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Reform Legislation Sees Fewer Companies Named in Patent Suits

Posted on 09 Nov 2011

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In the wake of reform legislation passed in September, fewer companies have been named in patent suits -- a positive sign for technology concerns that have complained about excessive intellectual-property litigation.

But the measure may not be slowing the total amount of patent litigation, one of many mixed indicators in the wake of a law that even some proponents see as flawed.

Some 450 patent suits were filed in U.S. courts against 1,097 defendants between the Sept. 16 enactment of the legislation and Oct. 31, according to RPX Corp., a San Francisco firm that provides patent-defensive services. The number of filings is off 9.6% from the same period in 2010, while the number of defendants declined 36%.

Lex Machina, a Silicon Valley firm that operates a database of intellectual-property cases, actually found a 16% increase in the number of patent suit filings between Sept. 17 and Oct. 25 compared to the year-earlier period. But the number of unique defendants declined 26%, the firm found.

The numbers suggest that at least one part of the new legislation is having an impact--a provision that makes it harder for plaintiffs to name many defendants in one case. That tactic is a favorite of plaintiffs, because direct rivals and companies in dissimilar industries find it difficult to cooperate in defending against suits. As a result, many defendants opt to pay plaintiffs in settlements rather than fight them.

Multi-defendant suits have often been used by firms known as non-practicing entities--or more derisively, patent trolls--that buy and enforce patents without selling other goods or services. Such plaintiffs were a key target for many high-tech companies that pushed for the reform law called the America Invents Act.

Under what is called the "joinder" provision in the law, a plaintiff can now sue multiple defendants in a single suit only if they are all accused of infringing with the same product or process. Previously, plaintiffs could sue as many defendants thought to be infringing as possible, even if they were doing so in different ways.

The provision "is an important, positive, but little-noticed facet of patent reform," said Michael Meurer, a Boston University School of Law professor.

"The tax that troll lawsuits impose on innovators is likely to fall a bit as their bargaining position is weakened."

Matt Tanielian, a spokesman for the Coalition for Patent Fairness, a lobbying group that represents tech giants including Apple Inc., Google Inc.  and Oracle Corp., also praised the joinder provision.

"That was one of the things we thought was very positive," Mr. Tanielian said. "Before the bill's passage, it essentially was a litigation tactic that forced companies to be on defense, and cut a deal to get out of it."

The provision's potency was underscored by a race of plaintiffs to file suits before it took effect. An estimated 240 patent suits were filed in the two weeks before the law was signed, RPX estimates. On Sept. 15 alone, an estimated 58 suits were filed naming 849 defendants. In the two weeks after enactment, the number of patent suits fell 35% to an estimated 156, while 193 suits were filed in the first few weeks of October, the firm says.

That temporary spike in lawsuits hit tech companies hard. Samsung Electronics Co. (005930.SE, SSNHY) and its subsidiaries, for example, were hit with 17 patent suits in the two weeks before enactment and one since, according to Lex Machina. Internet giant Yahoo Inc. (YHOO) was accused of infringement in six patent suits in that pre-enactment period and three since.

Many of the suits in the pre-legislation surge named multiple defendants from diverse industries. For example, Hyatt Hotels Corp., FedEx Corp., Nintendo of America Inc. and Air Canada were named in the same case and over the same patents in a suit filed by LVL Patent Group LLC in federal court in Delaware on Sept. 15, the day before patent reform was enacted. An attorney for LVL Patent Group did not respond to a request for comment.

Besides cutting down on expenses for plaintiffs--each complaint costs around $350 to file--the tactic creates such headaches for defendants as the prospect of lawyers from different companies splitting time in front of a jury to present different defenses, says Mallun Yen, an RPX executive vice president.

Microsoft Corp., a major backer of patent reform is "pretty pleased" with how the law turned out, particularly the joinder provision, says Andy Culbert, Microsoft Corp's associate general counsel. But his company is not seeing measurable benefits yet; Microsoft was hit with four patent suits in the two weeks before the law was signed and four since.

"I'm not sure this recent legislation is the end of the story," Mr. Culbert said.

Rep. Zoe Lofgren (D., Calif.), whose district includes much of Silicon Valley, said she'd been working on the patent reform effort since 1997--only to vote against the measure passed in September. She said it wasn't comprehensive enough, and failed to protect the interests of start-ups.

Rep. Lofgren praised the joinder provision, which she helped shape, while saying the measures effect on overall patent litigation remains unclear. Some lawyers are more optimistic about a decline.

"No matter what, I think we're going to see statistically fewer suits in the next few months," said Yar Chaikovsky, a patent attorney who is a partner in the Silicon Valley office of McDermott Will & Emery.

Meanwhile, non-practicing entities and other opponents of the legislation insist it will hurt inventors. One of them is Jerry Hosier, a high-profile patent attorney who built his reputation representing the late Jerome Lemelson, a prolific inventor and plaintiff derided by some as a progenitor of patent trolls.

"It's a bill designed to frustrate innovation," said Jerry Hosier, a high-profile patent attorney. "It was not written by professionals that were interested in trying to improve the patent system, it was written by people with an agenda."