Enforcing and Attacking e-Commerce Patents

The United States Supreme Court has agreed to hear the appeal from In re Bilski, 545 F.3d 943 (Fed. Cir. 2008), in which the Federal Circuit retreated from the broad language supporting business method patents previously endorsed by State Street Bank & Trust v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998).

As a result, legal Cassandras are anticipating terminal erosion of patent protection for business methods. Given these predictions, more and more business method patents are likely to be attacked on validity grounds, or simply disregarded by infringers relying on invalidity as a defense.

The validity of business method patents may be the lifeblood of an e-commerce enterprise. After all, nearly every successful Web site or Web-based service has at its core some intellectual property, whether it be a business method patent, a patent related to the functionality of the Web site, copyright protection for software, or a trademark. Here we consider the enactment of the new local patent rules for the District of New Jersey, which became effective January 1 this year (L.Civ.R. 9.3) and how they reflect on New Jersey as a suitable venue for patent suits.

These new comprehensive and self-executing rules have encouraged numerous articles and “blawgs” predicting that the U.S. District Court in New Jersey will be the next go-to location for patent cases. Commentators have suggested that litigants keep an eye on New Jersey to see whether these procedures shorten the delays associated with litigation of patent cases, thereby making New Jersey the next IP “rocket docket.” (See, e.g., “Will NJ Be the Next 'Rocket Docket?”, A. Johnson, Law360, March 11, 2009, at http://ip.law360.com/print_article/86081; “Texas IP Rocket Docket Headed for a Burnout?”, T. Baldas, The National Law Journal, Dec. 28, 2004.) They speculate that New Jersey might take the honor once held by the Northern District of Virginia and now held by the Eastern District of Texas.

The pharmaceutical industry has always found New Jersey a favorable place to bring patent cases. That may be a function of New Jersey as the traditional concentration of the industry in the Mid-Atlantic States, rather than anything particularly appealing in itself about the jurisdiction. Now, New Jersey has something special to offer all patent litigators. Although the early numbers do not demonstrate that patent-infringement complaints are piling up in New Jersey's federal vicinages in Camden, Trenton and Newark, there are good reasons to go to the Garden State with all kinds of patent litigation.

A Self-Aware District

The District of New Jersey knows its caseload. Therefore, the new Local Rules provide a separate format for self-executing disclosure for the many Hatch-Waxman Act cases filed in New Jersey. This is important to the pharmaceutical industry because drug testing and FDA submission requirements create distortions in the patent law that can give de facto extensions to patent holders and create barriers to marketing new generic drugs. Consider that the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Act, was designed to promote generics. It allows generics to work toward FDA marketing approval without fear of infringement during the back end of an existing patent. It also gives “pioneering” companies a period of additional marketing exclusivity to make up for the time a patented drug is mired in development on the front end of a patent. The title of the Act is unduly restrictive, because there are different definitions of “patented invention” in the Act, and the cases make it clear that the Act extends to various medical devices and products. (See, e.g., Proveris Scientific Co. v. InnovaSysytems, Inc., 536 F.3d 1256 (Fed. Cir. 2008), a case arising under 29 U.S.C. '271(e).) Section 271(e) excludes actions designed to generate data for submission to the FDA from patent infringement. These barriers or protections can mean years of profits.

However, the District of New Jersey's local patent rules are not just directed at pharmaceutical cases. Aside from the Hatch-Waxman provisions, they mirror the rules currently used by the U.S. District Court for the Northern District of California. The New Jersey rules, however, conform to the New Jersey practice whereby the U.S. Magistrate Judges direct pretrial matters. Indeed, one of the most attractive things about the District of New Jersey as a jurisdiction is that it is lawyer-friendly. The Magistrates and District Judges are accessible. The Magistrate Judges routinely entertain informal correspondence and schedule phone calls on matters involving discovery. They often give informal advisory opinions that help litigants avoid the expense of discovery and case-management motions. If decorum is accompanied by some measured progress, the District of New Jersey bench will not typically take lawyers' cases away from them. Furthermore, Ben Franklin was probably correct when he called New Jersey “a beer keg tapped at both ends” by New York and Philadelphia. The lawyer admitted pro hac vice need not worry too much about being “home-towned,” because New Jersey's federal judges are cosmopolitan and accustomed to seeing lawyers from other states.

The New Provisions

The “self-executing” provisions of the new local patent rules applying to all New Jersey patent cases are:

• 2.1(a): To the extent possible, the timing and format of claim-construction hearings is now on the Rule 26 initial conference agenda.
• 2.2: Confidentiality is now a disfavored excuse for failing to provide prompt early discovery. The court has posted a proposed discovery-confidentiality order on its Web site that is similar to staged orders commonly used in other federal courts. According to comments by U.S. Magistrate Judge Tonianne J. Bongiovanni at the Jan. 29, 2009, USDC-NJ CME/ECF Attorney Dinner Forum in Cherry Hill, NJ, absent a good reason for some other format, the New Jersey Magistrates will likely defer to the court's form, not only in patent cases, but in any case where a litigant has a good-faith confidentiality concern.
• 3.1: The parties must make disclosure of asserted claims and infringement contentions within 14 days after the initial scheduling conference.
• 3.2: Limited document disclosure must accompany the asserted claims and infringement contentions.
• 3.3 and 3.4: Similarly, 45 days after the service of the asserted claims and infringement contentions, invalidity contentions, also accompanied by document production, must be served.
• 4, et. seq.: Section 4 of the local patent rules provides a self-executing timetable devoted to the orderly development of claim-construction proceedings. A claim-construction hearing is presumed.

As discussed, the pharmaceutical industry is most interested in the Hatch-Waxman provisions of the New Jersey Local Rules, which include:

• 3.6: There is a special format for self-executing disclosure in Hatch-Waxman Act cases. This requires the defendant to produce its new drug applications and requires the plaintiff to produce invalidity contentions, followed by non-infringement contentions, claims charts, etc.
• 3.7: The parties may amend their contentions, but only by leave of court. Given local custom, unless they are vigorously contested, most of these applications will be made by letter and resolved by the Magistrate Judge. If the case is in pre-trial status, the request will be made to the District Judge.
• 3.8: Finally, and as part of the Hatch-Waxman provisions, parties relying on attorney advice as a defense to infringement are required to produce that advice and the documents supporting it within 30 days of the court's claim-construction order.

What the Stats Say

The latest “Statistical Report on U.S. Courts” from the Director of the Administrative Office of the U.S. Courts, part of the 416-page Judicial Business of the United States Courts, reveals some interesting trends regarding patent filings. Surprisingly, they trend more or less flat from 2003 through 2007. The executive director of the Intellectual Property Owner's Association, Herbert C. Wamsley, testified on March 10, 2009, before the Senate Judiciary Committee on the Patent Reform Act of 2009. He predicted that the litigation trend might be pushed down farther over the next few months, as patent filings at the U.S. Patent and Trademark Office (“USPTO”) have also started to wane. Regardless, the “Statistical Report” identifies “patent hotspots” in order of popularity to patent litigation filers (see, Figure 1, below).

Figure 1: Patent Hotspots