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Apple, Google Targeted in Surge Before Patent Law Changes

U.S. patent-infringement lawsuits against multiple defendants surged as much as 10-fold in the past week, targeting companies including PepsiCo Inc. and Apple Inc. (AAPL) ahead of a new law that would make such cases costlier.

At least 31 lawsuits with more than one company listed as a defendant were started in the three days through Sept. 9, mostly brought by so-called non-practicing entities, according to an analysis by Craig Smith, a patent lawyer at Lando & Anastasi LLP in Cambridge, Massachusetts. Of those cases, 16 target more than 10 companies in a single suit including Apple, PepsiCo, Google Inc. (GOOG), Target Corp. (TGT) and Samsung Electronics Co.

“Typically, you’d see three multidefendant cases in a day, and only occasionally you’d see ones with more than 10 defendants,” Smith said in a telephone interview.

President Barack Obama is set to sign legislation passed by the Senate on Sept. 8 that would mark the biggest change to U.S. patent law since at least 1952. The America Invents Act includes a requirement that defendants must have commonality in order to be sued collectively, a move aimed at curbing lawsuits from NPEs that have no operations other than acquiring patents and using them to badger companies into paying royalties.

The provision is likely to force patent owners to file individual lawsuits and manage the increased cost of scheduling multiple trials or negotiations.

“It’s a lot more onerous for the trolls to deal with 30 lawsuits than one lawsuit,” said Brad Wright, a patent lawyer with Banner & Witcoff Ltd. in Washington, using a pejorative for NPEs. “That’s why they’re rushing to sue right now.”

Popular Venue

Apple and Google have each been named in at least five of the lawsuits from last week, while Samsung has been named in four. Most of the multidefendant suits have been filed in the Eastern District of Texas federal court, a popular venue because it’s considered to be faster and friendlier to patent owners.

“As is becoming clear, the increase in patent litigation in the technology industry is a growing drag on innovation,” said Jim Prosser, a spokesman for Mountain View, California- based Google.

Closely held TQP Development LLC, owner of a patent for a modem to send encrypted data over telephone lines, filed a suit that named Caterpillar Inc. (CAT), PepsiCo and General Electric Co. (GE), and another against airlines and booking agencies including US Airways Group Inc. (LCC) and Priceline.com Inc. (PCLN)

EBay Inc. (EBAY), Target and Sears Holdings Corp. (SHLD) were sued by Plano, Texas-based Droplets Inc. over patents for remote delivery of applications. Droplets lawyer Ted Stevenson, who said his client has been in business for a decade, called the idea of forcing patent owners to file multiple suits over a single patent “a complete waste of judicial resources.”

“Why clog up the courts unnecessarily?” Stevenson said. “Let the judge use his discretion to determine what’s best.”

Different Schedules

The provision regarding the number of defendants in a case goes into effect as soon as the bill is signed into law and only affects cases started after that, said Wright, who wrote a report on the timing of different parts of the legislation.

For a patent owner, filing a single suit is more efficient if it involves the same patents. A single judge is assigned and handles all pre-trial proceedings such as the interpretation of disputed terms within a patent.

A single lawsuit can also benefit defendants, said Michael C. Smith, a lawyer at Siebman, Burg, Phillips & Smith LLP in Marshall, Texas. One judge dismissed 99 defendants from a lawsuit after ruling on a single issue and courts have made clear they won’t tolerate suits set up to demand settlement payments just under the cost of litigation, Smith said.

“Instead of one case, you could have 40 to 50 cases spread across the country and it could take 10 to 15 years to complete,” he said. “That provision is going to affect cases that legitimately are better handled as multidefendant cases. It’s not giving the court the ability to determine when it’s more efficient to handle the cases together.”

The provision is just one line of a bill that covers more than 150 pages, revamps the patent application process, gives the U.S. Patent and Trademark Office more authority over its budget and creates a program to challenge newly issued patents.

To contact the reporter on this story: Susan Decker in Washington at sdecker1@bloomberg.net.

To contact the editor responsible for this story: Allan Holmes at aholmes25@bloomberg.net

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