AIA's Effect on NPE Assertion Tactics  

POSTED BY John Cronin AND Bill Petrow AT 10:00 A.M. Dec 2, 2011

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America Invents ActThe Leahy-Smith America Invents Act (AIA) recently signed into law by president Obama represents the most substantial modification to the U.S. patent system in the past fifty years, and most notably, changes the U.S. system from a "first to invent" to a "first to file" system.

These new rules will undoubtedly cause companies to re-think their intellectual property (IP) strategy and re-tool their IP process. Among these changes, the new guidelines regarding “joinders” are of special interest as they directly impact the rules of engagement with regard to litigation, and are especially relevant to non-practicing entity (NPE) assertion tactics.

In recent years, patent infringement lawsuits involving multiple defendants have become increasingly prevalent. Some NPEs or “patent trolls” have used this practice as a strategy to carry out simultaneous patent infringement litigation – for example, by suing a number of companies in the same lawsuit for allegedly infringing the identical patent or patents.

However, this practice of joining defendants together in a common lawsuit will become increasingly difficult as the Leahy-Smith America Invents Act fundamentally changes the rules regarding how defendants are joined to a lawsuit.

For example, companies cannot be joined together now in a single lawsuit if they appear to only violate the same patent. The new rules add that the companies need to be involved in “the same transaction … of the same accused product or process”, among other things, if they are to be joined together in a lawsuit – a situation which might arise in a joint development, for instance. This moves the focus of the lawsuit from the patent, to a specific act or acts which allegedly violated the patent.

For most multiple-defendant patent infringement lawsuits, this new rule appears to be a game-changer. Some NPEs will respond to these changes in the law by adjusting their litigation strategy, and an IP-savvy strategist must anticipate the NPEs’ next move, so that a suitable counter-strategy can be formulated.

To fully appreciate the effects of the new rules, both intended and unintended, it is important to consider that multi-party patent lawsuits create leverage for the NPE by lowering legal costs, and by polarizing alleged infringers – i.e. as multiple defendants are often competitors, any infighting or blaming-the-other-guy tactic among them, will be to the advantage of the NPE.

As a result, the first and boldest tactic for a NPE would be to file a number of duplicate patent lawsuits in the same court against a number of separate companies. A judge faced with this case load may be provoked to exercise his or her authority to join these multiple lawsuits together into a single court case. If well-executed, this one simple counter-tactic could essentially nullify the joinder rule change to the advantage of a single investor, by allowing just one lawsuit against multiple alleged infringers. However, since the joinder is in the discretion of the Court, the success of this specific tactic will vary with according to the individual judge’s temperament and philosophy.

A second and more expected tactic for a NPE is to seek more funding from a larger number of different investors. Quite simply by just following the new rules, the NPE has express reason to work with a number of different investors, each willing to provide a specific investment, to litigate against a particular alleged infringer, for a specific case.

This does two things: first it creates a bigger investor market since one investor can now reasonably fund a single smaller lawsuit against a specific company. Second, as single investors fund a single lawsuit each single investor may be able to invest a relatively greater amount for that litigation. The result may be more money chasing more lawsuits, thereby having the exact opposite effect of what was intended by the authors of the AIA.

In the next article we will explore a number of other assertion tactics from the NPE side. And later we will explore the responses that companies facing litigation can have to deal with these NPE threats.

TAGS: America Invents Act (AIA) | John Cronin | Bill Petrow
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