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The Patent Lawyer’s ‘Jobs Bill’ May Become Law This Week

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.

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Discussion

8 thoughts on “The Patent Lawyer’s ‘Jobs Bill’ May Become Law This Week

  1. Patrick,

    Instead of, for example, one lawsuit with 20 defendants, this bill should likely result in 20 lawsuits with one defendant in each case. If that happens, why couldn’t the judge consolidate them for pre-trial purposes? My understanding of how the multi-district litigation panel operates is that cases spread among multiple jurisdictions are consolidated in one forum for pre-trial purposes and then sent back to the court where the case was filed for trial purposes. I assume that post-Patent Deform, er Patent Reform, a judge faced with the above scenario (20 lawsuits with one defendant in each case with the same patent asserted in all 20 lawsuits) would (and could) consolidate multiple defendants for pre-trial purposes (thus not violating the dis-joinder provision) and then simply have separate trials for any defendant that actually decided to try the case.

    Bemused

    Posted by Bemused | September 14, 2011, 2:47 pm
    • Indeed. However, getting from “20 lawsuits with one defendant” to consolidated pre-trial will inevitably involve countless hours of lawyers “meeting and conferring,” agreeing or disagreeing on what can and should be consolidated, and potential briefing on the benefits or pitfalls of consolidation .. a litigator’s dream.

      Posted by Patrick | September 14, 2011, 2:50 pm
  2. So how does any of this reduce litigation costs for the defendants?

    Posted by NotSureIGetIt | September 15, 2011, 10:01 am
  3. “Larger companies sometimes “swallow” smaller, incremental advances into large, integrated products, eliminating the market for practicing the discrete technologies separately”

    Mhmmm. Is that me some QQ?

    “Participants and observers have long recognized the efficiency achieved by consolidating issues and parties where practical.”

    But not those participants getting sued right?

    ‘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.”

    Not really, you can still license to entire industries just fine. You just have to pay more to sue them all. I see no harm in this.

    “The decision proved fatal to 99 out of 112 companies targeted by the patent owner, substantially reducing the cost to the parties individually. ”

    What goes unmentioned though is that 111 of the 112 companies would never have been targeted in the first place if it wasn’t so cheap now would they?

    Let’s be real, there are good things about the joinder and there are the not so good. This is just a shift that has good and bad associated with it.

    “So how does any of this reduce litigation costs for the defendants?”

    It was meant to combat trolls who file against a whole industry for pennies on the dollar it would otherwise cost to sue each individual. Which is what our good buddy Pat forgot to mention.

    Posted by 6 | September 18, 2011, 2:48 am
    • Believe me, I already know several patent owners that are going to use the new joinder rules to their advantage. But I’m trying to dispel the notion that this will “advantage” defendants. Clearly, it does not. It only raises their costs by making joint defense coordination more complicated.

      Believe me, I know a lot of trial lawyers that will be sending their congressmen and women a lovely fruit basket…

      Posted by Patrick | September 18, 2011, 7:22 am
      • Well that’s up to them. i don’t know if it will advantage defendants or not. I would imagine some it will and some it wont’. Hopefully it does it’s job and curtails trolling of whole industries. It would have been nicer for them to not di ck around and simply ban certain forms of trolling wholesale but I guess lobbyists prevented us from having such nice things.

        Posted by 6 | September 19, 2011, 4:18 pm

Trackbacks/Pingbacks

  1. Pingback: Could Magellan Patents Navigate Delaware Court Toward Restoring Sanity In Patent Enforcement? « Gametime IP - October 14, 2011

  2. Pingback: Multi-party Patent Enforcement Post-AIA « Gametime IP - January 4, 2012

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