Changes Are Coming To Pleading Rules In Patent Cases
Law360, New York (December 22, 2014, 11:36 AM ET) -- 2014 has brought important changes to patent
litigation. New case filings have dropped 27 percent, which is widely thought to be due to the U.S.
Supreme Court’s decision in Alice v. CLS Bank and the resulting ability of defendants to challenge patent
eligibility at the pleading stage.[1]
2015 promises to bring even more momentous changes. Congressional leaders have declared that a
patent reform bill will “absolutely” pass. The president has announced that patent reform is one of (few)
areas of bipartisan agreement. The reforms will almost certainly raise pleading standards for all patent
cases.[2]
In this article, we’ll look at some of the key issues the new pleading standards will raise. We’ll also
suggest tools that judges and litigants can use in the meantime to curb meritless suits at the pleading
stage.
The Innovation Act — a Model for Coming Changes to Pleading Rules
Since the America Invents Act was signed into law on Sept. 16, 2011, Congress has considered over a
dozen patent reform bills.[3] In terms of progress through the political systems, the Innovation Act went
farthest. It passed the House on Dec. 5, 2013 by a 325-91 vote. It’s therefore a good bet that the patent
reform bill in 2015 will contain similar provisions.
A cornerstone of the Innovation Act is its new pleading rules. The act essentially moves forward to the
pleading stage disclosure requirements that typically occur later. That movement would have the
palliative effect of allowing the courts, the defendants, and even sometimes the plaintiff to understand,
right from the beginning, what the lawsuit involves. The act would require an initial patent complaint to
identify, among other things:
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Each claim of each patent allegedly infringed;
Each accused product (by name and model number if known) for each claim;
Where each element of each claim is found within each accused product;
With detailed specificity, how each element of each claim is met; and
A description of any acts of alleged indirect infringement.
The act has an exception for inaccessible information — for example, details of an accused method that
haven’t been publicly disclosed and aren’t otherwise knowable in the exercise of due diligence. If the
required information is “not readily accessible,” the plaintiff can describe the information “generally,” but
must then also explain why the information “was not readily accessible” and “any efforts made by such
party to access” the information.
Key Questions the New Pleading Rules Will Raise
These new pleading rules, if implemented, would raise several key questions.
First, the contemplated penalty for noncompliance with pleading rules is dismissal. But to what extent will
an accused infringer be able to rely on evidence referred to by, or outside, the complaint to get dismissal,
early summary judgment, or fast-track discovery?[4] Recent advances in patent case management (by
Delaware Judges Leonard P. Stark and Sue L. Robinson, for example) suggest that judges will be
receptive to resolving cases at an early stage.[5] Accused infringers will scrutinize the factual allegations
in the complaint, and will assess whether an early-stage challenge is appropriate.
Second, what detail will judges require for the plaintiff’s explanation of how each element of each claim is
met? This requirement goes beyond what infringement contentions currently require in some jurisdictions
— they sometimes require only the where, but not the how. The how may not be explained until the
expert report phase of a case (or sometimes in interrogatory responses). Accustomed to notice pleading
typically used in federal litigation, judges may be tempted to require little detail of how each element of
each claim is met.
Third, to what extent will judges rely on inadequate complaints in awarding attorney fees? The “detailed
specificity” required by the new standard, along with the required description of efforts to access
information that is not readily accessible, will give judges a clear picture of how the plaintiff’s initial view of
the merits stacks up against the ultimate outcome. Courts already consider a complaint’s thoroughness in
assessing attorney fees.[6] That practice will only increase due to the combination of a new pleading
standard and the Supreme Court’s 2014 Octane Fitness and Highmark decisions.[7]
Fourth, to what extent will plaintiffs rely on the “not readily accessible” exception, and what are the risks of
doing so? At first blush, it may be tempting for a plaintiff to try to put off showing all its cards in the
complaint, by invoking the exception. But there are risks to that tactic. Invoking the exception is
tantamount to saying, “I think you infringe, but I don’t have enough information yet to say for sure.” Such
an admission might be powerful evidence at trial — for example, “When Company X sued us, it didn’t
even know if we infringed. We don’t.” It might also undermine a claim of willful infringement. Relying on
the “not readily accessible” exception also requires the plaintiff to explain pre-suit efforts to access the
secret information. As discussed above, this could expose the plaintiff to paying attorney fees if its presuit investigation is not up to snuff.
Finally, how will the heightened pleading rules impact patent litigation overall? It seems clear that
imposing greater costs and risks on plaintiffs for filing a case will help weed out marginal cases. But the
precise effect on new filings is anybody’s guess. Will we see a further significant drop, as we saw after
Alice? That result would not be shocking. A lot depends on whether Congress and the courts give the
new pleading rules real teeth, or whether the bill as enacted and enforced ends up being the old way of
doing things with window dressing.
What to Do in the Meantime
The fundamental reforms to patent pleading rules will not roll out for at least several months. Is there
anything that litigants can do in the meantime to weed out weak cases?
Yes. In fact, judges already have substantial power to police pleadings. Using their inherent authority to
manage cases, judges, for example, can require supplemental pleading charts, can require that
infringement contentions be served the day after the complaint is filed, and can require a plaintiff to
explain its presuit investigation.[8] Defendants can also serve interrogatories directed at the plaintiff’s presuit investigation or the factual basis for the complaint at the time it was filed.
Litigants should consider using (or asking judges to use) such tools in appropriate cases. These tools
could help weed out weak cases in the same way as the impending reforms. They might be a more
effective means of doing so than the traditional argument that Rule 8 of the Federal Rules of Civil
Procedure, read in conjunction with the Supreme Court’s Twombly and Iqbal decisions, imposes
heightened pleading requirements. Although some courts have accepted that argument, it’s currently not
the majority view.[9] Many courts accept the use of the patent complaint form appended to the Federal
Rules of Civil Procedure.
The fact that courts already have substantial power to police pleadings isn’t a reason to abandon further
efforts at reform. The problem of abusive patent litigation has not gone away, although its scope may
have decreased. District-specific reforms could also have the perverse side effect of encouraging forumshopping — the movement of patent litigations to venues doing the least to address the problem of
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abusive patent litigations.
In short, many consider 2014 to have brought a thunderstorm of changes to patent litigation. If Congress
delivers as promised, 2015 could make that thunderstorm seem like a drizzle. In the meantime, litigants
need not passively watch the rain.
—By Nathan Greenblatt, Sidley Austin LLP
Nathan Greenblatt is an associate in Sidley Austin’s Palo Alto, California, office.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its
clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general
information purposes and is not intended to be and should not be taken as legal advice.
[1] Commentators also point to the availability and successful use of inter partes review proceedings at
the patent office as a cause of the drop in filings.
[2] Except ANDA cases under 35 U.S.C. § 271(e)(2).
[3] See http://www.patentprogress.org/patent-progress-legislation-guides/patent-progresss-guide-patentreform-legislation/
[4] See, e.g., GFF Corp. v. Associated Wholesale Grocers Inc., 130 F.3d 1381, 1384-85 (8th Cir. 1997)
(indisputably authentic copies of material “referred to in the complaint” can be considered in deciding a
Rule 12(b)(6) motion, even if such material is not incorporated by reference or attached to the complaint);
Horsley v. Feldt, 304 F.3d 1125, 1134 (11th Cir. 2002) (in deciding a Rule 12(c) motion, undisputed
external documents central to the plaintiff’s claims may be considered).
[5] See, e.g., http://www.ded.uscourts.gov/sites/default/files/Chambers/LPS/PatentProcs/LPSPatentProcedures.pdf
[6] See, e.g., Logic Devices Incorporated v. Apple Inc, 3-13-cv-02943 (CAND December 4, 2014, Order)
(Alsup, J.).
[7] Octane Fitness LLC v. ICON Health & Fitness Inc., — U.S. —, 134 S. Ct. 1749, 1756
(2014); Highmark Inc. v. Allcare Health Management System Inc., — U.S. —, 134 S. Ct. 1744, 1749
(2014). These cases relaxed an “overly rigid” standard for awarding attorney fees in patent cases.
[8] See, e.g., Lincoln Natl. Lif. v. Transamerica Fin. Life, No. 1:08-CV-135, (N.D. Ind. Nov. 25, 2009)
(requiring “Exergen Pleading Charts” from the parties comparing the answer’s allegations to the Exergen
requirements).
[9] See Ryan Davis, “Judge’s Rebuke May Spur Push For Twiqbal In Patent Cases,” (Law360 Mar. 17,
2014). http://www.law360.com/articles/518795/judge-s-rebuke-may-spur-push-for-twiqbal-in-patent-cases
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