Patent reform ala H.R. 1249 is expected to be signed by President Obama this coming Friday, and big law firms have good reason to celebrate. Section 19 of the proposed legislation changes the general rule about joining multiple parties together in a single lawsuit, and takes immediate, though not retroactive, effect. Under the current rule (Federal Rule of Civil Procedure 20, for legal types), parties may join multiple defendants in a single lawsuit if it “aris[es] out of the same transaction, occurrence, or series of transactions or occurrences.” Many courts, including those in Delaware and East Texas (both highly experienced with patent litigation), interpret this liberally enough to permit joining defendants whose products are accused of infringing the same patents.
Multi-party lawsuits arise when industry outsiders–including individual inventors and other start-up businesses–develop (and ultimately patent) technology that later becomes widely adopted, either through industry standards or customer expectations. Larger companies sometimes “swallow” smaller, incremental advances into large, integrated products, eliminating the market for practicing the discrete technologies separately. In these situations, patent owners choose industry-wide licensing as the only practical commercialization option for their respective patent rights.
Because the primary tool in our horribly inefficient licensing system requires litigation, efficiency considerations inevitably weigh toward multi-party patent lawsuits. Before multi-defendant filings, courts occasionally noticed the same patents being enforced in multiple lawsuits and utilized the “multi-district” litigation rules to consolidate issues common to all parties. Participants and observers have long recognized the efficiency achieved by consolidating issues and parties where practical.
Under the law President Obama is poised to enact, congress adds a special exception to the general rule by adding, for patent cases only, that companies may only be joined if the lawsuit “relates to … the same accused product or process.” The President’s ‘jobs bill’ for patent lawyers threatens the economic efficiency of industry-wide licensing, increasing transaction costs for both patent owners and licensees.
Recently, Judge Leonard Davis resolved a substantial portion of a multiple defendant lawsuit when he agreed with the defendants’ collective patent interpretation. The decision proved fatal to 99 out of 112 companies targeted by the patent owner, substantially reducing the cost to the parties individually. The process, according to Judge Davis, avoided “great additional expense to all parties and the judiciary.” Davis further reflected on the final resolution in a matter of months, rather than years.
In Judge Davis’ own words, allowing multiple defendants to remain “in one case in one District,” a controversy can be resolved “in the most judicially economic manner sparing many other courts from repetitive work, and at the same time saving the parties very significant sums of money in attorneys fees.” Obama’s new law incentivize patent owners to “play the field” and file individual lawsuits, perhaps in multiple courts, increasing individual risk and expense for each defendant, increasing the individual law firm’s billable time in the process.
- How About A Risk Management Approach To Patent Litigation? (gametimeip.com)
- Another Wolf Cry? Patent Reform Vote Imminent (gametimeip.com)
- Please, By All Means, Keep Calling East Texas “Plaintiff Friendly” Even When It’s Not True (gametimeip.com)