US Court of Appeals Chief Judge Randall Rader addresses gathering

17 January 2014. With over 20 years experience as a judge in the US Federal Court Appeals for Patents and as the Chief Judge since 2010, Randall R. Rader has become a global expert in patent and intellectual property law. From his unique perspective he addressed the gathering, hosted by the HSG's Competency Cener for Intellectual Property Management, which is a part of Professor Dr. Oliver Gassmann's Chair for Innovation Management of the Institute for Technology Management, and spoke to what he sees are the two biggest factors affecting the Patent Courts in the United States: the expense of litigation and the ability to assess value of new technology and IP’s.

High expenses of litigation
“The expense of litigation is a great burden to our system,” stated Judge Rader, “it is prohibitive and tends to exclude certain classes from the dispute resolution system which the courts should provide… The expense of litigation has a particular detrimental effect in the technology field and patent world. Because of the expense, it is often more convenient to settle a case then to adjudicate it. This causes on occasion, a form of litigation blackmail.”

He defines litigation blackmail as firms and corporations that take advantage of the system and threaten manufactures by asserting that they are infringing on a patent that they own… whether they believe it is the truth or not. Because of the estimated one million dollars it would cost to go to court, let alone the time and energy it would take, many manufactures decide to settle the case before it goes to court. Firms that do this are known as “patent trolls”.

Costly discovery process
One of the ways Justice Rader is hoping to address this is by lowering the cost of litigation. In the United States, lawyers go through what’s called a discovery process. It is a pre-trial, civil procedure in a lawsuit where both parties can obtain evidence from the opposing party by means of discovery devices including requests for answers to interrogatories, requests for production of documents, and requests for admissions and depositions.

“Introducing the discovery process into the US Judicial System was an idealistic one,” says Rader. “It brings both parties together and they disclose all the facts about the dispute… then they in theory would understand each other, would see the merits of each other’s dispute… and they could come to a quick mediation and agreement without going to court.” This was the idea behind introducing the discovery process into the judicial system but he says that it hasn’t worked out that way.

Today, the discovery process has in fact become a burden on the system where the expense of it is easily more expensive than any part of the trial. It also creates unusable and unnecessary work and material. He points to a recent study where it is estimated that out of all of the documents garnered for the discovery process, lawyers only use 0.0079% of the documents – that’s around one useable document for every 10,000. Justice Rader believes that most lawyers within weeks of taking on a case can identify 95% of the information they need within three months yet they spend many more months in the discovery process nevertheless.

“I believe in a little injustice, a little… if we reduce the discovery process. I am willing to have one case go in the wrong direction because the cost of full discovery in all cases is a greater injustice. I will tolerate a little injustice to eliminate the greater injustice – which is a burden on every litigant, and it’s the raising of the price of the court system beyond where it is accessible to all citizens equally.”

The challenge of accurately assessing a patent's value
Another challenge facing his court is the ability to accurately decipher the value of new patents and IP’s. Suppose an inventor creates a patent for a computer chip and the chip costs only 5 cents to produce but it makes a smart phone that sells for 500 dollars, two times faster. How much is it worth? The cell phone producer will point out that their smart phone contains 2 000 patents and this new chip isn’t any more important than any of the others. From their perspective, it can’t be worth more than 1/2000 of what they pay for all of their patents.

The chip producer will point out that by making the cell phone faster, it dominates the market and has helped to double the sales of this particular phone. They believe they should receive most of the profits from the new market share that they helped secure. Who is right?

Economic evidence – the economics of demand is an accurate way of determining the value a new technology has in our society. The problem with economic evidence is that different economists can come up with different values of what a new technology is worth. Justice Rader says that his court has been making advances in this area but that it needs continual improvement. He says that in his court, when determining value, he looks at three factors.

He limits the value of what they are looking at to the “actual invention” and what it sells for and not what the entire phone/machine/computer costs. He then looks at economic evidence and demand curves and finally, he has created a new golden rule that states that there are no rules. He believes that in this expanding and ever-growing area there can be no precedents, there can be no rules of thumb and they should approach every case in a fashion that is as unique as the technology that is being presented.