White House and Congress can add fairness to patent litigation, address $500 billion problem

According to an oft cited 2012 Boston University study, lawsuits filed by patent trolls cost innovators $500 billion in lost wealth from 1990 to 2010. Far too often, the goal of a lawsuit brought by a patent troll is not to defend a patent – or even to practice the invention – but to force a settlement.

In none of the cases where SAS has been sued for patent infringement is the plaintiff an operating company. Those suits are only brought by Patent Assertion Entities, commonly referred to as “patent trolls”. These are shell companies that make nothing, sell nothing, produce nothing (other than litigation) and employ no one (other than lawyers). Conversely, trolls target the companies that are actually innovating, employing Americans, building our economy and providing opportunity in this country.  Their actions have far reaching effects on innovation, job losses and employee pay and benefits.

US government leaders have turned their attention to this issue. The White House released a report last month on the effects of patent trolls on US innovation. From the report:

Suits brought by [patent trolls] have tripled in just the last two years, rising from 29 percent of all infringement suits to 62 percent of all infringement suits. Estimates suggest that [patent trolls] may have threatened over 100,000 companies with patent infringement last year alone.

When SAS is sued by a patent troll, we have already lost.  We can either fight the troll and spend millions of dollars to do so or pay them to go away.  If we fight, we spend money on lawyers and court costs and cost to respond to discovery.  We divert the attention of our executives away from running our business and divert our software engineers from developing products. If we settle, we effectively become an ATM machine for this troll and for the hundreds of other trolls out there looking to make money by threatening litigation.  It is truly a no win situation.

It is time to inject fairness and balance back into the patent litigation process.  There is one change that will go a long way towards limiting abusive behavior by patent trolls.  Typically, a patent troll will demand that the defendant produce any and every electronic document that might touch upon the alleged claims, by any person inside the defendant’s operations.  This discovery process can involve millions of documents and cost millions of dollars to produce.  Under current rules that cost is borne by the defendant.

Patent trolls often bring these cases in jurisdictions that allow this type of expensive discovery. In patent cases with trolls, the discovery burden is solely on the defendant. Patent trolls have no employees or products so they have virtually no documents or witnesses.  Their burden of discovery in litigation is minimal.  Thus, these trolls can wage a high cost discovery war with impunity. This cost to defend the litigation is one large hammer that drives companies to pay to settle.

It does not have to be this way.  In a patent case discovery should be relatively straightforward. The only things at issue in a patent case are what does the patent say, and what does the infringing product do?  Discovery should focus on that.  All that is really needed are core documents, which include the patent at issue, the technical specifications of the allegedly infringing product or feature, and the prior art. Normal rules of discovery should apply to the disclosure of these core documents, with the person or company producing the core documents paying the cost of production.

Additional discovery should be permissible; however, the party requesting it should pay the cost of that discovery. This approach allows patent cases to proceed efficiently yet it removes the ability to use discovery as an abusive weapon.  Parties can still get the evidence they need to prove their case.

I’m encouraged by developments in Washington, though more needs to be done. For instance, Senator Cornyn recently introduced legislation that would, among other things,  mandate changes to the discovery rules in a manner consistent with the philosophy described above.  Similarly, the House circulated recently a “discussion draft” that also addresses the discovery burdens.  But, instead of mandating statutory changes, the discussion draft would instruct the Judicial Conference to make recommendations to change discovery rules within six months. It does not, however, require any court to adopt these recommendations.  While there is a role for the Judicial Conference to play, a stronger statutory requirement that changes the rules in all courts is really the better solution in this instance because the problem has arisen from judicial discretion.  Judges do not have to allow expansive, expensive and abusive discovery, yet they do.

Besides releasing a report on the problem, the President also announced a number of legislative suggestions  and executive actions for the Administration to pursue.  All of these are important steps, and I applaud the President for his leadership on this issue.  As the President’s report notes, changes in policies that will have the effect of “reducing the disparity in the costs of litigation for patent owners and technology users” is a critical part of the solution.  Given that the discovery reform described above is intended specifically to reduce the disparity, it will have that impact before litigants ever reach the courthouse doors.

The steps proposed in the Senate, the House and by the President are steps in the right direction and we look forward to working with government and industry to enact fair, sensible discovery patent litigation reform. Otherwise, American growth and innovation will continue to be threatened by an unbalanced process that is too easily abused for the benefit of very few.

tags: discovery process, PAE, patent, patent assertion entities, patent litigation, patent reform, patent trolls, SAS

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