More than 120 corporate giants have just issued a joint letter putting themselves squarely on the side of patent infringers and against America’s smaller innovative companies.
They present their case in the appealing-sounding language of “disclosure” and “transparency.” But when smaller inventors are in court trying to enforce their lawful patent rights against infringement, the main effect of a sweeping new disclosure requirement would be lengthier proceedings, more expenses, and a big advantage for deep-pocketed infringers.
The letter’s proposal, now under consideration in Congress in draft legislation known as the Litigation Transparency Act, is aimed directly at the ability of such inventors to pay legal bills and other expenses they incur when they go to court to enforce their patents. The legislation would impose a strict disclosure requirement on sources of funding for their lawsuits.
Yet such funding has nothing to do with whether infringement has taken place and, if so, what damages are due. For the sake of smaller inventors who depend heavily on intellectual property rights, this legislation needs to go back to the drawing board.
The letter-writers and Rep. Darrell Issa, the legislation’s author, claim that withholding information about financing is “unfair” and “fundamentally alters the dynamics” of legal cases.
I disagree. Rather, imposing invasive disclosure requirements would reduce or eliminate funding, and therefore, access to justice.
America’s startups and small businesses are facing unprecedented attacks on their intellectual property. Rather than taking the proper steps to legally license patent rights on their product, some wealthy corporations are simply appropriating the patented technologies they want. When caught, they call on their vast financial resources to prolong lawsuits and make them as expensive as possible. In many cases, such tactics have forced startups to surrender or, at best, settle out of court for a fraction of their losses.
Though unfair, the practice is frequently effective. It’s known as “efficient” or “predatory” infringement.
Infringers simply treat any damages they end up paying as a cost of doing business. In fact, predatory infringement is so pervasive that CEOs are willing to boast about it publicly. In August, Eric Schmidt, the former CEO of Google, acknowledged that it’s smart business for giant companies to outright steal or at least copy IP and then hire a platoon of lawyers to “clean up the mess.”
Outside financing in cases of patent infringement has given inventors and entrepreneurs a lifeline to fight back against predators and other infringers. Through these partnerships, third-party funders provide legal expertise and financing in exchange for a share of any favorable settlement. That makes it harder to succeed with a strategy of efficient infringement. It’s no wonder big businesses are upset.
In their letter, the companies argue that they have “no ability to expose to the court and jury when witnesses have conflicts of interest” in the case. Rep. Issa makes a similar argument, claiming his bill will help achieve “a level of transparency that people deserve.” Such statements ignore the reality that existing court procedures already provide ample tools to address any such concerns as they arise.
Existing court practice and procedural rules, especially the rules of evidence, are designed to strike a careful balance between the relevance of information presented and the potential for undue prejudice. A Texas court, for example, reviewed outside funding documents privately in Trustees of Purdue University. v. STMicroelectronics N.V. The court ruled the documents were irrelevant to the issues in the case and legally protected by privilege rules.
Courts have demonstrated their ability to strike an appropriate balance between transparency and safeguarding privileged information. An invasive mandatory disclosure rule would place small businesses and startups at a disadvantage by revealing their legal strategies and financial resources. Infringers could exploit this information to prolong trials, inundate opponents with motions and challenges to court filings, and launch damaging harassment campaigns against third-party investors.
As one judge and counselor to Chief Justice John Roberts explained at a conference earlier this year, “Public disclosure of too much really gets into litigation strategy.” Another judge at the same panel noted that “there are all kinds of things that go on in the world that have some influences on lawyers and clients and judge’s cases,” concluding, “to think that disclosure is going to solve that problem is nonsense.”
This analysis is sound. Let’s not fool ourselves into thinking that calls for onerous disclosure merely promote fairness and transparency. In reality, they further tilt an already uneven playing field, disadvantaging smaller companies, startups, and individual inventors.
