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Obama takes action to curb frivolous patent lawsuits

White House press secretary Jay Carney speaks to the press during the daily briefing at the White House in Washington, May 20, 2013. REUTERS
White House press secretary Jay Carney speaks to the press during the daily briefing at the White House in Washington, May 20, 2013. REUTERS

By Diane Bartz

WASHINGTON (Reuters) - President Barack Obama took steps on Tuesday intended to curb lawsuits brought by companies, disparagingly called "patent trolls," that make or sell nothing but specialize in suing others for infringement, and he asked for new federal regulations and action from Congress.

The offensive - announced ahead of an Obama fundraising trip this week to Silicon Valley in California - came as U.S. lawmakers and courts also are looking for ways to reduce the number of unwarranted patent lawsuits.

Such lawsuits have ballooned in recent years, particularly in the technology sector, from companies that buy and license patents from others, including individual inventors.

Critics say those patent portfolios are assembled as a springboard to litigation; many firms argue they are providing a service to inventors, or protecting against the loss of licensing fees that users of the patents should pay.

Cisco Systems Inc, Apple Inc, Google Inc and other big technology companies have been pushing for legislation that would reduce the number of times each year that they are sued for infringement.

Among other steps, the White House called on Congress to pass legislation to make it easier for a federal judge to award legal fees to the winner of a patent case if the judge deems the lawsuit abusive.

It also asked lawmakers to make it harder for companies to convince the U.S. International Trade Commission to ban sales of products made with technology that infringes on a patent. Currently, the ITC has a lower standard for ordering an injunction than does a U.S. District Court.

The disparity has led to a tidal wave of patent infringement complaints filed at the ITC.

Obama asked lawmakers to require companies that sue for infringement to have updated ownership information on file with the U.S. Patent and Trademark Office. He also urged the patent office, part of the Department of Commerce, to write a similar regulation.

The actions were aimed at improving incentives for high-tech innovation, a major driver of economic growth, the White House said. "Stopping this drain on the American economy will require swift legislative action, and we are encouraged by the attention the issue is receiving in recent weeks," White House spokesman Jay Carney said in a statement.

Companies specializing in patent litigation filed 2,921 infringement lawsuits in 2011, the latest figures available, 62 percent of all such cases filed, Colleen Chien, who teaches patent law at Santa Clara University Law School, said in a blog post for PatentlyO.

Allowing judges to decide that certain lawsuits are abusive and requiring losers to pay the winners' legal fees would be key steps toward killing frivolous lawsuits, said Ed Reines, a member of an advisory panel for the U.S. Court of Appeals for the Federal Circuit, which hears most patent appeals.

Another important step would be to reform the ITC so companies cannot get a sales injunction not available in district courts, according to Reines, a lawyer with the firm Weil Gotshal & Manges.

Two companies often accused of being trolls are Eolas Technologies and Innovatio IP Ventures LLC. Both argued on Tuesday that allowing companies that specialize in legal strategy to handle infringement lawsuits makes sense.

"The idea that because you're not actually making things, you shouldn't be able to get a return on your investment, I think that's wrong," said chief executive Mark Swords of Eolas, which has sued companies ranging from Facebook to Walt Disney over patents for interactive technology.

Matthew McAndrews, who represents Innovatio, urged lawmakers to consider requiring companies that fight infringement lawsuits and lose to pay the plaintiff's legal fees.

"Why shouldn't there be a balanced provision that says in the case of a large entity willfully infringing a non-practicing entity that all of the fees should be shifted in that case?" McAndrews said. "Who gets to define an abusive patent litigation claim? It (Obama's proposal) places way too much emphasis on non-practicing entity."

LEGISLATION BREWING, COURTS AT WORK

Congress already is working on a variety of bills. The heads of the judiciary committees in the Senate and House of Representatives - Democratic Senator Patrick Leahy of Vermont and Republican Representative Robert Goodlatte of Virginia - have put forward a draft bill.

Their measure would improve access to information about who owns patents, reduce discovery burdens in lawsuits and make other changes to enable judges to identify abusive cases early in the process and, presumably, dismiss them.

The bipartisan proposal, once finalized, is considered to have a good chance to move through Congress.

Another bill - introduced by Representatives Peter DeFazio, an Oregon Democrat, and Jason Chaffetz, a Utah Republican - would require certain plaintiffs to pay all legal fees if they sue for patent infringement and lose.

And efforts are under way in the courts to rein in abuses.

Randall Rader, who has been on the U.S. Court of Appeals for the Federal Circuit since 1990 and became chief judge in 2010, has circulated a four-point plan to stem abusive patent litigation. The plan overlaps with some of the new White House proposals and some of the planned legislation.

"The litigation abuse comes when a company is asserting a patent with a minimal value ... but they're asserting it for billions of dollars," Rader told Reuters in an interview. "That disproportionality is an abuse of the system."

Rader's plan calls for courts to restrict pre-trial discovery - gathering evidence in a case - to key terms and key people and would limit the number of patents in each case.

It also calls for courts to evaluate the value of any infringement early on and dispatch smaller cases quickly, and to consider making plaintiffs pay the legal fees of defendants if the judge concludes that the original lawsuit was unfounded.

The court within weeks will formally begin an effort to cut the number of patents in each case, Rader said. The other two issues are down the road, Rader added.

(Additional reporting by Sarah McBride in San Francisco, and Mark Felsenthal and Roberta Rampton; Editing by Ros Krasny, Will Dunham and Cynthia Osterman)

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