{"id":1787,"date":"2015-06-16T09:46:08","date_gmt":"2015-06-16T13:46:08","guid":{"rendered":"http:\/\/cpip.gmu.edu\/?p=1787"},"modified":"2026-04-09T19:27:08","modified_gmt":"2026-04-09T19:27:08","slug":"unintended-consequences-of-patent-reform-the-customer-suit-exception","status":"publish","type":"post","link":"https:\/\/blogs.uakron.edu\/ualawip\/2015\/06\/16\/unintended-consequences-of-patent-reform-the-customer-suit-exception\/","title":{"rendered":"[Archived Post] Unintended Consequences of \u201cPatent Reform\u201d: The Customer Suit Exception"},"content":{"rendered":"

By Devlin Hartline<\/em><\/p>\n

In the last two weeks, the House and Senate Judiciary Committees marked up wide-ranging patent legislation ostensibly aimed at combating frivolous litigation by so-called \u201cpatent trolls.\u201d But while the stated purpose of the House and Senate bills\u2014H.R. 9 (the \u201cInnovation Act<\/a>\u201d) and S. 1137 (the \u201cPATENT Act<\/a>\u201d), respectively\u2014is to combat abusive litigation, a closer look at the actual language of the bills reveals broad provisions that go far beyond deterring frivolous lawsuits. This far-reaching language has raised concerns in the innovation industries that, instead of curbing ambulance-chasing patentees, Congress is preparing to fundamentally weaken the property rights of all inventors, emboldening patent infringers in the process.<\/p>\n

The \u201ccustomer suit exception\u201d or “customer stay” provisions that appear in both bills are particularly troubling. These provisions direct courts to stay patent infringement suits against \u201cretailers\u201d and \u201cend users\u201d in favor of suits involving manufacturers higher up the supply chain. While the basic idea makes sense\u2014we\u2019ve all heard stories of coffee shops being sued for patent infringement because of the Wi-Fi routers they used\u2014the provisions are drafted so broadly and inflexibly that they invite abuse and gamesmanship by infringers at the expense of legitimate patent owners.<\/p>\n

Both the Innovation Act and the PATENT Act provide that \u201cthe court shall grant a motion to stay at least the portion of the action against a covered customer\u201d that relates \u201cto infringement of a patent involving a covered product or covered process\u201d if certain conditions are met. The first condition in both bills is that the \u201ccovered manufacturer\u201d must be a party to the same action or to a separate action \u201cinvolving the same patent or patents\u201d related to \u201cthe same covered product or covered process.\u201d In other words, so long as the manufacturer is challenging the patentholder, the customer is off the hook.<\/p>\n

The two main problems here are that (1) the definition of \u201ccovered customer\u201d in both bills is exceedingly broad, such that almost any party can claim to be a \u201ccustomer,\u201d and (2) the provisions leave the courts no discretion<\/strong> in deciding whether to grant a stay, forcing them to halt proceedings even when it\u2019s not warranted.<\/p>\n

Both bills define \u201ccovered customer\u201d as \u201ca retailer or end user that is accused of infringing a patent or patents in dispute.\u201d \u201cRetailer,\u201d in turn, is defined as \u201can entity that generates\u201d its \u201crevenues predominantly through the sale to the public of consumer goods and services,\u201d and it explicitly excludes \u201can entity that manufactures\u201d a \u201ccovered product or covered process\u201d or \u201ca relevant part thereof.\u201d Thus, a \u201cretailer\u201d is a \u201ccustomer,\u201d but a \u201cmanufacturer\u201d is not.<\/p>\n

This language is far broader than necessary to achieve the stated purpose of protecting downstream retailers and end users. The Senate\u2019s section-by-section breakdown<\/a> of the PATENT Act claims that the \u201ccustomer stay is available only to those at the end of the supply chain.\u201d But the actual definitions in both bills are so broad that almost any entity in the supply chain would be eligible for a mandatory stay. This is so because almost all manufacturers are also retailers of other manufacturers; that is, almost all manufacturers could claim to be a \u201ccustomer.\u201d<\/p>\n

Take, for example, a smartphone company that sources its components from a third-party manufacturer. If the smartphone company were sued for patent infringement over a component, it could claim to be a \u201ccovered customer\u201d under both bills. Many smartphone companies generate \u201crevenues predominantly through the sale to the public of consumer goods and services,\u201d and they would not be considered \u201can entity that manufactures\u201d the component. As a \u201cretailer,\u201d the smartphone company would be entitled to a mandatory stay, even though it\u2019s nothing like the mom-and-pop coffee shop the customer stay provisions are designed to help. A district court would be forced to grant the stay, even if doing so hampered a legitimate patentholder’s ability to enforce its property right.<\/p>\n

Against this backdrop, it\u2019s important to keep in mind that the decision to stay proceedings has historically been left to the discretion of judges. Sometimes there are indeed good reasons to grant a stay, but each case is unique, and courts frequently weigh many factors in deciding whether a stay is appropriate. Instead of recognizing this dynamic, the Innovation Act and the PATENT Act mandate a one-size-fits-all solution to an issue that is best determined on a case-by-case basis. In effect, the bills tie the hands of district court judges, forcing them to stay suits even when the equities dictate otherwise.<\/p>\n

While in some cases a manufacturer may be the more appropriate party to litigate a patent suit, it is not always true that efficiency or justice dictates staying a suit against a customer in favor of litigation involving the manufacturer. Courts generally balance several factors, such as convenience, availability of witnesses, jurisdiction over other parties, and the possibility of consolidation, when deciding whether to grant a stay. Courts consider whether the stay will lead to undue prejudice or tactical disadvantage, and they examine whether it will simplify the issues and streamline the trial. The decision to stay involves an extensive cost-benefit analysis for both the court itself and the litigants.<\/p>\n

The Supreme Court has often emphasized the importance of judicial discretion in deciding whether a stay is warranted. As Justice Cardozo wrote<\/a> for the Court in 1936, the decision to stay \u201ccalls for the exercise of judgment, which must weigh competing interests and maintain an even balance.\u201d Justice Cardozo warned that the judiciary \u201cmust be on our guard against depriving the processes of justice of their suppleness of adaptation to varying conditions.\u201d In the patent law context, Justice Frankfurter, writing for the Court in 1952, declared<\/a>: \u201cNecessarily, an ample degree of discretion, appropriate for disciplined and experienced judges, must be left to the lower courts.\u201d<\/p>\n

The problem with the House and the Senate bills is that they take away this important \u201cexercise of judgment\u201d and threaten to remove much-needed flexibility and adaptation from the litigation process. The customer stay provisions take the \u201cample degree of discretion,\u201d which is \u201cappropriate for disciplined and experienced judges,\u201d and place it into the hands of the alleged infringers. Infringers are not likely to be motivated by important notions of efficiency or justice; they\u2019re likely to be motivated by self-interested gamesmanship of the system to their own advantage.<\/p>\n

The proponents of the customer stay provisions claim that they\u2019re necessary to help the little guy, but the provisions in both bills just aren\u2019t drafted like that. Instead, they\u2019re drafted to tie the hands of judges in countless cases that have nothing to do with small-time retailers and end users. The courts already have the power to stay proceedings when the equities tip in that direction, but these bills disrupt the judicial discretion on which the patent system has long depended. Customer stays certainly have their place, and that place is in the hands of judges who can take into account the totality of the circumstances. Judges should not be forced to make the important decision of whether to grant a stay based on overbroad and inflexible statutory language that goes far beyond its stated purpose.<\/p>\n","protected":false},"excerpt":{"rendered":"

By Devlin Hartline In the last two weeks, the House and Senate Judiciary Committees marked up wide-ranging patent legislation ostensibly aimed at combating frivolous litigation by so-called \u201cpatent trolls.\u201d But while the stated purpose of the House and Senate bills\u2014H.R. 9 (the \u201cInnovation Act\u201d) and S. 1137 (the \u201cPATENT Act\u201d), respectively\u2014is to combat abusive litigation, […]<\/p>\n","protected":false},"author":3627,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[26,27,30,34,35,37,38,1],"tags":[57,382,383,384,503,644,703,813,911,1066,1230,1266,1395],"class_list":["post-1787","post","type-post","status-publish","format-standard","hentry","category-innovation-2","category-intellectual-property-theory","category-inventors","category-legislation","category-patent-law","category-patent-litigation","category-patent-theory","category-uncategorized","tag-patent-trolls","tag-customer","tag-customer-stay","tag-customer-suit-exception","tag-end-user","tag-h-r-9","tag-innovation-act","tag-judicial-discretion","tag-manufacturer","tag-patent-act","tag-retailer","tag-s-1137","tag-stay"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/blogs.uakron.edu\/ualawip\/wp-json\/wp\/v2\/posts\/1787","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.uakron.edu\/ualawip\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.uakron.edu\/ualawip\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.uakron.edu\/ualawip\/wp-json\/wp\/v2\/users\/3627"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.uakron.edu\/ualawip\/wp-json\/wp\/v2\/comments?post=1787"}],"version-history":[{"count":3,"href":"https:\/\/blogs.uakron.edu\/ualawip\/wp-json\/wp\/v2\/posts\/1787\/revisions"}],"predecessor-version":[{"id":16937,"href":"https:\/\/blogs.uakron.edu\/ualawip\/wp-json\/wp\/v2\/posts\/1787\/revisions\/16937"}],"wp:attachment":[{"href":"https:\/\/blogs.uakron.edu\/ualawip\/wp-json\/wp\/v2\/media?parent=1787"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.uakron.edu\/ualawip\/wp-json\/wp\/v2\/categories?post=1787"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.uakron.edu\/ualawip\/wp-json\/wp\/v2\/tags?post=1787"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}