Canada: White House Proposes Measures To Deter Frivolous U.S. Patent Troll Litigation And Improve Patent Quality

Last Updated: June 17 2013
Article by Robert Irani

On June 4, 2013, United States President Barack Obama announced in a White House press release, five executive actions and seven legislative recommendations aimed at deterring frivolous patent litigation and ensuring the "highest-quality patents in our system".

The White House announcement coincided with the release of a report by the National Economic Council and the Council of Economic Advisers, entitled Patent Assertion and U.S. Innovation, which detailed the need for legislative action.

While acknowledging the improvements to U.S. patent law achieved by the Leahy-Smith America Invents Act, the press release described the problems of continued challenges arising from patent assertion entities.

The America Invents Act

On September 16, 2011, the U.S. President signed into law historic patent reform legislation designed to help make the U.S. patent system more efficient and reliable.

The America Invents Act marked the first comprehensive reform to the U.S. Patent system in nearly 60 years and made some significant changes to the patent law impacting the way patents are obtained, enforced and defended against in the United States.

The America Invents Act includes provisions for changing to a first-to-file patent system, new mechanisms for post-grant review of patents and other reforms aimed at boosting patent quality and reducing patent litigation.

Nevertheless, challenges arising from patent assertion entities continue to increase. According to the NEC-CEA report, suits initiated by patent assertion entities in the U.S. had tripled in the last two years, rising from 29 percent of all infringement suits to 62 percent. Estimates suggest that such entities may have threatened over 100,000 companies with patent infringement last year alone.

Patent Assertion Entities or Patent Trolls

Firms that own patents but do not make products with them, can play an important role in the economy, such as connecting manufacturers with inventors. Patent assertion entities, commonly referred to as "patent trolls", instead focus primarily on aggressive litigation.

Patent trolls do not practice their patents, in that they do not do research or develop any technology or products related to their patents.  Instead, they acquire patents solely for the purpose of extracting payments from alleged infringers, often waiting until after irreversible investments have been made before asserting their claims. Common tactics of a patent troll include threatening to sue thousands of companies at once, without any specific evidence of infringement; creating shell companies that make it difficult for defendants to know who is suing them; and asserting that their patents cover inventions not even imagined at the time they were granted.

In the words of U.S. President Obama, patent trolls "don't actually produce anything themselves," but instead develop a business model "to essentially leverage and hijack somebody else's idea and see if they can extort some money out of them."

In acknowledging the drain on the U.S. economy, the press release stated that swift legislative action was required to increase clarity and level the playing field for innovators.

Accordingly, the Administration recommended that Congress pursue legislative measures that would have immediate effect on some of the major problems faced by innovators, while announcing steps it was taking for bringing about greater transparency to the patent system.

Executive Actions

The Administration announced a number of steps aimed at bringing about greater transparency to the U.S. patent system and levelling the playing field for innovators. Those steps include:

  1. Making Real Party-in-Interest the New Default. Patent trolls often set up shell companies to hide their activities and enable their abusive litigation and extraction of settlements. This tactic prevents those facing litigation from knowing the full extent of the patents that their adversaries hold when negotiating settlements, or even knowing connections between multiple trolls. The U.S. Patent and Trademark Office (USPTO) will put rules in place that require patent applicants and owners to regularly update ownership information when they are involved in proceedings before the USPTO, specifically designating the "ultimate parent entity" in control of the patent or application.
  2. Tightening Functional Claiming. The America Invents Act made important improvements to the examination process and overall patent quality, but stakeholders remain concerned about patents with overly broad claims—particularly in the context of software. The USPTO will provide new targeted training to its examiners on scrutiny of functional claims and will, over the next six months, develop strategies to improve claim clarity, such as by use of glossaries in patent specifications in order to assist examiners in the software field.
  3. Empowering Downstream Users. Patent trolls are increasingly targeting Main Street retailers, consumers and other end-users of products containing patented technology—for instance, for using point-of-sale software or a particular business method. End-users should not be subject to lawsuits for simply using a product as intended, and need an easier way to know their rights before entering into costly litigation or settlement. The USPTO will publish new education and outreach materials, including an accessible, plain-English web site offering answers to common questions by those facing demands from a possible troll.
  4. Expanding Dedicated Outreach and Study. Engagement with stakeholders—including patent holders, research institutions, consumer advocates, public interest groups, and the general public. The USPTO is announcing an expansion of its outreach efforts, including six months of high-profile events across the country to develop new ideas and consensus around updates to patent policies and laws. The USPTO is also announcing an expansion of the Edison Scholars Program, which will bring distinguished academic experts to the USPTO to develop, and make available to the public, more robust data and research on the issues bearing on abusive litigation.
  5. Strengthen Enforcement Process of Exclusion Orders. Once the U.S. International Trade Commission (ITC) finds a violation of Section 337 and issues an exclusion order barring the importation of infringing goods, Customs and Border Protection (CBP) and the ITC are responsible for determining whether imported articles fall within the scope of the exclusion order. Implementing these orders present unique challenges given these shared responsibilities and the complexity of making this determination, particularly in cases in which a technologically sophisticated product, such as a smartphone, has been successfully redesigned to not fall within the scope of the exclusion order. To address this concern, the U.S. Intellectual Property Enforcement Coordinator will launch an interagency review of existing procedures that CBP and the ITC use to evaluate the scope of exclusion orders and work to ensure the process and standards utilized during exclusion order enforcement activities are transparent, effective, and efficient.

Legislative Recommendations

The Administration also recommended that Congress pursue at least seven legislative measures which would:

  1. Require patentees and applicants to disclose the "Real Party-in-Interest". Such legislation would require any party sending demand letters, filing an infringement suit or seeking review of a patent by the USPTO to file updated ownership information, and enable the USPTO or district courts to impose sanctions for non-compliance.
  2. Permit more discretion in awarding fees to prevailing parties in patent cases. Such legislation would provide district courts with greater discretion in awarding attorney's fees under 35 USC 285 as a sanction for abusive court filings, similar to the legal standard that applies in copyright infringement cases.
  3. Expand the USPTO's transitional program for covered business method patents to include a broader category of computer-enabled patents and permit a wider range of challengers to petition for review of issued patents before the Patent Trial and Appeals Board (PTAB). Such legislation would allow a broader category of patents to be challenged and enable the USPTO to weed out bad covered business method patents absent litigation in district courts.
  4. Protect off-the-shelf use by consumers and businesses by providing them with better legal protection against liability for a product being used off-the-shelf and solely for its intended use. Also, stay judicial proceedings against such consumers when an infringement suit has also been brought against a vendor, retailer, or manufacturer. As patent assertion entities or trolls have increasingly targeted consumers and end-users, such legislation is intended to enable more efficient resolution of patent litigation and better protect consumers and small businesses from abusive patent litigation.
  5. Change the ITC standard for obtaining an injunction to better align it with the traditional four-factor test in eBay Inc. v. MercExchange, to enhance consistency in the standards applied at the ITC and district courts. Such legislation is designed to make the standards applied at the ITC and the district courts consistent and reduce potential abuse of the ITC by patent trolls.
  6. Use demand letter transparency to help curb abusive suits, incentivizing public filing of demand letters in a way that makes them accessible and searchable to the public. As presently there is no easily accessible and searchable repository of demand letters, such legislation is intended to allow a more coordinated defense and attack on the validity of suspect patents.
  7. Ensure the ITC has adequate flexibility in hiring qualified Administrative Law Judges. Such legislation is aimed at allowing the ITC more flexibility in hiring qualified Administrative Law Judges to fulfill increased demand for Section 337 Investigations.

Conclusion

The White House's initiatives are aimed at improving patent quality, increasing the transparency around the U.S. patent system, improving the processes at the International Trade Commission, expanding outreach and study, empowering and educating downstream users, and ultimately curbing litigation by patent assertion entities or patent trolls.

While the recent announcement is unlikely to have an immediate impact on present litigation, it should at the very least create more dialogue and attention regarding this issue and may ultimately emanate further legislative action in the United States.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Robert Irani
Similar Articles
Relevancy Powered by MondaqAI
Dale & Lessmann LLP
Norton Rose Fulbright Canada LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Dale & Lessmann LLP
Norton Rose Fulbright Canada LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions