Week 7 Blog #4: Recent Trends in NPE Litigation

In a recent report published in the July 2012 version of The Lawyers, Thomas Fisher and Tomoyoshi Furukawa published five defining trends they've seen emerging in NPE litigation. These trends have shown that in recent years, the typical NPE strategy of forcing defendants into settlements may become more difficult in a continually hostile environment towards NPEs. These trends include:

1. Difficulty in Obtaining a Permanent Injunction
NPEs will often seek a permanent injunction against defendants in addition to money damages as the equitable relief in the form of a permanent injunction provides an NPE with additional negotiating leverage in settlement negotiations with defendants.

In eBay Inc. vs MercExchange, L.L.C., the US Supreme Court made it clear that prior to granting a permanent injunction, a four factor test must be applied as the plaintiff must show (1) that plaintiff has suffered an irreparable injury; (2) that remedies available at law are inadequate to compensate for that injury; (3) that considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be dis-served by a permanent injunction. Since it is difficult for NPEs to satisfy factors (1) or (2), permanent injunction have been hard to come by for NPEs post-eBay.

2. Venue
NPEs have historically favored the US District Court for the Eastern District of Texas ("EDTX") as a venue as EDTX has a reputation for being a patent-friendly venue, and for its juries having a willingness to grant large damages awards. In 2011 however, three EDTX judges retired leaving to be seen if EDTX's patent-friendly reputation will be sustained through the years.

3. Limitation of Joinder of Accused Infringers
Before the America Invents Act became effective in 2011, it was typical for NPEs to sue many defendants in a single lawsuit, even if the defendants were not related to each other. However, under the provisions of the AIA, this strategy is no longer valid. NPEs may only assert a patent against multiple defendants where: (1) defendants are jointly and severally liable or infringement arises out of the same transaction, occurrence, or series of transactions or occurrences relating to the making, using, offering for sale, selling or importing into the US and (2) there are questions of fact common to all defendants. Thus the opportunity to include multiple organizations in a lawsuit brought forward by an NPE has been significantly reduced by the specificities needed to bring those organizations together.

4. Reduce the Defendant's Burden of E-Discovery
Defendants typically bear a heavy burden of extensive discovery in NPE patent litigation while an NPE's burden of discovery is much less since it doesn't make any patented products. The demands of electronic discovery have increased the burden of discovery causing courts to start making new rules regarding e-discovery to reduce the parties' burden of discovery. Examples include the 2011 Model E-Discovery Order that provides that requests for production of e-mail must identify specific issues, and the requesting party must identify (i) custodians, (ii) search terms, and (iii) a search period. Thus, the limits placed on e-discovery in accordance with the Model Order substantially decrease a party's burden of discovery.

5. Attorneys' Fee Award
Recently, the Federal Circuit has held that a case in which the NPE's strategy is to sue many defendants with the goal of securing settlements is an "exceptional case" and has required the NPE to compensate defendants for their attorneys' fees where the NPE does not prevail. This serves as a warning to NPEs who file baseless suits with the simple objective of seeking early settlements.