Patent Reform Is Coming, but Not From Congress

Amending FRCP

Still, significant patent reform is about to occur ' though it's not coming from Congress. The Judicial Conference of the United States'is poised to amend the Federal Rules of Civil Procedure (FRCP) to eliminate a certain pleading form used in many patent troll complaints. That move, which would become effective in December 2015, would set the stage for courts to force plaintiffs in infringement cases to plead more factually detailed allegations, sufficient to make their claims of infringement appear plausible. This additional detail should curtail a substantial portion of frivolous infringement suits ' and save many a defendant from paying out a costly settlement simply to escape from pending litigation.

Form 18 of the Appendix of Forms in the FRCP has established the barest minimum of pleading standards: four bare-bones statements amounting to little more than when and where a patent was issued, and a general assertion of ownership rights, infringement and damages. This form has been with us since the FRCP first was adopted in 1938. In order to provide examples of the kinds of pleadings that would suffice under the new rules, the original FRCP created a series of pleading forms, in addition to Form 18, all of which the judicial conference seems poised to abolish.

In today's far more complex patent environment, and given the overall rise in the cost and complexity of litigation since the 1930s, the appendix of forms makes little sense. It effectively has allowed patent trolls to file multiple suits without knowing any (or many) facts and without taking on substantial risk, while defendants can face a tab of $1 million or more just to get to trial. The initial investigation alone can cost a defendant tens or hundreds of thousands of dollars. So it's no surprise that many defendants opt instead to cut their losses and settle the case almost as soon as they're served, often coughing up just a little bit less than they would expect to spend defending the case.

Relief from Supreme Court Decisions?

Form 18's detractors are quick to point out that it sets up a far less stringent standard than those established in two recent U.S. Supreme Court Cases ' Ashcroft v. Iqbal, No. 07'1015 (2009) and Bell Atlantic v. Twombly, No. 05'1126 (2007). In both cases, the Court said that in addition to simply notifying defendants of the action against them, plaintiffs also must plead sufficiently detailed facts that show their claims for relief are plausible; merely pleading labels and legal conclusions is not enough under these cases.

But this has led to a further question: Do Iqbal and Twombly require more factually detailed pleading than Form 18 dictates? And if so, which standard governs? The U.S. Court of Appeals for the Federal Circuit has answered the second question repeatedly, favoring Form 18. At least one Federal Circuit judge, writing a concurring decision, has acknowledged that Form 18 would be deficient under Twombly. To further complicate matters, some courts also have interpreted Form 18 narrowly, ruling that only the particular kind of infringement specified in it ' direct infringement ' is covered, while other kinds of infringement'such as contributory or induced infringement ' must satisfy Iqbal and Twombly.

Perhaps unsurprisingly, this double standard has contributed to a level of uncertainty and inconsistency in the pleading standards applied by the courts. Earlier this year, one district court judge bucked the Federal Circuit's rulings and ruled that, in his view, Iqbal and Twombly trumped Form 18. Judge Robert Payne of the Eastern District of Virginia, ruling in Macronix Int'l v. Spansion, No. 13-679, 2014 U.S. Dist. LEXIS 31465 (E.D. Va. Mar. 10, 2014), explained the policy reasoning behind this ruling:

Before filing a complaint, counsel must ascertain exactly what claims should alleged to be infringed and how they are infringed '. That, of course, will serve to winnow out weak (or even baseless) claims and will protect defendants from the need to prepare defenses for the many claims that inevitably fall by the wayside in patent cases '. There is no logical reason to exempt patent complaints from the plausibility requirements that apply to all other federal complaints. If counsel will but accept the task, the expense of patent litigation and the burden of the courts will be reduced.

Id.

It is too soon to tell whether other courts will follow Payne's lead, but they may not need to. The Judicial Conference gave final approval to the abolition of Form 18 ' and the rest of the Appendix of Forms ' on Sept. 16, 2014. According to William Wagner of Taft Stettinius & Hollister LLP in Indianapolis, “the amendments have been forwarded to the Supreme Court with a recommendation that they be adopted. If the Supreme Court concurs, the revised rules will take effect on Dec. 1, 2015, unless Congress enacts legislation to reject, modify or defer the proposed amendments.” See, “The Purpose of Proposed Rule 37(e).”

If, as expected, Form 18 is abolished, that would presumably clear the way for the application of Iqbal and Twombly standards to all allegations in patent infringement pleadings. Many patent trolls could soon be disarmed ' because instead of conducting fishing expeditions in which they plead vague allegations and unsupported conclusions, they'll be forced to plead more factually detailed allegations.

If the form is abolished, it is reasonable to expect that courts will apply the Twombly and Iqbal requirements to patent infringement allegations, and therefore will require more factually detailed allegations in complaints. Plaintiffs, in order to plead more factually rich narratives, will be obliged to conduct the types of inquiries described by Payne. And patent trolls will have to invest time and resources before they sue. That should reduce frivolous cases, without substantially burdening patent owners who seek relief on the merits as opposed to merely exploiting the costs of litigation to extract settlements. This would be true patent litigation reform.

Christian Mammen is a partner in the San Francisco office of Hogan Lovells. He is a litigator with over 17 years' experience litigating patents and related technology disputes. His trial and appellate experience includes some of the highest-profile, most complex patent cases in the U.S. Between law school and entering private practice, he also earned a doctorate in law at Oxford University. He can be reached at [email protected]. This article also appeared in Corporate Counsel, an ALM sibling publication of The Intellectual Property Strategist.

The case is all too familiar. A Texas LLC, founded just a few months ago, sues 10 ' or 20, or 30 ' defendants for patent infringement at the same time. Lay the complaints side-by-side and they are virtually identical, with perhaps only the defendant's name changed. They also contain the barest of allegations: that the plaintiff owns the patent, that one or more of the defendant's products infringe the patent and that the plaintiff has suffered damages.

Often, the connections between the patent and the products are so tenuous that defendants are left scratching their heads about how they possibly could have infringed. In other cases it's clear that the plaintiff is a nonpracticing entity, known more notoriously as a patent troll.

It's well established that the number of lawsuits filed by patent trolls in the last decade has increased dramatically, from fewer than 150 in 2001 to more than 2,900 in 2012. This increase comes at considerable expense to defendants of all stripes. But as widely reviled as this trend may be among operating companies that often find themselves as defendants in patent troll litigation, legislation that would curb this practice has made little progress. In fact, patent reform passed the House of Representatives in 2013, but appears to have stalled in the Senate, with no clear prognosis for its revival. See, “Patent Reform Group Streamlines Lobbying Efforts,” Corporate Counsel.

Amending FRCP

Still, significant patent reform is about to occur ' though it's not coming from Congress. The Judicial Conference of the United States'is poised to amend the Federal Rules of Civil Procedure (FRCP) to eliminate a certain pleading form used in many patent troll complaints. That move, which would become effective in December 2015, would set the stage for courts to force plaintiffs in infringement cases to plead more factually detailed allegations, sufficient to make their claims of infringement appear plausible. This additional detail should curtail a substantial portion of frivolous infringement suits ' and save many a defendant from paying out a costly settlement simply to escape from pending litigation.

Form 18 of the Appendix of Forms in the FRCP has established the barest minimum of pleading standards: four bare-bones statements amounting to little more than when and where a patent was issued, and a general assertion of ownership rights, infringement and damages. This form has been with us since the FRCP first was adopted in 1938. In order to provide examples of the kinds of pleadings that would suffice under the new rules, the original FRCP created a series of pleading forms, in addition to Form 18, all of which the judicial conference seems poised to abolish.

In today's far more complex patent environment, and given the overall rise in the cost and complexity of litigation since the 1930s, the appendix of forms makes little sense. It effectively has allowed patent trolls to file multiple suits without knowing any (or many) facts and without taking on substantial risk, while defendants can face a tab of $1 million or more just to get to trial. The initial investigation alone can cost a defendant tens or hundreds of thousands of dollars. So it's no surprise that many defendants opt instead to cut their losses and settle the case almost as soon as they're served, often coughing up just a little bit less than they would expect to spend defending the case.

Relief from Supreme Court Decisions?

Form 18's detractors are quick to point out that it sets up a far less stringent standard than those established in two recent U.S. Supreme Court Cases ' Ashcroft v. Iqbal, No. 07'1015 (2009) and Bell Atlantic v. Twombly, No. 05'1126 (2007). In both cases, the Court said that in addition to simply notifying defendants of the action against them, plaintiffs also must plead sufficiently detailed facts that show their claims for relief are plausible; merely pleading labels and legal conclusions is not enough under these cases.

But this has led to a further question: Do Iqbal and Twombly require more factually detailed pleading than Form 18 dictates? And if so, which standard governs? The U.S. Court of Appeals for the Federal Circuit has answered the second question repeatedly, favoring Form 18. At least one Federal Circuit judge, writing a concurring decision, has acknowledged that Form 18 would be deficient under Twombly. To further complicate matters, some courts also have interpreted Form 18 narrowly, ruling that only the particular kind of infringement specified in it ' direct infringement ' is covered, while other kinds of infringement'such as contributory or induced infringement ' must satisfy Iqbal and Twombly.

Perhaps unsurprisingly, this double standard has contributed to a level of uncertainty and inconsistency in the pleading standards applied by the courts. Earlier this year, one district court judge bucked the Federal Circuit's rulings and ruled that, in his view, Iqbal and Twombly trumped Form 18. Judge Robert Payne of the Eastern District of Virginia, ruling in Macronix Int'l v. Spansion, No. 13-679, 2014 U.S. Dist. LEXIS 31465 (E.D. Va. Mar. 10, 2014), explained the policy reasoning behind this ruling:

Before filing a complaint, counsel must ascertain exactly what claims should alleged to be infringed and how they are infringed '. That, of course, will serve to winnow out weak (or even baseless) claims and will protect defendants from the need to prepare defenses for the many claims that inevitably fall by the wayside in patent cases '. There is no logical reason to exempt patent complaints from the plausibility requirements that apply to all other federal complaints. If counsel will but accept the task, the expense of patent litigation and the burden of the courts will be reduced.

Id.

It is too soon to tell whether other courts will follow Payne's lead, but they may not need to. The Judicial Conference gave final approval to the abolition of Form 18 ' and the rest of the Appendix of Forms ' on Sept. 16, 2014. According to William Wagner of Taft Stettinius & Hollister LLP in Indianapolis, “the amendments have been forwarded to the Supreme Court with a recommendation that they be adopted. If the Supreme Court concurs, the revised rules will take effect on Dec. 1, 2015, unless Congress enacts legislation to reject, modify or defer the proposed amendments.” See, “The Purpose of Proposed Rule 37(e).”

If, as expected, Form 18 is abolished, that would presumably clear the way for the application of Iqbal and Twombly standards to all allegations in patent infringement pleadings. Many patent trolls could soon be disarmed ' because instead of conducting fishing expeditions in which they plead vague allegations and unsupported conclusions, they'll be forced to plead more factually detailed allegations.

If the form is abolished, it is reasonable to expect that courts will apply the Twombly and Iqbal requirements to patent infringement allegations, and therefore will require more factually detailed allegations in complaints. Plaintiffs, in order to plead more factually rich narratives, will be obliged to conduct the types of inquiries described by Payne. And patent trolls will have to invest time and resources before they sue. That should reduce frivolous cases, without substantially burdening patent owners who seek relief on the merits as opposed to merely exploiting the costs of litigation to extract settlements. This would be true patent litigation reform.

Christian Mammen is a partner in the San Francisco office of Hogan Lovells. He is a litigator with over 17 years' experience litigating patents and related technology disputes. His trial and appellate experience includes some of the highest-profile, most complex patent cases in the U.S. Between law school and entering private practice, he also earned a doctorate in law at Oxford University. He can be reached at [email protected]. This article also appeared in Corporate Counsel, an ALM sibling publication of The Intellectual Property Strategist.