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What Form Reform?

What Form Reform?

Thanks to Senate Majority Leader Harry Reid the proposed patent reform bill did not make it to the floor of the Senate even though the bill passed overwhelmingly in the House.
     However Congress will reconvene soon and it will not be long before the “troll” panic picks up momentum again.
     In all fairness to the well-meaning reformers, there is a problem to be solved, but it is not a problem with the “patent system” per-se.
     If we are honest with ourselves it is clear that great inventors like Benjamin Franklin, Thomas Edison, Alexander Graham Bell and Steve Jobs have driven industrial and economic development throughout the history of the United States.
      How then have patents acquired such a negative image in the last decade or so?
As with all stereotypes, the bad behavior of a few is being used to characterize a large class.
     Ironically, it is because patents have been held in such high regard in the United States that they are now being reviled. The high regard for patents translated into large monetary damage awards resulting from infringement. As the size of the monetary damage awards increased, the amount of resources that each side devoted to a lawsuit increased until we reached a point where legal costs for each side are typically measured in millions of dollars.
     Under those circumstances, industrial giants began to evaluate patent owners making an accusation of infringement in terms of their ability to actually finance a law suit from start to finish. If the patent owner was a “little guy” the giant might either offer to purchase a license at a price that was unfairly low, or simply ignore the threat of an infringement lawsuit.
      This situation led to the development of specialized holding companies which acquired patents specifically for the purpose of enforcing them against infringers. These holding companies were initially characterized as “non-practicing entities” (NPEs). The NPEs turned out to be formidable legal opponents because they do not make any product or sell any service. This makes them immune to infringement counter suits.
     Objectively, one might say that NPEs play an important role in the patent system by acting as “Guardian Angels” for patents belong to those that lack the necessary resources to assert them. However, companies, like people, will do many things for money and NPEs are no exception. Some NPEs felt there was not enough actual infringement going on to generate sufficient revenue for them. These ravenous players began to look for granted patents with vague claim language so that they could accuse large numbers of companies of infringement. This is easier to do than one might expect for reasons which will be discussed below. These ravenous NPEs quickly became known as “trolls”. The word troll was soon being applied to virtually all NPEs and even to regular manufacturing companies that were asserting rights on a product they do not produce. A short time after that, someone coined the phrase “tax on innovation” to describe patents in general. The fact that the phrase is inaccurate has not detracted from its popularity to any discernible degree.
     Is there a problem to be solved here? There probably is. However the problem is not rooted in the basic concept of patent protection. The problem lies primarily with the judicial procedures used to determine whether infringement has actually occurred or not and, to a lesser extent, with the historic tendency of the patent office to grant claims with vague language (the performance of the patent office in this regard has improved in recent years).
     For the purposes of our discussion of reform it is sufficient to focus on the judicial procedures used to determine whether infringement has occurred. It is proposed that if these procedures were properly reformed, any shortcomings of the patent office would be mitigated to a great degree.
     The current judicial procedure begins with an accusation of infringement made by filing form 18. Form 18 is surprising brief in the level of detail that it requires. The patentee needs to assert only three matters of substance:
    2. ON <DATE>, UNITED STATES LETTERS PATENT NO. <XXXXXXX> WERE ISSUED TO THE PLAINTIFF FOR AN INVENTION IN <WIDGETS>. THE PLAINTIFF OWNED THE PATENT THROUGHOUT THE PERIOD OF THE DEFENDANT’S INFRINGING ACTS AND STILL OWNS THE PATENT.
    3. THE DEFENDANT HAS INFRINGED AND IS STILL INFRINGING THE LETTERS PATENT BY MAKING, SELLING, AND USING <WIDGETS> THAT EMBODY THE PATENTED INVENTION, AND THE DEFENDANT WILL CONTINUE TO DO SO UNLESS ENJOINED BY THIS COURT.
    4. THE PLAINTIFF HAS COMPLIED WITH THE STATUTORY REQUIREMENT OF PLACING A NOTICE OF THE LETTERS PATENT ON <WIDGETS>IT MANUFACTURES AND SELLS AND HAS GIVEN THE DEFENDANT WRITTEN NOTICE OF THE INFRINGEMENT.
     Note that an NPE is exempt from the product marking requirement of (4) because they have no product.
     From the time form 18 is filed in the court and served to the accused infringer, both sides start spending a lot of money. However, neither side is really in a good position to assess their chance of prevailing in the suit until much later for two reasons.
     The first reason is that the meaning of the claim terminology is not clear to either side until the Judge holds a Markman hearing. The only timing requirement for the Markman hearing is that it must be before the jury actually hears the case. In some cases, the Markman hearing occurs before the close of discovery, in other cases it occurs at the end of discovery, and in some cases it is held after the trial begins, but before jury selection. This may seem trivial, but the discovery process in the US is both time consuming and costly. This means that under the current system, each side expends considerable resources before the Judge has told them what they need to prove (or disprove) at trial.
     One suggestion for judicial reform is that the rules be changed to require that Markman hearings be held early in the proceedings, before the beginning of discovery.
    Another suggestion for judicial reform is to require the patentee to submit a claim chart explaining in detail the correspondence between the allegedly infringing product(s) and the elements of the asserted claim(s) as an Appendix to form 18. Such a requirement would make dubious infringement suits more difficult to file.
    Implementation of either (preferably both) of these suggestions would allow both sides to objectively assess whether infringement is actually occurring before investing in the proceeding. Clarifying the issues early should increase the percentage of cases settled before trial. This would serve the purpose of reducing the amount of patent litigation without weakening the patent system unnecessarily.
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