INTRODUCTION 1030 I. LEGAL BACKDROP FOR ENHANCED DAMAGES IN PATENT LAW 1032 A. History of Enhanced Damages 1033 B. Jurisprudence of Attorney's Fees 1035 II. THE HALO DECISION 1036 III. IMPLICATIONS OF HALO 1038 A. Litigation Costs During Trial Will Rise 1038 B. The Frequency of Enhanced Damage Awards Will Increase 1041 C. Forum Shopping Will Become More Prevalent as Power Shifts to District Courts 1042 D. The Confluence of Factors Will Frustrate the Goal of an Efficient Litigation Regime 1044 IV. PROPOSED SOLUTION 1045 A. Limit District Court Discretion in the Enhanced Damages Analysis 1045 B. Raise the Pleading Standards for Willful Infringement 1047 C. Limit Choice of Venue 1049 CONCLUSION 1050 INTRODUCTION
A smartphone can contain hundreds of patents on everything from touch screen technology, to cameras, to GPS mapping, and just as the saying goes, "There's an app for that." There's also a patent for that, and worse, we are finding that there is a patent troll for that, too. (1) Patent law is facing growing pains as it tries to operate within a framework originally created with different technology in mind. As technological advancements have proliferated in recent decades, cracks in the patent system's foundation have become apparent. As Justice Breyer pointed out, "[t]oday's patent world is not a steam-engine world. We have decided to patent tens of thousands of software products and similar things where hardly anyone knows what the patent's really about." (2) There is a mounting concern among scholars and members of Congress that the patent system is infested with invalid patents.3 While a precise number of invalid patents currently in force is not measurable, (4) studies suggest that the over-granting of patents is a real threat. (5) Invalid patents increase transaction costs for subsequent innovators: innovators must navigate unnecessary red tape and non-practicing entities (commonly referred to as "patent trolls") can abuse the patent system by threatening to assert these invalid patents against others.
The patent system can combat the problem of invalid patents at three stages. First, more resources can be dedicated to the United States Patent and Trademark Office (PTO). The initial review of patent applications can be expanded to allow for a more thorough vetting upon initial receipt. Possible measures of reform could include hiring more examiners, increasing the time spent on each patent application, or requiring greater disclosure of prior art by the potential patentee. But reform at this stage would provide an incomplete solution because it would fail to dispose of bad patents that are already in circulation.
A second point at which invalid patents can be confronted is the post-issuance, pre-litigation stage. This approach was followed in the 2011 America Invents Act (ALA.). (6) With a concern for invalid patents at the forefront of policy discussions, (7) the AIA bolstered administrative proceedings at this intermediate stage, introducing inter partes review and post-grant review. (8) Congress sought to create an "administrative route more efficient and less expensive than district court litigation." (9) Still, invalid patents have continued to plague the patent system in the years following the implementation of the AIA. (10) Setting aside the questionable effectiveness of these administrative routes, there is a more immediate question of whether these proceedings by the PTO are even constitutional. The Supreme Court will address this issue in its coming term. (11)
The final stage at which invalid patents can be eliminated is litigation. When optimally structured, litigation is a promising method of correcting errors carried over from the patent issuance stage. An adversarial system provides an opportunity for a judge to have a (potentially) fair view of both parties' positions. The finality of the decision provides clarity for patent owners and the public. But the current litigation system suffers from procedural defects, making it costly, time consuming, and ill-equipped to handle an abundance of patents. Patent litigation costs in the United States are extremely high, especially as compared to foreign patent systems. (12) In addition to the high costs, parties are tied up for an average of two and a half years before their cases reach trial. (13) With these substantial burdens, patent litigation is not a realistic option for small companies, nor is the system well-equipped to sort through a large volume of patent disputes. Thus, patent litigation is a good candidate for reform. A more streamlined system will allow increased access to litigation, thereby increasing the number of patents that courts can either dispose of or validate.
This Comment proposes to improve three procedural aspects of patent litigation: the standard for granting enhanced damages, pleading requirements, and venue rules. The rules and jurisprudence currently controlling these elements of patent litigation favor large, wealthy companies, exacerbate the abuse of the system by patent trolls, and ultimately create inefficiencies. Recently, the Court in Halo Electronics, Inc. v. Pulse Electronics, Inc. addressed one of these procedural aspects. (14) The Court rejected the established framework for enhanced damages and implemented a new standard. Part I of this Comment addresses the evolution of enhanced damages jurisprudence leading up to Halo, and Part II addresses the changes in patent law that the case brought about. I argue in Part III that these changes in the law will fail to serve the goals of the patent system discussed above--namely, implementing a cost-effective, efficient system better equipped to weed out bad patents. Indeed, I argue that Halo will likely make invalid patents even harder to eliminate than they were before.
In Part IV, I propose an alternate solution, which seeks to streamline the litigation process by altering the standards of the three procedural aspects of patent litigation discussed above. The solution reigns in the discretion that Halo grants district courts in the enhanced damages analysis. Further, it heightens the pleading standard and calls for stricter venue rules. By optimizing these procedural aspects, I propose a litigation structure that allows resources to be allocated to determining the validity and scope of patents, rather than squandered in drawn-out litigation fights or settlements of nuisance suits.
LEGAL BACKDROP FOR ENHANCED DAMAGES IN PATENT LAW
The standard by which enhanced damages are awarded is one variable among many that legislators and policymakers can adjust to optimize the patent litigation system. To better appreciate the significance of the current jurisprudence, it is helpful to recognize the features that have been incorporated into the enhanced damages analysis (and those that have been abandoned) over time, and compare the evolution of analogous doctrines--here, the award of attorney's fees.
History of Enhanced Damages
The first United States patent laws heavily favored patent holders' rights by making treble damages mandatory in cases of patent infringement. (15) Subsequent legislation has moved away from this approach: enhanced damages are no longer automatic. Since the establishment of discretionary enhanced damages for patent infringement in 1836, (16) case law has shaped the bounds of this discretion.
Courts have been the primary actors in determining what infringing acts warrant enhanced damages.
One rule established an affirmative duty to exercise due care, (17) subjecting defendants who did not affirmatively search for patents or obtain opinion of counsel to the possibility of treble damages. This approach was later abandoned on the justification that an affirmative duty to exercise due care was needlessly demanding for the new innovator. (18) In Read Corp. v. Portec, Inc., the Federal Circuit adopted a nine-factor test to assist district courts in determining whether to grant enhanced damages in patent infringement suits. (19) Although the Read factors were not an exclusive set of considerations, (20) the enumeration of factors gave structure to the analysis. This framework served as guidance to both the district courts in their original decisions and to the Federal Circuit in its review of those decisions.
The totality of the circumstances approach espoused by Read and subsequent cases faced criticism for setting the threshold for enhanced damages too low. The Federal Circuit viewed the approach as coming too close to a negligence standard and exposing too many potential defendants to enhanced damages. (21) Consequently, in In re Seagate Technology, LLC, the Federal Circuit adjusted the standard by adopting a more rigid test which provided that:
[A] patentee must show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent .... If this threshold objective standard is satisfied, the patentee must also demonstrate that this objectively-defined risk (determined by the record developed in the infringement proceeding) was either known or so obvious that it should have been known to the accused infringer. (22) By requiring a showing of an objectively high likelihood of infringement, this test elevated the threshold for enhanced damages. The Seagate test also allowed defenses raised at the time of litigation--not merely at the time of infringement--to factor into the determination, further increasing the difficulty for plaintiffs to recover enhanced damages against alleged infringers. (23) An undesirable consequence of Seagate's strict test was that it allowed patent owners who were not objectively reckless, but nonetheless malicious, to escape liability. (24)
Jurisprudence of Attorney's Fees
While the enhanced damages jurisprudence was fluctuating as courts attempted to craft an optimal standard, case law surrounding attorney's fees...