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Alice v CLS Bank: Not The Whole Story

Posted 03/25/15 3:00 PM by Ed Fiducia

In Martin Scorsese’s 1974 film, recently widowed Alice and her son Tommy pack up their belongings and set out on the road from Socorro, New Mexico to her hometown of Monterey, California so that she can renew her long abandoned plans for a singing career.  Of course, life gets in the way, and she ends up a waitress in Mel’s Diner where she ultimately falls in love with David, a local rancher.  It’s a wonderful story of redemption and second chances.

There’s a new Alice in town.  Not a singer or a waitress, but a new story of second chances and redemption.  I’m talking about the June 2014 SCOTUS decision in Alice v CLS Bank.  In this story, the High Court determined that under 35 U.S.C. § 101, a “generic computer implementation” for abstract ideas in and of themselves is not eligible for patent protection.

“Redemption!” shouted the patent defense Bar,  “Now, our clients can go about their business of innovating and building and selling new things without worrying about getting tripped up by a whole host of Non-Practicing Entity (NPE) licensing demands and threats of litigation by the firms that represent them.”

“Not so fast!” shouted the Plaintiff’s Bar, “Just because the Court has set a higher standard, don’t expect us just to throw up our hands and quit.  There are plenty of cases in the pipeline that will pass the § 101 muster.”

So far, it looks like both sides are correct. Quoting from the Lex Machina blog “Patent case trends and the business of litigation” dated February 5, 2015 “Indeed, while district courts invalidated more than double the number of patents under § 101 in the second half of 2014 than in the entire previous year, those decisions represent a very small number of cases relative to the volume of litigation in the system.”

But, you see, Alice is not the whole story.  As important as the Alice opinion is, I look at it as part of an overall trend that began with the 2011 America Invents Act (AIA) the key parts of which were not implemented until early 2013. 

  • “First to Invent” became “First Inventor to File.”
  • Changes to joinder procedures meant that individual cases have to be filed against individual defendants.
  • The creation of the Patent Trial and Appeal Board (PTAB) for inter partes review (IPR) dramatically reduced not just the cost but the average time to reach a decision on the merits down from 36 months to 15 months.  For the defense, time is money.  Less time, less money, less risk.  More leverage.

These changes coupled with other SCOTUS decisions earlier in 2014 have already served to shift a good chunk of the associated costs away from the accused infringers and into the hands of the patent holders.  This causes the risk/reward ratio for the Plaintiff’s firm to narrow significantly. 

  • More cost to file and manage 20 dockets when there used to be a single case with 20 defendants
  • More risk that the court will decide the § 101 issue before the case even gets off the ground (yes, even before a Markman hearing… it’s already happening).
  • More leverage for companies to reject licensing offers from NPE’s

As an e-discovery consultant, I have the good fortune to work with corporate legal departments and outside counsel sitting on both sides of the Patent Litigation Bar.  This perch has allowed me to have conversations with attorneys from both groups.  Based upon my discussions with attorneys on the Plaintiff’s side (in-house and outside firms), comments run the gamut from:

  • “Our practice is thriving….. we’re filing a smaller number of suits, but we are taking on some of the largest companies in the space.”
  • “Our practice is thriving….. but I’m spending so much time addressing all of the extra procedural requirements that I can’t take on any new business.”
  • “Our practice is thriving…. but I haven’t slept since last November.”
  • “Our practice is treading water …. so we’re looking at other areas to pursue.”

It’s the last bullet, of course, that grabbed my attention.  I heard it more than once. I heard it more than three or four times.  The more I heard it, the more it reminded me of conversations I’d had years ago with attorneys in Personal Injury firms when Texas was debating tort reform. Reform which resulted in the big shift that Personal Injury firms made (many from PI to IP) after it passed.  If the Plaintiff’s bar moved to other areas to pursue back then, where might they be headed now?

So I also spoke with attorneys on the defense side (in-house and outside counsel).  Not surprisingly, they see real upticks in:

Oil & Gas – fracking, royalty disputes, overtime pay

Medical Device/Pharma Litigation

Data breach/failure to protect personal information litigation

So where do we go from here? Only time will tell. I don’t for a minute believe that these changes spell the end of patent litigation by any stretch. There are plenty of companies that have perfectly valid patents that have to be asserted, protected and yes, even monetized (gasp!).  That’s one of the benefits of living in this great nation of ours. Conversely, there are plenty of nuisance suits that will likely dry up pretty quickly, leaving larger numbers of IP attorneys looking for new opportunities to grow their practices.

And I don’t think they’ll be waiting tables at Mel’s restaurant any time soon.

 

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Ed Fiducia

About The Author

Ed Fiducia - Regional Vice President and Senior E-Discovery Consultant Throughout his 21-year career in the legal technology space, Ed has been a technology expert while also possessing a solid understanding of the legal discovery process – a rare combination. Beginning with document coding in the early 90’s, through the evolution of database creation, e-discovery, hosted applications and concept search technologies, Ed has worked in virtually every aspect of the industry. Ed currently works with Inventus clients and the whole Project Management team to customize review workflows and determine appropriate e-discovery solutions from both a technology and Discovery Management standpoint.

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