A Small Rules Change May Make Life Much Harder For Patent Trolls

By Daniel

A barely noticed change to the rules governing federal courts by a little-known committee in Washington may make life a whole lot harder for patent trolls, by forcing them to make specific allegations of patent infringement instead of merely accusing targets of stealing their inventions.

At its meeting within the U.S. Supreme Court building on Tuesday, the Judicial Conference of the United States will vote on whether to abolish Rule 84 of the Federal Rules of Civil Procedure. What’s Rule 84? Titled “Forms,” it’s a one-sentence rule dating back to 1938 that says a set of forms suffice as guides for filing lawsuits in federal courts.

The change, if adopted by the committee and approved by the U.S. Supreme Court and Congress, would mean the four-paragraph Form 18 no longer governs patent disputes and litigants might be held to the stricter standards under the Supreme Court’s Iqbal andTwombly decisions — now known by lawyers asTwiqbal — that require plaintiffs to state more than bare allegations to survive a motion to dismiss.

Until the rule changes, most courts including the Court of Appeals for the Federal Circuit, the second-highest court of appeal for patent disputes, use the looser standards under Form 18 to determine whether a complaint can survive a motion to dismiss. That form requires little more than the name of the plaintiff, the date the patent was issued, and the name of the defendant accused of patent infringement.

Such bare-bones claims make it easy for patent trolls – the derogatory term for firms that make money by making patent-infringement suits, instead of products  – to file shotgun-style complaints against a number of targets and settle them for nuisance value. Also known as non-practicing entities or NPEs, companies that primarily earn money from licensing their patents include Nathan Myhrvold’s Intellectual Ventures, InterDigital and Acacia Research Corp.

“Once you’re into a patent lawsuit, it’s very difficult to wrap it up,” said Christian Mammen, a partner in the San Francisco office of Hogan Lovells who litigates patent disputes. “And that’s been the business model of many NPEs. File suit and extract the litigation-cost avoidance from your targets.”

Until the rules change, Form 18 stands in conflict with the Supreme Court’s Twiqbal rulings, which require plaintiffs to make detailed claims, including facts sufficient to support plausible allegations of wrongdoing. While the Federal Circuit has refused to apply Twiqbal to patent suits, a federal court in Virginia did in Macronix vs. Spansion earlier this year, partially dismissing Macronix’s claims for lack of specificity. Without making detailed claims of how Spansion is violating its patent, the judge said, Macronix failed to “put Spansion on notice of what it has to defend.”

Congress already increased costs for patent trolls with the America Invents Act in 2011, which made it harder for them to join multiple defendants into a single lawsuit alleging, say, violations of a broadly written patent on wi-fi technology.

“Now instead of one suit against 40 defendants, now there are maybe 20 lawsuits against 20 defendants,” said Mammen.

Congress almost eliminated Form 18 with patent reform legislation that stalled in the Senate last year, Mammen said. Meanwhile the Judicial Conference took up the issue and appears poised to pass it at its meeting next week.

“I’ve seen very little discussion of it within patent circles,” he said. “At this point it’s far enough down the path that it’s unlikely not to happen.”

It’s not clear whether courts will abandon the simple guidelines of Form 18 and go with Twiqbal  instead, Mammen said. But if they do, plaintiffs will have to identify each infringing product, which patent claims they infringe and how. That will make it difficult to join cases together and force trolls to spend more money on the front end on litigation, reducing the odds of a quick profit.

The Judicial Conference occupies an important, but little-known position at the intersection of the judicial and legislative branches. Originally created by Congress in 1922, it consists of federal judges and determines the rules under which federal courts operate. Sometimes small changes in the Federal Rules of Civil Procedure can have huge effects, as when Rule 23, originally intended to allow civil-rights plaintiffs to band together into class actions, was modified in the 1960s to make it easier to file securities lawsuits. Now lawyers use Rule 23 to extract billions of dollars a year in fees and damages out of companies by threatening devastating jury verdicts if they go to trial.

The Judiciary Conference proposes amendments to the rules, which the Supreme Court must approve. They then go to Congress and become the effect of law unless Congress rejects them.