Expanding Patent Law's Customer Suit Exception
37 Pages Posted: 16 Mar 2013 Last revised: 17 Oct 2013
Date Written: March 15, 2013
Recent years have seen a marked increase in patent suits filed primarily for nuisance value. Non-practicing patent holders like Innovatio, ArrivalStar, Lodsys, PACid, and many others have collectively sued thousands of alleged patent infringers in cases that generally settle for less than the cost of mounting even the slightest defense. Suits like these overwhelming target the numerous resellers and end users of allegedly infringing products, rather than the accused products’ original manufacturer. More individual defendants means more lawyers, more discovery, and, thus, more litigation costs to inflate settlement amounts. We propose a solution to this problem: resurrecting and expanding a forgotten patent law doctrine known as the “customer suit exception.” When the requirements of this doctrine are satisfied, courts can stay patent suits filed against “customer” defendants pending the outcome of litigation between the patentee and the accused technology’s manufacturer. Doing so drastically reduces patentees’ ability to impose litigation costs and, moreover, hands the reins of defense to the party best suited to challenge and value the patent-in-suit. Unfortunately, case law applying the exception has become increasingly rigid over time and, today, is incredibly difficult to satisfy. This article explores the history and evolution of the customer suit exception, explains why the doctrine is so rarely invoked and applied today, and argues that courts should stay customer suits more frequently in order to promote litigation outcomes that reflect the value of asserted patents, not the cost of defense.
Keywords: customer suit exception, first filed rule, strike suit, nuisance suit, patent troll, NPE, PAE, Innovatio, Lodsys, PACid
JEL Classification: O34, K41
Suggested Citation: Suggested Citation