Infringement, Patent Litigation

It is well-established that patent holders may not simply file patent infringement lawsuits in order to determine if a company may be infringing their patents.  As interpreted by the Court of Appeals for the Federal Circuit, Rule 11 of the Federal Rules of Civil Procedure requires that patent holders do the following prior to filing a complaint for patent infringement:

Before filing []claims of patent infringement, Rule 11, we think, must be interpreted to require the law firm to, at a bare minimum, apply the claims of each and every patent that is being brought into the lawsuit to an accused device and conclude that there is a reasonable basis for a finding of infringement of at least one claim of each patent so asserted.

View Engineering, Inc. v. Robotic Vision Systems, Inc., et al. 208 F.3d 981, 986 (Fed. Cir. 2000).   Moreover, the Federal Circuit “has construed Rule 11, in the context of patent infringement actions, to require that an attorney interpret the pertinent claims of the patent in issue before filing a complaint alleging patent infringement.”  Antonious, et al., v. Spalding & Evenflo Companies, Inc., et al., 275 F.3d 1066, 1072 (Fed. Cir. 2002).  In addition, the claim interpretations must be “nonfrivolous.”  Id.

Many software claims are written in such a way that infringement can only be assessed by reviewing an accused product’s source code, which is typically not publicly available to the patent holder.  Claims may be drafted this way out of necessity when there are novel and inventive features that cannot be distinguished from the prior art simply on the basis of the observable operation of the executable code.  Should Rule 11 preclude software patent holders from filing patent infringement lawsuits when source code access is required in order to satisfy the Federal Circuit’s pre-filing investigation standard?  Conversely, should software patent holders be entitled to review a potential infringer’s source code to determine if infringement exists?

Of course, this issue is not necessarily unique to software claims.  For example, it may not be possible to determine if manufacturing method or process claims are being practiced by examining the resulting product.  In such situations, if the patent holder cannot show that the potential infringer is more likely to be infringing than simply performing a prior art process, should it nevertheless be allowed to file an infringement suit and obtain discovery concerning the potential infringer’s proprietary processes?

The language of View Engineering and Antonious suggests that the answer is “no.”  However, district courts have been unwilling to apply the decisions in a way that protects accused infringers from the expense and intrusiveness of the discovery process.  Some courts have concluded that a violation of Rule 11 can only be ascertained after there has been a decision on the merits.  Others have given software patent holders a pass because they could not have possibly performed a pre-filing investigation that would have ascertained whether infringement is occurring.

However, who should bear the cost of determining whether a patent has been infringed?  Many cases now effectively impose that cost on the accused infringer by allowing discovery to proceed even where the patent holder cannot establish a sufficient basis for believing that its claims are infringed at the time the lawsuit is filed.  Courts do not want to shut the court house doors to patent holders without providing some opportunity for discovery.  However, the process produces some perverse incentives.  The patent holder who fears Rule 11 sanctions will likely go to great lengths to avoid dismissing its case outright even if discovery reveals that there is no legitimate basis for the case to go forward.  In that case, the accused infringer may have to incur at least the expense of moving for summary judgment to get any relief.  This in turn incentivizes accused infringers to settle meritless cases to reduce litigation costs.

Perhaps some intermediate approaches should be considered to screen or vet cases in a manner that balances the equities of both the patent holder and the accused infringers.  For example, perhaps a patent holder could be required to post a bond in order to examine a company’s software and to pay the company’s costs if it cannot ultimately establish enough evidence to proceed further.  Perhaps the patent holder should be required to pay the costs of having a third party neutral evaluate the potentially infringing software and determine if the Federal Circuit’s pre-filing investigation standards can be met.  There may be other preliminary screening or vetting processes that could be used as well.

Some may protest that such solutions are incompatible with right to civil jury trials under the Seventh Amendment. However, a system that forces an accused infringer to defend a case on the merits before it can raise the issue of whether there was a basis for bringing the case in the first place puts an enormous amount of settlement leverage in the hands of patent holders and an effective tax on many technology companies whose businesses are subject to software patent suits.   In the case of non-practicing entities or “NPEs”, the leverage tends to be one-sided as they often have relatively far fewer documents to produce or personnel to depose than do their lawsuit targets.  Perhaps we should consider whether the current system is fair to all patent system stakeholders and whether other approaches may be warranted.