Patent Law in a Global World

Chief Judge Randall Rader of the Court of Appeals for the Federal Circuit spoke at Santa Clara University School of law, discussing Patent Law in a Global World.  He addressed questions from Julie Stephenson, Assistant General Counsel at Synopsys, Colleen Chien, Assistant Professor at SCU Law, and Marta Beckwith, Director of IP Litigation at Cisco Systems.

Judge Rader expressed his opinions about foreign rules, and the flaws of the U.S. system in some detail.  He suggested that the fundamental job of the courts is to “facilitate not frustrate marketplace.”  He also strongly suggested that the U.S. must continue improving its ability to innovate, and protect innovation, and that includes the ability to enforce patent rights.

The first question was about patent law harmonization.  The questioner asked particularly about separate courts for invalidity & infringement, and changes to discovery.

Judge Rader started by saying “Our laws are not really the best.”  He then addressed two issues that are unusual in U.S. law, and often problematic.   Best mode was called nothing but trap for unwary, and he suggested that it should be discarded.  He also thinks that inequitable conduct, which was designed to be a form of fraud prevention, has become too strong and is used as disclosure incentivization.  He calls the inequitable conduct charges in most litigation “An atomic bomb to explode patent portfolio, just because one or two references out of a hundred weren’t disclosed.”   He notes that all other countries’ patent systems find art without such measures.

With respect to discovery, he called it a “fine principle stretched out of proportion.”  It’s a litigation tactic to drive up the cost to force into early settlement.  His proposed solution, which he acknowledged may harm some litigants, is to limit discovery.  A number of judges are working on model rules to shift the cost of discovery beyond a certain limit to the requester.  He called this “I believe in a little injustice,” suggesting that the potential bit of injustice caused by limited discovery is worth it for an efficient system to operate quickly enough to have meaning in the marketplace.

He said, and later repeated, that he believes that the fundamental job of the courts is to “facilitate not frustrate marketplace.”

He then said that the U.S. system, of combined invalidity and infringement suits is better than the alternative.  He pointed to Germany’s system which has a fast track infringement court, and a much slower invalidity court.  The infringement court can lead to a permanent injunction well before the invalidity court has heard the case.  Furthermore, it allows the courts and the patent owner to construe the claims significantly differently.  He then suggested that the increasingly adjudicatory type of reexamination is likely to cause the same problems, especially if non-infringement lawsuits are stayed, while reexaminations proceed.

Judge Rader is a big fan of summary judgment, and believes that it is fundamental to making the U.S.  system work.  This is one of the concerns he has about the proceedings in the Eastern district of Texas.

The next question addressed the ITC, and its benefits. He noted that the ITC has 18 month trials, and has become a venue of choice for world litigants.  Not only is it considerably faster than the courts, it also has an administrative procedure in which injunctions “shall be granted” thereby eliminating the EBay balancing factors.  The ITC’s workload is exploding.  In a little historical aside, he noted that the “threat to domestic industry” prong of the ITC evaluation was originated in the 1930s protectionism of the Smoot-Haley Act.

When asked to address Developing countries, Judge Rader noted that patent filings in the U.S. by Chinese entities is exploding, and that the Chinese official plan is to triple the number of filings in five years.  He has spoken in China recently, and his message to China was “ Start acting like a leader. Enforce evenhandedly, and you will advance.”  In China, judges are officers of the state, carrying out state policy, which leaves them rather constrained in situations where one party is the Chinese government.  Despite this, we are getting out competed.   China will dictate ip law in the long run.

He also addressed Brazil, Russia, and India as countries that need to improve their IP protection.  Brazil and India were particularly called out for their opposition to pharmaceutical patents.  Russia, he suggested, was in transition between the anti-IP old guard, and the new innovators.

Returning to U.S. laws, the question was raised whether Non-practicing Entities (NPEs) are a uniquely American problem.  Judge Rader suggested that the NPE issue is being addressed by the courts in damages, willfulness.   The CAFC is raising barriers to marking cases, which are also non-productive.  So the courts are addressing these issues, although it should be done legislatively.

Judge Whyte concurred, noting that there is some bias against NPEs in the courts, and that the judiciary is circumscribing the boundaries of success for NPEs.

Judge Whyte also prompted Judge Rader to address the recent EBay case.  Judge Rader noted that as a judge, he will apply the law, as it stands.  But in his view, EBay is a sad misapplication of an effort to deal with the problem of NPEs.  It indicates a Supreme Court moving away from the law and into policy.  The mistake was twofold:  not treating intellectual property like property, and incorrectly interpreting the term “may” in the “may grant an injunction” clause.   The law says “may” because of public interest exception, or health and safety exception.   The term “may” was not meant to be completely open.

He also suggested that everyone read Peter Lee’s article from October 2010, on the Two Cultures, between the CAFC and the Supreme Court, published in the Yale Law Journal.  You can find the article here:  http://www.yalelawjournal.org/the-yale-law-journal/content-pages/patent-law-and-the-two-cultures/