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Small Entities and Defending Against or Enforcing Patents — Taking A Page Out of the UK’s Playbook

by Orlando Lopez

Defending against a patent infringement suit or enforcing a patent in an infringement suit is typically very expensive — on the average, a $2-$3 million expense.  This high expense places either defending against a patent infringement suit or enforcing a patent outside of the reach of small entities.  A recent article in the New York Times details the story of Michael Phillips and his company Vlingo, and how a patent infringement suit in which Mr. Phillips eventually was found not to infringe resulted in his selling Vlingo. The $3 million expense and the amount of time spent defending against a suit placed a tremendous burden on Vlingo and Mr. Phillips.

A similar problem occurs when a small company or a single inventor wants to enforce a patent.  A single inventor or a small entity who desires to enforce a patent against an alleged infringer has to be able to afford the $3 million expense. (It is possible to reduce the expense with an extremely efficient litigator, but I only know a couple of those).  According to the Berkeley 2008 Patent Survey, the cost of enforcing a patent is one of the reasons entrepreneurs give for not patenting; however, the same Berkeley 2008 Patent Survey also states that patenting is useful in attracting investors and in obtaining a better bargaining position (for example, through cross-licensing).  Single inventors and small entities sometimes overcome the cost of enforcing a patent by seeking the help of a Non-Practicing Entity (NPEs — the entities formerly known as “patent trolls”). But, since NPEs usually assert the patents against established companies (following the law school teaching of “sue solvent people”), there is significant opposition to NPEs and at least one bill, the SHIELD Act, has been introduced in Congress to restrict the operation of NPEs.

Responding to concerns about the high cost of intellectual property litigation in the United Kingdom, particularly for small and medium sized enterprises, the rules for the Patents County Court were changed in October 2010 so that:

  • The parties set out their respective cases fully, but concisely at the outset.
  • No further evidence, written argument or specific disclosure is permitted without the permission of the judge.  This is a matter considered at the case management conference.
  • Any other applications will, if possible, be dealt with on paper or by telephone.
  • The trial is limited to one or two days at most.
  • The rules on transfer have been modified to take into account the new procedures.
  • Since it is a United Kingdom court, the “British rule” applies and the loser pays costs, including attorneys fees, but in the Patents County Court the recoverable costs are capped at £50,000 for the final determination of liability and at £25,000 for enquiries as to damages or accounts of profits.

At present, there is no limit as to the damages that can be awarded at the Patents County Court, but there is a move to restrict the damages to £500,000 (a little bit less than $1 million US).

Although the procedures used in the United Kingdom for the Patents County Court would have to be adjusted to fall under the Federal Rules of Civil Procedure, we should take a page from the British playbook and start considering a similar Federal Court.  Such a move would make pursuing and enforcing patents more palatable for single inventors and small entities, and would take away some of the reasons for NPEs (small entities would not be enticed to “embrace their inner troll”).  In the case of Vlingo, Michael Phillips would have been able to save at least $2 million and at least two years of work if we had the equivalent of a Patents County Court in the US.


One Response to “Small Entities and Defending Against or Enforcing Patents — Taking A Page Out of the UK’s Playbook”

  1. Andrew Levetown says:

    This suggestion if implemented would result in even wider scale infringement by large companies who would only face limited damages if caught infringing; it would eliminate the need for these large infringing entities to license; its loser pay provisions would leave small inventors and companies with no real affordable avenue for pursuing their claims, and it would kill innovation by small businesses and inventors who would be unable to reap the full benefit of their innovations. It may hurt the “Trolls”, but it will certainly hurt our economy and it would further stack the deck in favor of large enterprises.

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