The best player for changing the patent troll game

Patent assertion entities, commonly referred to as patent "trolls," are a subset of non-practicing entities, that play games with abusive litigation tactics.  They hold patents but do not manufacture products and often derive significant revenue by claiming ownership of widely used ideas.  For example, a patent troll may claim ownership of offering Wi-Fi in a coffee shop and claim infringement against a large number of defendants, including the customers using Wi-Fi at the coffee shop. While these lawsuits are very often without merit, they are capable of frightening defendants into agreeing to a settlement.  Although most agree that additional action is needed to curb frivolous lawsuits, reaching an agreement on a suitable strategy is a topic of ardent debate.
 
Many argue that congressional action is needed to decrease the incentives that "trolls" have to bring frivolous lawsuits, possibly through altering procedural aspects of litigation.  One proposal, the Saving High-tech Innovators from Egregious Legal Disputes ("SHIELD") Act, would require any party that the court identifies as a patent troll to post a bond early in litigation, and if unsuccessful on a patent validity or infringement claim, require that party to pay the other party's attorney's fees. Supporters of this Act note that, by including a bond requirement, the Act would not deter plaintiffs who believe they have a non-frivolous claim, thereby minimizing any collateral damage to the patent litigation system.  Opponents, however, criticize the Act for targeting entities, rather than focusing on harmful actions.  Other legislative proposals call for improving the quality of patents and limiting discovery procedures.  Although these proposals continue to generate valuable discussion on the issue of patent trolls, any legislative solution seems a long way off.

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Alongside these legislative efforts, the President has also attempted to curb the negative effects of patent trolls in the form of several legislative recommendations and executive actions.  For example, following a recent White House study, the President directed the USPTO to begin a rulemaking procedure that would require greater disclosure of the "real party in interest" of a patent.  Many patent trolls utilize shell companies to hide their identities and assets from the targets of their litigation.  By requiring disclosure of the real party in interest, targets of patent trolls may be more well equipped to form a litigation or settlement strategy.  Unfortunately, smaller entities may still find it difficult to investigate their opposing parties without significant legal assistance.

In addition to the new legislative and executive proposals, both the former Chief Judge Michel and current Chief Judge Rader of the U.S. Court of Appeals for the Federal Circuit have called for judges to use the tools currently at their disposal to curb abusive litigation.  In an effort to change the status quo, they and others make a compelling argument that judges should use existing Rule 11 discretion to hold attorneys accountable for bringing frivolous lawsuits.  Rule 11 of the Federal Rules of Civil Procedure provides that a party may be sanctioned for bringing a frivolous lawsuit or for bringing a lawsuit without conducting an adequate pre-filing investigation.

Rule 11 has rarely been applied in patent infringement litigation, but application of a broader use of Rule 11 has recently gained traction.  For example, in a 2012 case, Raylon, L.L.C. v. Complus Data Innovations, Inc., a plaintiff was sanctioned under Rule 11 for filing a frivolous infringement action.  In other recent cases, the Federal Circuit has either personally levied Rule 11 sanctions against a plaintiff for pursuing a frivolous lawsuit or remanded to the district courts for further examination after an incorrect standard was applied.[1]

If judges continue to enforce Rule 11 more strictly, then the use of existing tools may be adequate to disincentivize plaintiffs from bringing meritless lawsuits.  Granted, Rule 11 offers little protection to victims in the pre-filing phase.  Nonetheless, with Rule 11 at their immediate disposal, the courts may be the best players for changing the patent troll game in the short-term. 

Hannon is a partner in the Washington D.C. office of Sughrue Mion and has over 25 years experience in patent litigation. Welsh is an associate in the D.C. office of Sughrue Mion, and practices in the area of preparation and prosecution of domestic and foreign patent applications.