Yesterday, it was reported that Tesla Motors has made the decision to allow anyone to use its patented technology. Expressing frustration with the evolution of long range electric cars, it hopes that this move will spark innovation. Tesla allegedly owns about 200 patents in this area, all of which are available for use. Interestingly, this move also coincides with Tesla’s opening of the country’s largest lithium-ion battery plant. There’s speculation that Tesla may be trying to create other customers for its batteries with this bold move. So, what happens if Tesla’s strategy backfires? Will it ever be able to enforce these patents once Pandora’s Box has been opened to allow free, good faith use by all? It seems like a risky decision.
The Federal Circuit Court of Appeals announced that Chief Judge Randall R. Rader will be stepping down as Chief Judge on May 30, 2014. Judge Sharon Prost will succeed Judge Rader, who will remain active on the bench. The Federal Circuit is a unique court of appeals because its jurisdiction is not based on its geographic location, but rather on particular subject matter. It is most well known for having exclusive jurisdiction over patent appeals from all U.S. District Courts. Nominated in 1990 by President Bush, Judge Rader has been one of the more outspoken and influential judges in the area of patent law. Although there are rumors being circulated as to why Judge Rader has stepped down, we should remember that there are always two sides to every story. Judge Rader could have remained within the Beltway all of these years, but, instead, he made an effort to assist practitioners across the country. We should keep this in mind in the coming weeks.
Today, in the Octane Fitness case, the Supreme Court lowered the bar for establishing an award of attorneys’ fees in “exceptional” patent infringement cases. In the past, such fees had been very difficult to obtain because of the onerous standard imposed by the Federal Circuit. Even when accused companies prevailed against unfounded allegations of patent infringement, they failed to recoup the millions of dollars expended on their defense. Section 285 of the Patent Act states: [t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” In order to be deemed an “exceptional” case, the Federal Circuit had previously required that it be shown that the litigation was brought in “bad faith” and was “objectively baseless.” A litigation was deemed to be “objectively baseless” when “no reasonable litigant could believe it would succeed.” Further, all of this had to be established by “clear and convincing” evidence. The Supreme Court did several notable things in its decision. First, it shunned the prior “clear and convincing” evidentiary burden in favor of a “preponderance of the evidence” (i.e., more likely than not or 51%) standard, which mirrors the burden for patent infringement. Second, it attempted to loosen what it deemed to be a “too rigid” standard by defining an “exceptional case” as “simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” The Court left this determination to the U.S. District Courts’ discretion, considering the “totality of the circumstances.” It will be interesting to see how much clarity this new standard brings to future requests for attorneys’ fees. Showing how a case “stands out from others” should be quite an interesting exercise. Removing the “bad faith” requirement and lowering the evidentiary bar should increase companies’ chances of being awarded their fees. Now, companies should be even more concerned about pursuing specious claims of infringement.
Last week, it was reported that a Dutch student (Shawn Buckles) held an online auction to sell a bundle of his personal information because he felt that most of his “personal” information was no longer owned by him due to his past online activities. He pointed to many online user agreements that he felt transferred his rights to various companies that collected and stored his data. Although there were more than 40 bidders, the student reportedly sold his “data soul” for about € 350 (about $485 (US)) to The Next Web, a technology news company that plans to use it at an upcoming conference on privacy. So what did The Next Web acquire? According to Mr. Buckles’ website, he sold his “personal profile; location track records; train track records; personal calendar; e-mails; online conversations; consumer preferences; thoughts; and browsing history.” This stunt does not appear to be the efforts of a starving student grasping for spending money. Rather, he appears to have an agenda as he also posted what he describes as a “Privacy Pamphlet” on his auction site in which he proclaims, among other things, that “[o]ur privacy is at stake.” While it is certainly not earthshattering that online companies routinely collect our data for various reasons, Mr. Buckles has touched on a sensitive issue. More and more generations are accessing the Internet and as such, people need to be properly informed about the amount of information that is being collected about their online activities. Privacy remains an important priority for the FTC, but the Internet is the wild west and the agency has limited resources to monitor it. While I can appreciate Mr. Buckles’ point, I don’t necessarily agree with the method in which he conveyed his message. For example, I wonder if he redacted the recipients’ contact information from his e-mails or online conversations. If not, then didn’t he commit the same sin that he complains of in his online missive- he used someone’s online information for his personal use? Hopefully, he took steps to address this concern and obtained their consent and/or redacted their identifying information.
Wisconsin is the latest state to entertain legislation aimed at curbing patent troll activity within its state. Last week, the State Assembly passed Senate Bill 498, as amended, which requires certain disclosures to be made in an initial demand letter alleging patent infringement. In addition to the information routinely supplied, patent owners will now have to identify not one claim, but all claims that they assert are being infringed. More telling, patent owners will have to detail how each claim is met by the accused technology. As an added bonus, they will also have to include all court proceedings (past and present) involving the patent. This could provide useful information as to how other similarly situated parties defended against similar infringement claims. Wisconsin is essentially mandating a patent claim chart showing infringement for any accused technology. Many trolls, who are serious about enforcement, already provide such information to accused infringers. So, while it may cut down on the issuance of shotgun cease and desist letters, it should not have a real impact on the more sophisticated trolls. Both the state attorney general’s office and aggrieved parties may bring claims for violations of the law. The state can seek penalties of up to $50,000 per violation. Private claimants can seek reasonable attorneys’ fees and costs and an award of punitive damages not to exceed $50,000 for each violation or three times the aggregate amount of actual damages and costs and attorneys’ fees awarded by a Court, whichever is greater Violations are based on “false, misleading or deceptive information” in the demand letter or if the required disclosures are not made within 30 days after the recipient notifies the enforcing party that the disclosures were incomplete. Importantly, no enforcement actions or private remedies may be sought solely based on an initially incomplete demand letter. Certain types of demand letters are exempt from the law- those sent by an institution of higher education and those involving patents subject to approval by the U.S. Food and Drug Administration. Determining what is “false, misleading or deceptive information” in this context seems to be a formidable task for state courts to entertain, especially since many of them do not routinely handle patent matters. Such cases are usually litigated in federal court. The stiff $50,000 per violation price tag and/or the threat of having a state investigation, however, may deter those from sending completely baseless demand letters.
As a former FTC staffer, I am asked about what’s the worst that can happen if a company doesn’t have substantiation for its weight loss or other health-related claims. Well, that depends. Taken to its extreme, there can be serious consequences. It’s been reported that late night TV infomercial pitchman, Kevin Trudeau, was sentenced yesterday to 10 years in prison for criminal contempt of a federal court order. Trudeau’s latest problems can be traced back to a 2004 FTC Stipulated Final Order barring him from misrepresenting the contents of his books in advertising. As you may recall, Trudeau had also agreed to be banned from advertising products in infomercials. In 2010, Trudeau was ordered to pay consumers nearly $38 million based on the books that he sold. His books focused on all-natural cures for serious illnesses, such as cancer, arthritis, etc. that he felt were being suppressed by the FDA, FTC and pharmaceutical industry. Trudeau tried to escape paying the nearly $38 million, but was found guilty of contempt last year. Trudeau was finally sentenced and received 10 years for his acts. So, what’s the worst that can happen? Taken to the extreme, you may go to jail. One thing is for certain. If you make unsupported claims about curing serious illnesses- claims that discourage consumers from following traditional medical treatments for such ailments- you are sure to go to the top of the federal government’s list in terms of its enforcement efforts as public health remains a top priority.
Crowdfunding is becoming commonplace these days. Inventors are using it to bring their products to market and artists are using it as a means to fund movies and even new music platforms. Now, parties are using crowdfunding to combat patent trolls and Adam Carolla is leading the charge. Although it sounds like an interesting concept, there can be consequences for participating. Indeed, Personal Audio, the troll that sued Carolla, recently pressed this issue and, for the moment, lost. Last Fall, the Electronic Frontier Foundation (“EFF”) used crowdfunding to initiate an inter partes reexamination request with the USPTO of the patent that Personal Audio claims Carolla and others are infringing over podcasts. Personal Audio subpoenaed the EFF to learn the identities of the 1,000+ donors, arguing that it needed to verify whether any of the defendants, including Carolla, had contributed to the campaign as parties are estopped from making the same prior art arguments in court once pursued in an inter partes reexamination. Arguing that the Personal Audio’s request was overbroad and that its donors had a first amendment right of privacy, the EFF opposed the subpoena. It was reported that the assigned magistrate judge deferred on the first amendment issue, but felt that it was premature to seek this information at this point as the “estoppel” issue only arises once a final determination is made during a reexamination proceeding. For now, the donors’ identities may remain anonymous unless Personal Audio asks the U.S. District Court judge to override the magistrate’s decision and consider the issue. While crowdfunding can be an effective way of pooling resources, there can be consequences. Interestingly, had the EFF filed an “ex parte” reexamination request, there would have been a different result as “ex parte” reexaminations do not create the same “estoppel” effects as their “inter partes” cousins.
Last week, the Vermont AG’s Office filed a “conditional” Motion to amend its Complaint against MPHJ Technology Investments, LLC (“MPHJ”) relating to alleged violations of the State’s state consumer protection laws. This move does not mean that the Vermont AG has given up on its case. To the contrary, it is probably trying to tighten up its consumer protection case by removing overly broad requested relief. The motion asks to possibly amend its Complaint to remove relief that would enjoin MPHJ from “threatening Vermont businesses with patent-infringement lawsuits.” Importantly, it retains the right to ask the Court to enjoin MPHJ “from engaging in any business activity in, into or from Vermont that violates Vermont Law.” The AG’s Office also continues to seek considerable civil penalties for violation of the State’s Consumer Protection Act. While others might see this request as a weakness in the AG’s case, I disagree. The AG seems to be cutting the dead wood in order to bolster its argument that it is not trying to enjoin lawful activity.
On Wednesday, it was reported that the Virginia General Assembly passed legislation from the House and Senate designed to crack down on misleading patent troll demand letters. Virginia’s efforts come on the heels of a letter from over 40 state and territorial attorneys general to the U.S. Senate’s Commerce and Judiciary Committees urging federal patent litigation reform. Virginia, like other states (e.g., Kentucky and Oregon), has expressed concern over its small businesses being targeted with baseless letters threatening patent infringement. In an effort to provide some protection from frivolous claims, Virginia established criteria for when a claim has been made in “bad faith” (e.g., failing to specify how the target is infringing, etc.). More importantly, the legislation grants the Virginia Attorney General’s Office enforcement power to curb unwanted troll behavior. While I have been critical of recent federal patent reform efforts to date for having any meaningful impact, it does appear that granting enforcement power to state attorneys general could have an effect on baseless patent infringement claims. Not only will it curb mass letters from being sent, it should also cause patent owners concern about asserting thinly-based claims of infringement. Companies might think twice before sending knee-jerk infringement letters to their competitors if they could face being investigated by the state.
For the last 1 ½ years, we have heard about proposed U.S. legislation that is aimed at discouraging baseless patent troll lawsuits. Yet, nothing has been signed into law. We’ve also seen various state Attorney Generals’ offices take action, panels of federal judges urging steps to heighten the pleading requirements for such suits and even FTC commissioners weighing in on the issue. Yesterday, the Obama Administration announced various initiatives designed to improve patent quality and “combat patent trolls.” They have been touted as a renewal of President Obama’s call for patent reform from his State of the Union address. The White House highlighted five current initiatives ranging from “promoting transparency” (e.g., updating ownership information during USPTO proceedings) to “making patents clear” (e.g., helping USPTO examiners more effectively examine so-called “functional claims” to ensure that patent claims are clear). The White House further announced three new initiatives that are allegedly designed to “strengthen the quality and accessibility of the patent system.” While providing more resources to USPTO examiners is always welcomed, it is doubtful that any of these initiatives will have any impact on curbing troll activity. The real power in troll cases comes from the fact that cases can be brought on very thin allegations of infringement and it is not commonplace for defendants to recoup their attorneys’ fees for defending against such actions. There is not a uniform set of rules that apply to all patent infringement cases in federal court and as such, plaintiffs can try to game the system by bringing cases in jurisdictions that are either unfamiliar with complex patent litigation or have no rules governing such cases or both. The end result is that defendants can be faced with having to pay hundreds of thousands of dollars in needless discovery (primarily related to electronic information, such as e-mail, and archived data, etc.) right out of the starting gate in those jurisdictions that do not have a phased approach to patent litigation. Even if the Federal Rules of Civil Procedure are amended to required more detailed patent litigation claims, patent troll activity may not necessarily decrease as crafty counsel will figure out language to meet the bare minimum that is required. What would have an impact is legislation that awards attorneys’ fees to the prevailing party (much like in the copyright context- 17 U.S.C. § 505). This would provide the ultimate disincentive to bring frivolous cases. It will be interesting to see if any meaningful measures are actually implemented in the near future as many people seem to think that there is a problem with the current system.