As noted in my earlier post today with my remarks from We Robot, I’ve been busy with lots of interesting conferences and workshops in the past few weeks. Because I wrote out detailed notes for two of them, I thought I would post them for people who weren’t able to attend. Here are my comments from the fantastic BCLT/BTLJ symposium on the administrative law of IP, where I was on a panel discussing IP small-claims tribunals:
You have already heard some insightful comments from Ben Depoorter and Pam Samuelson on copyright small-claims courts, including their analysis of problems with the proposed Copyright Alternatives in Small-Claims Enforcement (CASE) Act of 2017, as well as their thoughts on how a more narrowly tailored small-claims system might be beneficial. The main justification for introducing such a tribunal is that high litigation costs prevent claimants from pursuing valid small claims.
I’m here to provide some perspective from the patent law side, and the short version of my comments is that the idea of a patent small-claims court seems mostly dead in the United States, and I don’t see a reason to revive it.
The idea of a patent small-claims court got a bit of traction over 30 years ago at a 1989 conference at the Franklin Pierce Law Center (now the University of New Hampshire), and then the ABA IP Section and the AIPLA endorsed establishment of a low-cost procedure for patent claims under $100,000. This suggestion didn’t go anywhere until the end of 2012, when the PTO requested comments on whether the US should introduce a small-claims proceeding for patents. They received 22 public comments in April 2013.
As with the copyright small-claims idea, the main argument in favor was the economic infeasibility of enforcing small claims given high litigation costs. The ABA IP Section had most detailed proposal in favor, suggesting an opt-in tribunal for damages-only claims with up to $3M at stake—a different scale of “small” than we’re talking about with copyright—potentially housed in Court of Federal Claims or PTO. But there was no consensus about which aspects of typical litigation procedures could be reined in to promote greater efficiency in small cases, especially given the same kinds of constitutional and due process considerations and potential for abuse that are relevant in the copyright context. And patent rightsholders were not all aligned—e.g., the IP Owners Association (IPO) was opposed. Given the constitutional difficulties with designing a mandatory system, it’s hard to see what benefits a new small-claims proceeding would provide over existing ADR options.
Colleen Chien—who was an an earlier panel this morning—submitted comments with Michael Guo, noting that in the two decades since a small-claims tribunal was seriously proposed, the marketplace for patents developed to give independent inventors many more options for monetizing and asserting patents, and that if anything, it is the cost of patent defense that is the concern.
The idea died out and hasn’t been revived. The few mentions of patent small-claims proceedings in the scholarly literature in the past five years have been negative. In 2014, Colleen Chien and six others surveyed patent lawyers about eight proposals to improve patent litigation efficiency. Greater fee-shifting and sanctions for discovery abuse were at the top; a small-claims court was way at the bottom. As another example, in a thoughtful recent article on whether alternative fora like state courts might increase efficiencies in patent litigation, Paul Gugliuzza noted that the failure of the patent small-claims proposal was probably beneficial given that in other contexts, small-claims courts seem to work as pro-business debt collection courts that harass small defendants, raising Pam’s concern about default-judgment machines.
How is this related to the current discussion in the copyright context? It is similar in some ways. As Pam notes in her paper, having small claims deterred by litigation costs is not a copyright-specific issue, nor is it an IP-specific issue; it’s a general phenomenon. And it’s a hard issue to address because once you factor in all the procedural concerns, including making a small-claims system non-mandatory, it is hard to see where the efficiencies come from. But patents and copyrights are also different in important ways, which I think make the case against a small-claims tribunal stronger in the patent context—it is less clear that enforcing all small patent claims is socially valuable.
How are patents different? For one, patent law has an even stronger utilitarian foundation than copyright law, so we really only want to be enforcing claims where the social value in terms of incentivizing innovation outweighs all the costs. One of those costs is the higher effort to properly assess validity in patent than in copyright. A high percentage of granted patents turn out to be legally invalid when scrutinized for more than the roughly twenty hours the PTO uses during its initial examination—it seems plausible to only want to enforce patents where there is enough at stake to merit the costs of reevaluating whether the patent should have been granted. It’s pretty clear from a utilitarian perspective that the socially optimal amount of patent enforcement is not 100%. Unlike in copyright, patent liability doesn’t require copying and has no independent invention defense, and for low-value uses, sometimes the costs of searching for and negotiating over all the relevant patents aren’t worth it.
Jonathan Masur has a great article, Costly Screens and Patent Examination, on how the high cost of obtaining a patent serves a valuable function in selecting against socially harmful patents; his arguments generally apply to litigation costs as well. And to the extent we want to reduce costs somewhere, I think doing it on validity rather than infringement makes sense. Roger Ford has described the asymmetries that push parties toward under-litigating invalidity issues, and cost may be one way to address this distortion.
This doesn’t mean that the current system is fine for patent owners—many scholars have made sensible arguments about reforming the patent litigation system in ways that might enhance social welfare, including proposals that patentees with strong claims might like. E.g., in another article with Anup Malani, Jonathan argues that to account for litigation mistakes, any party that wins a patent case, including plaintiffs, should get enhanced damages across the board. Another example might be some of the other ideas in Colleen’s 2014 survey.
The underlying concern of small-claims proposals is important: we want to screen-in meritorious assertions while keeping out abuses. But it’s not at all clear that a small-claims patent proceeding would solve more problems than it creates.