IP: Whack a troll

Federal Circuit affirms sanctions for frivolous patent licensing campaign.

In a true man-bites-dog moment, on July 29, 2011, the Federal Circuit affirmed stiff sanctions against a patent troll for, well, being a patent troll and engaging in the very patent terrorism that some commentators say the court’s own jurisprudence—unintentionally, of course—has enabled for decades.

We all know the drill. A patent holding company buys a patent portfolio claiming, say, a new-and-improved coffee cup, and you become one of countless companies sued for infringement. Trouble is, you don’t make or sell coffee cups. You make and sell swimming pools. No matter. The patents recite a “fluid containing receptacle with hydrophobic side walls and a top opening,” and that’s, as they say, close enough for government work. You want to fight, but the plaintiff offers a quick deal in the high five or low six digits, but only while supplies last. (Limit two per household, please.)

What to do?

Countersue, that’s the ticket. But wait, a patent troll has no operations. Drown them in discovery and watch them beg for mercy. But wait, patent trolls have very few documents and the only witnesses are the inventors and some licensing guy who’s usually a patent lawyer. Move for early summary judgment? Fat chance. Most courts won’t hear of it, especially before a Markman ruling, which doesn’t happen until after, or at least deep into, fact discovery.

Let’s face it, you’re a hostage. But because the ransom is “priced to move,” you settle—confidentially, of course—and the dirty little licensing campaign is never exposed to the disinfectant of judicial review. Worse still, the plaintiff’s lawyer doesn’t even buy his new swimming pool from you, adding insult to injury.

But maybe, just maybe, times are changing.

In Eon-Net LP v. Flagstar Bancorp, the Federal Circuit held that the proverbial coffee cup was just a coffee cup, and then whacked the patent troll plaintiff with stiff sanctions for suing the proverbial swimming pool manufacturer who, surprisingly, decided to fight. The patent described a method of inputting information from a “document” or “file” into a computer program where the information originated from hardcopy documents. The defendant’s ecommerce website certainly processed information, but none of the information originated from hardcopy documents. No matter. The troll still sued, and asked somewhere between $25,000 and $75,000 to settle.

Only the defendant—what’s the expression?—defended! And that spelled trouble for the troll, which the district court whacked with more than $600,000 in sanctions, and which the Federal Circuit affirmed.

I think the case is important for a few reasons. First, the Federal Circuit heavily relied on the written description of the invention to narrowly construe what are otherwise extremely broad terms like “document” and “file.” Too often, as we all know, the opposite occurs, which leads to underserved windfalls for patent trolls and useless transaction costs for large swaths of American commerce, which only get passed along to consumers.

Second, the Federal Circuit construed the terms “document” and “file” solely by negation. Rather than say what the terms mean, the court simply said what they don’t include. That’s critical. Often defendants have a hard time persuading judges to construe claim terms by negation, and this is a good precedent for doing so.

Third, the Federal Circuit refused to apply the pernicious doctrine of claim differentiation, which holds that an independent claim must mean something broader than a dependent claim. But that’s just fiction, as most patent lawyers know well. Just because an independent claim recites a duck, and a dependent claim recites a duck that quacks, doesn’t mean the independent claim reads on your golden goose. It’s just a silly rule, and the Federal Circuit rightly refused to apply it to broaden an otherwise narrow patent.

Finally, the Federal Circuit expressly recognized what too often goes unstated—namely, the radical asymmetry between trolls and real companies with respect to the costs and burdens of patent litigation. The court explained at some length how a patent troll’s lack of business operations creates both disproportionate discovery costs and disproportionate business risks, which can be useful dicta in educating your district judge during pretrial scheduling and discovery disputes.

Too often, patent trolls play an almost riskless game unrelated to the vindication of business or inventor interests, to say nothing of the advancement of science and the useful arts. This time, however, the game morphed into “Whack a Troll,” and that’s good for the overall health of our patent system. 

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Jeffrey Dean

Jeffrey Dean is a partner of Marshall, Gerstein & Borun LLP, and concentrates on the defense of patent infringement claims on behalf of corporations....

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