases to familiar concepts such as oil and gas rights or fences around property. This encourages the juror to refrain from forms of higher analysis when adjudicating a claim. Jury consultants have noted the results of this kind of thinking or lack of thinking:
Across multiple mock trials, we found that mock jurors tended to think about infringement and invalidity (and sometimes damages) as part of the same package: In deliberating on one question, they often relied on information pertaining to the others as well. Thus, in considering infringement, some believed that the defendants infringed simply because the patent holder held a valid patent, or was the first to come up with an idea. These basic beliefs often trumped (or took the place of) an infringement analysis involving detailed comparisons of the patent claims with the accused device. When mock jurors relied on the existence of the patent or the primacy of the inventor to support their infringement analysis, the patent holder was given a distinct advantage.
Litigation is much easier on trolls than on ordinary businesses. If Microsoft Corp. sued IBM Corp. over a patent, each side would have to divert resources from their real business and produce thousands of documents in discovery. An NPE does not have to divert resources for litigationbecause that is its real business. Because a troll does not actually produce any product pursuant to the patents it holds, this cuts down on the burden of civil discovery and takes away the threat of an infringement counterclaim that could shut down a business.
The United States is the only country in the world where standard juries are used in patent cases. With the trolls imposing huge costs on the economy and crippling our power to innovate, Americans should be willing to consider major changes in how we decide patent cases. Possible reforms include stricter venue requirements and rethinking our use of lay jurors and nonspecialist judges in patent cases.
Complaints filed in patent infringement cases predicate venue on 28 U.S.C. § 1400(b). This statute authorizes venue jurisdiction over any patent infringement in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business. Statutory law further provides that a corporate defendant reside[s] in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced. Personal jurisdiction is typically established when an entity has certain minimum contacts with the jurisdiction so that due process is not offended if the entity is brought into court. This is a low standard.
Because so much abuse has occurred in the Eastern District of Texas, there should be a separate statute defining the residence of a corporate defendant. For example, patent defendants might be said to reside in any state where they are incorporated or where they have their principal places of business. Under U.S Supreme Court case law, a principal place of business refers to the place where a corporations officers direct, control and coordinate the corporations activities. A principal place of business should normally be the place where the corporation maintains its headquartersprovided that the headquarters is the actual center of direction, control and coordination, i.e., the nerve center. Defining residence in this manner in patent cases would considerably cut down on forum shopping.
The Seventh Amendment insists on the right of trial by jury in most civil cases. But the Constitution does not forbid the government to set reasonable rules on how to select a jury. For jurors serving in patent trials, courts could require the jurors to possess a formal education in the sciences or technologyand in some cases specialized knowledge in the particular field related to the patent.
Specialized or expert juries are well known in U.S. and English jurisprudence. In England, for example, trade disputes were often heard by a jury of specialists. This practice dates back to medieval times and continued to the time of the American Revolution.
There is nothing un-American about seeking out more qualified juries. The common-law tradition insisted on juries because they offered many advantages over judge-only trials. Local jurors had familiarity with the people involved and the subject matter of a trial. In boundary disputes, for example, the jurors typically knew the lay of the land and the character of the parties to the litigation. This specialized knowledge made local juries of the vicinage the proper and best tribunal to decide the disputes. Modern juries in many casesespecially in patent litigationhave no knowledge of the subject matter or of the parties. This hinders their functionality in complex cases.
Of course, legal challenges might arise if diverse groups were not proportionately represented in a specialized jury pool. Any jury reform measure would have to go to great lengths to ensure no de jure or de facto discrimination. Given that Americas high-tech universities are highly diverse, there should be no problem in recruiting qualified peoplewho ought to be compensated properly. It would penalize these specialists to pay them a mere $15 per day for their work on a patent case.
Some, such as intellectual property commentator and attorney Yan Leychkis, make compelling arguments that not just specialized but professional juries should be considered for patent cases. Leychkis calculates that because a patent trial lasts between one week and one month, a set of 12 jurors and three alternates could decide about 20 cases per year. Inasmuch as only about 100 patent cases actually go to trial every year, 10 sets of professional jurors could decide all cases throughout the United States.
Just as the Federal Circuit is the designated court of appeals for all patent cases in the United States, Congress should consider creating a specialized patent trial court. Patent law and the underlying technology are extremely complicated. District judges are generalists and lack the background to effectively handle patent litigation. When carrying a full criminal and civil docket, judges have little time to study the complex intricacies that drive patent cases. A district court system where judges have technical background and decide only patent matters would be an improvement over the current system.
Patent trolls are stifling high-tech businesses and threatening Americas competitive advantage in the world economy. Any pro-growth candidate for office should adopt patent law reform as a plank in his or her platform, and pro-growth voters should demand it. Our country wasnt built by litigators but innovators. Americas laws should reflect that.
|William J. Watkins, Jr. is a Research Fellow at the Independent Institute and author of the Independent Institute books, Crossroads for Liberty, Reclaiming the American Revolution, and Patent Trolls. He received his J.D. cum laude from the University of South Carolina School of Law and is a former law clerk to Judge William B. Traxler, Jr. of the U. S. Court of Appeals for the Fourth Circuit.|
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