Inhibiting Patent Trolling: A New Approach for Applying Rule 11

Rogers, Eric,Jeon, Young | November 1, 2014

There has been an alarming rise in the number of litigious entities—commonly referred to as patent trolls or non-practicing entities—that make no products but file dubious patent infringement lawsuits merely to extract money from commercially productive companies. High litigation costs provide a fertile environment for an exploitive business model that uses shotgun tactics to threaten patent infringement claims against numerous companies, many of which will make a purely financial decision to pay patent trolls rather than expend even more money in litigation. Sometimes the payoff is a settlement strategically set below the likely cost of litigation defense. Other times, the payoff is a license fee too small to justify expending litigation costs to adjudicate, even if it is likely a frivolous claim. Patent infringement claims asserted by patent trolls are a type of nuisance lawsuit—a lawsuit in which the defendant pays to make the lawsuit go away simply to avoid expending the considerable costs associated with litigation, not because the lawsuit has any significant merit or chance of success. While nuisance lawsuits are not new, the direct, focused, and widespread negative effects of nuisance patent lawsuits on innovation and productive entities by those neither innovating nor producing anything make these lawsuits particularly damaging to society. In addition, the public’s negative perception of patent trolls filing baseless patent infringement claims endangers the legitimacy of the patent system as a whole. Most people agree something must be done, but there is little agreement on any specific solution, approach, or strategy. Yet one need only look to the Federal Rules of Civil Procedure for a suitable remedy to help curb this vexing problem. This Article proposes a specialized implementation of Rule 11 to combat some of the unique difficulties created by the patent-trolling business model. A Rule 11-based solution is not only preferable to new legislation, but also complementary because it is 1) immediately available without any legislative action, 2) flexible enough to handle evolving behavior that exploits patent litigation inefficiencies through bad-faith patent infringement claims, and 3) strong enough to deter variations of patent-trolling behavior—whether conducted by a traditional patent troll, NPE, PAE, or even a commercially active entity. Broadly stated, this approach identifies patent- trolling-predisposed claimants before the accretion of discovery costs and provides a swifter litigation exit ramp. The proposed inquiry treats all NPEs the same and analyzes objective indicia as proxies for ascertaining the intent behind the entity’s litigious conduct. In sum, an upfront application of Rule 11 provides a less expensive escape route to end the most readily detectable patent infringement nuisance lawsuits.