In the unique context of patent law, courtrooms hearing patent cases have become virtual casinos where patent trolls own the house and play by rules stacked in their favor.
The whales at this patent litigation casino are well-funded third-party litigation financers, who provide money to lawyers for lawsuits in return for a share of any damages or settlement awards.
How TPLFs Operate
Unlike law firms, TPLFs are strangers who don’t have a privileged, fiduciary relationship with the plaintiff, even as they may pull strings in the lawsuit. In this way, TPLFs are raw gamblers, untethered to any ethical or professional interest in justice generally, and interested solely in payouts.
TPLFs partner with patent trolls, people who have come to own useless patents they don’t use to make anything except legal threats to companies that actually develop and sell products people want.
The patents owned by trolls were often improperly granted in the first place, by patent examiners who were either overworked and prone to error, or operating under tight deadlines with limited knowledge. And once granted, a patent becomes a sort of magic casino chip, minted by the federal government with the shine of official authority.
TPLFs buy patents up and plunk them down at the patent litigation casino, leveraging them to their wildly disproportionate advantage. For example, unlike trademark law, patent law doesn’t consider the alleged infringer’s intent and fails to give innocent users the benefit of the doubt. So even inventors who innocently and independently discover innovations can be found liable in patent lawsuits.
TPLFs can also impose vastly disproportionate discovery costs on innocent defendants. The infringement phase of a patent case includes endless allegations regarding the defendant’s products, whereas trolls produce nothing with their patents and have no products to answer questions about.
Further, TPLFs can generate escalating damages jackpots by accusing a defendant’s entire collection of components of infringement, rather than just the specific component within that much larger product that’s the subject of the patent at issue.
Congress could require that damages be calculated with reference to the smallest commercially relevant component that incorporates the technology alleged to be violating a patent, but it hasn’t. So not only are the house rules tilted in the trolls’ and TPLFs’ favor, but their potential jackpot is also unreasonably high because of how patent damages are calculated.
And trolls tend to file their claims late in the life of a patent, so potential damages can be made higher, or more targets made available, while trolls produce nothing with their patents all the while and then finally spring their trap.
Once trapped in patent litigation, accused infringers have no realistic chance of escape. An infringement claim can be won simply by a showing of a preponderance of the evidence, whereas an accused infringer has to show the invalidity of the patent asserted against them by “clear and convincing evidence.”
That evidentiary imbalance incentivizes jurors without technical backgrounds to find for the plaintiff troll following the route of least resistance. Think about it. Today, a typical patent trial, involving a host of complex issues, will only last a couple weeks, and much of the trial will have to involve educating the jury about the relevant technology, the patented invention, the product or method that is accused of infringement, and any prior art that allegedly invalidates the patent.
Just imagine having to serve on a jury and decide a case involving this one claim in a patent for a “quantum interference device, comprising: a light emitting element; and an atomic cell on which light from the light emitting element is incident, wherein the atomic cell accommodates alkali metal atoms therein ...” and more highly technical language.
Confused jurors will find it much easier to find for the plaintiff, simply because doing so requires meeting a much lower evidentiary standard, especially when the jury’s verdict must be unanimous.
Such is the situation for innocent inventors dragged into the patent litigation casino by third-party funders of patent trolls—who play with magic chips under rules stacked overwhelmingly to their advantage. Under those circumstances, it’s easy to see why even innocent innovators have to settle lawsuits—and in so doing, settle for injustice.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Paul Taylor served over 20 years as counsel and chief counsel for the House Judiciary Committee’s Subcommittee on the Constitution and Civil Justice. He also served as senior counsel at the House Committee on Oversight. Before that, Taylor was an associate at Kirkland & Ellis and Covington & Burling.