Obama announces plan to protect patent innovators from frivolous litigation

By Jessica M. Karmasek | Jun 5, 2013

WASHINGTON (Legal Newsline) -- Pointing to an "explosion" of abusive patent litigation in recent years, the Obama administration this week unveiled its plan to better protect American innovators.

On Tuesday, the White House issued five executive actions and seven legislative recommendations aimed at protecting innovators from frivolous litigation and ensuring the highest-quality patents.

Among the five actions: making "real party-in-interest" the new default.

Patent trolls -- or Patent Assertion Entities -- 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.

Now, the U.S. Patent and Trademark Office, or PTO, will begin a rulemaking process to require patent applicants and owners to regularly update ownership information when they are involved in proceedings before the office, specifically designating the "ultimate parent entity" in control of the patent or application.

The administration also is recommending that Congress pursue various legislative measures. Among them:

- Permit more discretion in awarding fees to prevailing parties in patent cases, providing district courts with more discretion to award 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);

- 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;

- Change the U.S. International Trade Commission 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;

- 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; and

- Ensure the ITC has adequate flexibility in hiring qualified administrative law judges.

The administration says it is concerned with the growing number of lawsuits threatening companies in order to extract settlements.

According to its figures, in the last two years the number of lawsuits brought by patent trolls has nearly tripled and account for more than 60 percent of all patent lawsuits in the nation.

In 2011, President Barack Obama signed the Leahy-Smith America Invents Act, or AIA, legislation designed to help make the country's patent system more efficient and reliable.

"Our efforts at patent reform only went about halfway to where we need to go," Obama admitted in February.

High-tech patents, the White House says, are a "key driver" of economic growth and good-paying jobs.

Some states are already addressing the issue.

Just last month, Vermont Gov. Peter Shumlin signed into law a measure designed to protect companies in his state from patent trolling.

Under Vermont's new law -- the first of its kind in the nation -- a court can consider as evidence a letter that does not provide the patent number, the name and address of the patent owner and/or assignee, or an explanation of how the target company's products or services infringed on the patent.

The court also can consider if the letter demands payment of a license fee or a response in an "unreasonably short" period of time.

The law also allows the state attorney general to conduct civil investigations and bring civil lawsuits against violators, and the court may award relief or damages.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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