Is It Open Season Now for NPEs?

Among other changes, the America Invents Act (“AIA”) includes the new 35 U.S.C. § 299. This statute purports to reduce the ability of a patent owner to join multiple, unrelated defendants in a single action, a tactic often used by litigious non-practicing entities (“NPEs”), who press for nuisance value settlements. In addition, the AIA commissioned the Government Accounting Office (“GAO”) to study the consequences of NPEs, to include their costs, benefits and economic impact.

But why the need for all this? According to Boston University School of Law Working Paper No. 11-45, “The Private and Social Costs of Patent Trolls,” (Sep. 19, 2011), lawsuits by NPEs, sometimes referred to as “patent trolls,” cost businesses half a trillion dollars of lost wealth from 1990-2010, and averaged over $80 billion over the past four years. And, while use of this latter moniker might be considered derogatory, recently, in Highland Plastics, Inc. v. Sorensen Research and Development Trust, 11-cv-2246 (C.D.Ca. Aug. 17, 2011), the court denied a motion to strike the term “patent troll” from the complaint, stating that patent troll “is a term commonly used and understood in patent litigation and is not so pejorative as to make its use improper.” Id., Dn. 21 at 3.

Visceral reactions to litigious NPEs, under other names, are well-entrenched in patent law jurisprudence. For example, almost 70 years ago, Judge Learned Hand ruled that a patent was invalid and should not remain in the art as a “scarecrow.” Bresnick v. United States Vitamin Corp., 139 F.2d 239, 242 (2d Cir. 1943). Years later, in Colida v. Sanyo North America Corp., 2004 U.S. App. LEXIS 26723, *4 (Fed. Cir. Dec. 2, 2004) (unpublished), the Federal Circuit noted an alternative name for trolls, patent “predators.”

With the new AIA provision and the GAO commission in place, it is not clear what the future holds for NPEs. Further, the International Patent Exchange International (“IPXI”), set to debut in January 2012, plans to offer a commodities-like market for licensing patents that may reduce NPE activity, or at least provide another alternative way to monetize patent assets. Only time will tell how these measures will impact NPE activity.

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