Regulating Patent Assertions

Recent years have seen a proliferation of statutes regulating and lawsuits challenging patent enforcement conduct. The Federal Circuit, however, has held that acts of patent enforcement are illegal only if there is clear and convincing evidence both that the patent holder’s infringement allegations were objectively baseless and that the patent holder knew or should have known its allegations were baseless. This chapter summarizes recent efforts by state governments and the federal government to control patent enforcement behavior, questions the broad immunity the Federal Circuit has conferred on patent holders, and seeks to improve pending federal legislation governing patent enforcement. In the past three years, the Supreme Court has twice overturned Federal Circuit case law embracing objective/subjective tests similar to the court’s immunity rule. A more flexible standard, focused on the patent holder’s good faith or bad faith, would not only accommodate the Supreme Court’s disdain for rigid rules in patent law, it would accord with a century of well-reasoned regional circuit and district court case law that the Federal Circuit has ignored. More importantly, a good-faith standard would allow courts to condemn the questionable tactics lately deployed by so-called bottom feeder patent trolls while still respecting patent holders’ rights to make legitimate allegations of infringement. Although pending federal legislation to regulate patent assertions would rely heavily on the Federal Trade Commission for implementation, this chapter sketches a regulatory model that emphasizes the comparative advantages of both state governments and the federal government. The federal government’s strengths include Congress’s ability to provide a uniform legal standard governing patent assertions and to clarify questions of personal and subject matter jurisdiction that arise in cases challenging patent enforcement conduct. By contrast, state governments, as well as private parties, have a superior ability to identify unfair or deceptive patent assertions and to pursue lawsuits against patent holders who violate the law. A model of cooperative federalism, grounded in these functional considerations, would deter and punish overzealous patent enforcement with minimal uncertainty about what, exactly, the law prohibits.