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Rules, Standards, and Patent Reform

Inspiration struck me today about patent reforms intended to curb troll, NPE, PAE, PME, PLE, etc., activity. Perhaps this insight is clear to everyone else, but a quick Google search tells me maybe not.

I tweeted today about two contradictory arguments made by Apple in two litigations (as Plaintiff arguing that no expert was necessary to testify, and as Defendant arguing that plaintiffs without experts were out of luck). My thoughts were that such activity is pretty normal for repeat, high stakes litigants, but perhaps under proposed “everything is frivolous” reform, there should be sanctions for taking such positions. After all, a frequent complaint about NPEs is that they seek more money than damages they can prove.

That’s when it struck me that this is a rules versus standards problem. This whole debate is. In addition to cultural cognition issues (whereby people with prior views undervalue contrary evidence), even when evidence is credited, the proposed solutions are at complete loggerheads because of the views about how rules and standards will play out.

Thus, those opposing reforms usually argue that while there are certainly bad actors, we should evaluate their behavior in each case and act accordingly. This is typical standards-like consideration. Generalized rules can be overinclusive, sweeping in activity that we might find desirable (consider the anti-software patent view, for example, or even the “you have to make a product or your patent is worthless” view). They can also be underinclusive and/or worked around, which is why many prior rules — like allowing licensees to challenge or the one defendant per suit rule — have had absolutely no effect on patent enforcement (and in some cases made life harder on defendants). This is not to say that there are no rules – we have some bright line rules, like novelty, that allow us to determine if patents are valid.

Those favoring reforms believe that standards are not enough. They are costly to administer (e.g. litigation) and the standards themselves allow too much wrongful activity (like the exceptional case standard for shifting fees, which allows a lot of sharp litigation tactics without shifting fees).

So, who is right? All of them, of course. If this were easy, it would be solved by now. What I think is driving the current patent reform push is grasping at some rule – any rule – that will have a beneficial effect without being overinclusive. The problem is that no one – to date, as far as I can tell – has actually framed the question in terms of rules v. standards tradeoffs.

An example: the heightened pleading requirement that essentially requires you put a claim chart into the complaint. This is a rule. The question is, is it overinclusive? Almost surely so. I don’t have evidence on people who file suits without an idea of why a product is infringing, but I bet it is really small. Why? Because that is a sure way to get hit with attorneys fees. When I talk to people who have been approached by patent trolls, their gripe is not that there is no claim chart. The worry is that they don’t like the claim chart. A pleading requirement will not fix that. The worst part of the rule is that it will increase administrative costs without any real benefit. Many courts require infringement contentions early. But the cost of 150 page long complaints seems really high for the benefit achieved.

A better rule might be to require claim construction orders on a more timely basis; this, to me, is the unexplored problem with much of patent litigation – courts that delay claim construction orders. That rule might speed things along, especially when coupled with the proposed rule to limit discovery until claim construction. However, if you have the rule that discovery is limited until claim construction without a rule requiring timely claim construction, you create an overinclusive rule that essentially delays justice for as long as the judge decides to wait. This turns the rule into a standard, and one without any real recourse to the litigants.

The takeaway, for me at least, is that we must consider each of these proposed reforms from a rules v. standards perspective. If it is a standard, is it one that is less costly to administer? Is it a rule in standard’s clothing? If it is a rule, is it one that is over or under inclusive? Is it less costly than a standard? Is it easily avoided? Will it change behavior of those who were the intended beneficiaries? Will it come in to play in every case or will it be irrelevant in all but the few cases that go to trial? Without this type of analysis, patent reforms are doomed to fail in a way that many already have.

A quick update:

A colleague asked me about proposals that would carve out pharmaceuticals, often in a way that seems doctrinally unsubstantiated. On the one hand, this is a clear public choice type issue: eliminating a dissenting voice by providing exclusions to patent reform so that the voice will be unaffected.

On the other hand, there is still a rules issue there. If the dissenting voice complained that the rules would be overinclusive and harm innovation, then it might make sense to have such exclusions, even at the cost of doctrinal complexity (or even doctrinal incoherence). Then again, if the rules were overinclusive for one innovative segment (phamaceuticals), it’s unclear why they would not be overinclusive for other, non-excluded segments (e.g. research & development companies that make no products).

This, I think, was my colleague’s concern, that reforms are being bandied about, hoping one of them sticks, without some real consideration of the effects. It’s my concern as well. And while excluding one group might be justifiable from a rules based perspective, the failure to consider other groups (or weigh the costs of rules against standards) is not.