Raising the bar

Amendments to the US Civil Rules of Procedure could dissuade some non-practicing entities from targeting technology-rich sectors

The business model of non-practicing entities (NPEs) in the US, which has proven difficult for patent owners across medical devices and other technology sectors, may be about to change following the removal of Rule 84 of Form 18 of the Civil Rules of Procedure.

As of 1 December, the removal of Form 18 equaled what lawyers are calling heightened pleading standards. Plaintiffs that accuse a defendant of direct patent infringement are now required to provide “sufficient factual matter, accepted as true, to state a claim that is plausible on its face”, when they file a complaint.

The changes to the Federal Rules of Civil Procedure were approved by the US Supreme Court in April. The revised rules eliminate Form 18 pleading for patent infringement from the appendix to the Federal Rules of Civil Procedure.

Rule 84 was removed because “there are many excellent alternative sources for forms ... Rule 84 and the Appendix of Forms are no longer necessary and have been abrogated”, according to the committee responsible for the Federal Rules of Civil Procedure.

The change will affect all plaintiffs, but experts have said it will have particular ramifications for NPEs because they may not be able to “get away with” leveling meritless claims at defendants.

Form 18 was a “very simple” patent infringement complaint, explains Aaron Charfoos, member of the intellectual property group at Dykema.

“The form was so simple, in fact, it did not even require the plaintiff to identify the claims alleged to be infringed or the name of the accused products.”

Christian Stahl, IP partner at Quarles & Brady, says that the rule changes “should not” necessarily affect patent litigators. Instead, he explains that the abrogation of Rule 84 does not change the pleading standards.

“As a result, the current standards provided in Twombly and Iqbal, and their progeny, will continue to control.”

In the Bell Atlantic Corp v Twombly (2007) and Ashcroft v Iqbal (2009) cases, the judges allowed courts to “draw the reasonable inference that the defendant is liable for the misconduct alleged.

But Charfoos says that the onus being put on the plaintiff to provide a more succinct complaint with more information will “almost certainly” benefit defendants.

“Plaintiffs, particularly NPEs, likely did not want to deal with the uncertainty of the new standard or the added cost and time defending against a motion to dismiss, which contributed to a huge spike in patent litigations filed in November 2015.”

Charfoos adds that plaintiffs may lose out because courts could apply the heightened standards retroactively to complaints already filed.

The stricter pleading standards could also have an effect on courts in the US. But Charfoos says “these are unchartered waters” and what will constitute a “plausible” claim in patent litigation is unclear at this point.

The heightened pleading standards have been billed as a win for defendants who have struggled in light of the alleged endless lawsuits NPEs have filed in 2015.

According to defensive patent aggregator Unified Patent’s 1st Half Patent Dispute Report, NPEs were the most active infringement plaintiffs in the US until June 2015. NPE litigation also accounted for 68 percent of US district court cases, while 32 percent were filed by non-NPEs.

But the figures may change after patent owners have had time to absorb the new information. Charfoos says it is likely that the US will see “many months of motion practice at the district and appellate levels before a consensus forms.”

Of course, the heightened pleading standards could also concern for patent owners that aren’t NPEs. Some claims related to computer science or method claims could be difficult to investigate prior to filing suit, says Charfoos.

To deal with the level of information now required to support a complaint, Charfoos advises plaintiffs to include “as much publicly available information as they can to show that the claims should be met by the accused products.”

Chris Mammen, IP partner at Hogan Lovells, says: “Overall, the changes should be expected to provide accused infringers more notice, earlier, and in more detail, about the claims asserted than is presently required. Precisely how much more remains to be seen.”

Greg Leighton, IP partner from Neal Gerber & Eisenberg, shares that the intended effect is to make things “more difficult” for NPEs, and in the short term, it may do so.

“In the long term, it really depends on where things shake out regarding what is and is not required in a patent complaint.”

“My guess is that there is a class of NPEs that tend to file particularly frivolous cases for which this will have a chilling effect.”

But he says many NPEs are well funded and put a lot of effort into their pre-suit investigations. “Those entities are unlikely to be deterred or affected much in the long run.” 

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