Bad Faith Assertions
of Patent Infringement
John N. Zarian
December 9, 2013
Garro Building, IACI Conference Room
The Importance of Intellectual Property:
One Lawyer’s Epiphany
Started with case
Ended with case
involving patents, trade
secrets and related IP
The Importance of IP to
the U.S. Economy
% of U.S. corporate
assets in tangible goods
% of U.S. corporate
assets in intangibles/IP
Estimated value of U.S.
% of wealth in largest
Annual patent filings
Sources: www.sonecon.com; WIPO
The Importance of IP to
the Idaho Economy
Innovation and intellectual property are vital to Idaho’s economy.
For many years, 1st in patents per capita.
In 2007, 6th in “Innovation Capacity”
In 2010, 10th in tech concentration.
As of 2010, home to 1,335 highly specialized
firms, with 36,400 high-tech employees.
BUT, job growth has LAGGED since 2007 …
The State of Idaho had adopted programs such as the Idaho Global
Entrepreneurial Mission (IGEM) to steer Idaho to greater economic
prosperity by increasing our knowledge-based economies.
Sources: U.S. Chamber of Commerce’s Global Intellectual Property Center (GIPC);
Idaho Department of Commerce.
Trends in Patent Litigation
Advent of the “Patent Troll”
Patent assertion entities (“PAEs”) are
sometimes referred to as “patent trolls.”
Lawsuits filed by PAEs increased sixfold between 2006 and 2012.
In 2011, PAEs were responsible for at
least 25% of all patent lawsuits.
In 2011, total filings went up 31%.
Between 2007 and 2011, PAEs sued
nearly one-third of all defendants.
According to one study, suits filed by
PAEs made up more than one-half of
all patent cases filed in 2012.
Sources: RPX; wikipedia; “Intellectual Property: Assessing Factors that Affect Patent
Infringement Litigation Could Help Improve Patent Quality” (GAO) (Aug. 22, 2013).
The Problem Posed by Patent Trolls
As of 2004, the average cost of defending against a
patent infringement suit was at least $1 million or more
before trial, and $2.5 million for a complete defense.
In 2011, businesses spent $29 billion in direct costs
because of patent trolls & patent suits, 400% over 2005.
Patent trolls are now targeting smaller firms; in 2011,
defendants’ median annual revenue was $10.3 million.
On June 4, 2013, the National Economic Council and
the Council of Economic Advisers released a report
entitled Patent Assertion and U.S. Innovation, that
found significant harm to the economy from NPEs.
The Practice of Sending Patent
Patent trolls regularly send patent demand letters to
startups and small companies, demanding payment.
Patent trolls target small companies to establish
favorable rates/licenses before going after larger entities.
Small businesses often lack the resources to respond.
In one recent study, almost one-third of small tech and
startup companies had received a patent demand letter:
22% did “nothing”; 18% settled; and 35% fought.
The average settlement cost was $340,000; the average
out-of-court cost of fighting was $168,000; and the
average in-court cost of fighting was $857,000.
Sources: www.techcrunch.com; Chien, “Startups and Patent Trolls” (2012).
Overview of the America Invents Act (AIA)
The America Invents Act (AIA) was passed by Congress
and signed into law on September 16, 2011, representing the
most significant change to the U.S. patent system since 1952.
– Switched U.S. from a “first-to-invent” to a “first-inventor-to-file”
system for patent applications filed on or after March 16, 2013;
– Revised and expanded post-grant procedures,
including retaining ex parte reexaminations,
adding pre-issuance submissions by third
parties, expanding inter partes reexamination
(review), and adding post-grant review;
– Gave the USPTO authority to adjust its fees;
– Established additional USPTO satellite offices;
– Eliminated most false marking lawsuits; and
– Eliminated joinder of unrelated defendants.
Many frustrated by AIA’s failure to focus on patent litigation.
In 2013, Vermont enacted a first-in-the-nation law to combat
patent trolls, (H.299, codified at 9 V.S.A. §§ 4195-4199),
entitled “Bad Faith Assertions of Patent Infringements”.
Under the law, factors suggesting a bad faith patent assertion
include: (a) not identifying the patent(s)-at-issue, the patent
owner, and exactly how the recipient’s behavior violates the
patent; (b) demanding too quick a response or too much
money; and (c) making deceptive or meritless assertions.
The Vermont statute included remedies for victims of bad faith
patent assertions (damages, attorneys fees), and authorized
the Vermont attorney general to bring civil actions.
States Taking the Lead
Idaho –Legislation has been drafted; similar to
Vermont legislation; aimed at protecting Idaho
companies; leadership from sponsors Lt. Gov.
Brad Little and Rep. Luke Malek, and from
Micron Technology, Inc.
Nebraska – AG Jon Bruning testified before
Congress; supports a multistate coalition of
attorneys general to combat patent trolls;
plans to introduce legislation in Nebraska.
Virginia – Legislators considering similar legislation.
Utah – Legislators considering similar legislation.
Texas – Legislators considering similar legislation.
Pending Reform in Congress?
Last week, a new set of proposed patent reforms entitled the "Innovation
Act" (H.R. 3309) and introduced by Rep. Bob Goodlatte (R-VA) passed the
House of Representatives by a vote of 325-91. Key provisions include:
– Heightened pleading requirements for asserting patent claims.
– At time of filing, a plaintiff must disclose patent ownership/interests.
– Loser pays attorneys fees, if the claims were not reasonably justified.
Also, Court may join a parent entity or investor to pay fees awarded.
– At their discretion, courts may limit discovery during initial phases.
– A manufacturer may intervene in a suit against its customer(s), and the
suit against the customer(s) may be stayed pending manufacturer suit.
– More transparency/disclosure would be required in demand letters.
Sen. Patrick Leahy (D-VT) and Sen. Mike Lee (R-UT) have introduced
similar legislation in the Senate (S. 1720), titled “Patent Transparency
and Improvements Act.” Prospects at this point are unclear.
John N. Zarian
direct: (208) 562.4902
Peter M. Midgley
direct: (208) 562.4904
L. Michael Bogert
direct: (208) 562.4907
Amy A. Lombardo
direct: (208) 562.4895