2014 • Volume 39 • Number 2

Proposed Legislative Solutions to the Non-Practicing Entity Patent Assertion Problem: The Risks for Biotechnology and Pharmaceuticals

Thomas H. Kramer

Plaintiffs who own patents, but do not practice or directly commercialize them, are asserting their patents in sharply increasing numbers. This surge in litigation by non-practicing entities (“NPEs,” or so-called “patent trolls”) has not affected all areas of industry and commerce equally. Recent empirical studies confirm anecdotal reports of a concentrated increase in patent suits in the computer, telecommunications, and information technology sectors. In contrast, the pharmaceutical industry has seen no spike in NPE assertions. Estimates that the direct cost of NPE assertions is $29 billion annually, and lobbying by affected industries, have caught the attention of Congress and the Obama administration, and resulted in legislative efforts to rein in NPE litigation.

Several bills directed at reforming the patent law, introduced during the current legislative session, explicitly or implicitly target NPEs. The Senate saw the introduction of the Patent Quality Improvement and Patent Abuse Reduction Acts, while the House considered the Saving High-Tech Innovators from Egregious Legal Disputes (“SHIELD”), End Anonymous Patents, and Innovation Acts. These bills would change significantly the way patent litigation is conducted, including adding heightened pleading requirements, limited discovery, and “loser-pays” fee shifting.

Pharmaceutical patents pose significantly different issues, in the context of infringement actions, from those posed by information technology patents. Several of the proposed reforms are targeted at issues which arise frequently in NPE cases, but rarely in pharmaceutical patent litigation. In the case of reforms directed at transparency of ownership, post-grant challenges of covered business method patents, enhanced pleading requirements, and suits brought against customers of accused infringers, little impact on litigation in pharmaceuticals is likely. Fee-shifting, or “loser pays” provisions, could result in marked changes to the risk calculus undertaken by parties before committing to litigation, which may have the desired effect in the case of NPE assertions, but would disrupt settled expectations in the pharmaceutical industry. Limitations on discovery, in terms of both amount and timing, would similarly disrupt settled practice in the pharmaceutical field and, moreover, tread on the independence of the judiciary.