Heightened Pleading in Patent Complaints to Frustrate Trolls – Exception for Hatch-Waxman/ANDA Cases

All branches of government have worked to decrease frivolous litigation by non-practicing entities (“NPEs”), or patent trolls, in order to both encourage developing technology and allow businesses to utilize that technology without a looming threat of disruptive and costly litigation. In the course of our coverage of these efforts, we have seen state and federal legislative bodies, as well as the United States Patent and Trademark Office (“USPTO”), the executive branch, and the courts, suggesting potential solutions. Congress is currently weighing a revamped version of House Judiciary Committee Chairman Bob Goodlatte’s Innovation Act bill, which seeks to reform patent litigation by focusing on pleading standards.

The pleading standard applicable to patent cases is the same as applied to any other complaint governed under Federal Rule of Civil Procedure 8 (a), requiring merely a short and plain statement for relief with sufficient factual grounds to give rise to a plausible inference that relief will be granted, per Twombly and Iqbal. Only a few special matters must be plead with particularized pleading under Rule 9, e.g., causes of action alleging fraud or mistake. In the patent realm, inequitable conduct allegations must meet this higher standard, because the basis of the allegation is that the patentee conducted a fraud on the USPTO. See Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312 (Fed. Cir. 2009).

The Innovation Act would heighten the pleading requirements for patent actions by pushing disclosures that usually occur late in discovery closer to the onset of litigation. The Act would require plaintiffs to include in the complaint allegations concerning what patents and claims are at issue, which products specifically infringe those patents and claims, and ultimate ownership of the patents (so as to ensure transparency of what parties are involved in the litigation and avoid actions by shell companies). Notably, the Innovation Act specifically exempts claims brought under § 271(e)(2) from such requirements, as these actions concern infringement actions brought under the Hatch-Waxman statute related to Abbreviated New Drug Applications (“ANDAs”).

Congress’s efforts at reform have not gone unnoticed. On March 2, 2015, a group of 51 intellectual property and economics scholars wrote an open letter to Congress, imploring that concerted efforts be made to limit NPE litigation because it has deleterious effects on innovation and technological progress. The scholars’ assessment is consistent with the line drawn by the Innovation Act: “the patent system provides strong protection without excessive litigation in some sectors such as pharmaceuticals, but substantial evidence highlights serious problems with patent litigation in many other industries.” Thus, by forcing litigants to place the patent claims at issue in front of the court as early as possible, the Innovation Act could promote faster dismissals of frivolous or fruitless litigation, without the fear that defendants are merely conceding to settlement extortion due to high litigation costs.

Gibbons will continue to monitor developments in the ongoing efforts to reform patent litigation.

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