Congress Raises Its Torch In The Patent Troll Hunt

When Congress passed the Leahy-Smith America Invents Act in September 2011, it was dubbed the “biggest overhaul of the patent system since 1952.”1 So why are we talking about another round of sweeping changes in patent law just two years later? TROLLS — not those collecting tolls to pass over the bridge, but those collecting damages to practice patent claims. Known less pejoratively as “non-practicing entities” or “patent assertion entities,” patent trolls are having a major impact on the U.S. economy, making them targets of a diverse collection of political initiatives. The three branches of the federal government are actively engaged in duplicative—perhaps contradictory—efforts to reform patent litigation.

Judicial Reform

The Judicial Conference is exploring a proposal to abrogate Rule 84 and the bare-bones model complaint for direct patent infringement contained in Form 18 of the Federal Rules of Civil Procedure.2 Similarly, the U.S. Supreme Court has granted certiorari on two cases that would clarify the standard for attorneys’ fee awards under 35 U.S.C. § 285.3

Executive Reform

On another front, the White House issued legislative priorities and executive actions on June 4, 2013 “designed to protect innovators from frivolous litigation and ensure the highest-quality patents in our system.”4 Among other things, these executive actions require the Patent and Trademark Office (PTO) and the International Trade Commission (ITC) to review their procedures to address the increasing impact of troll litigation on the U.S. economy.5

Legislative Reform and the Goodlatte Bill

Most recently, on December 5, 2013, the U.S. House of Representatives voted 325-91 to pass the “Innovation Act,” the most significant legislative proposal to come in the wake of the White House release.6 Republican Congressman Bob Goodlatte of Virginia introduced the “Innovation Act” on October 23, 2013 with cosponsors from both sides of the aisle. Rep. Goodlatte referenced “tens of billions of dollars spent on settlements and litigation expenses associated with abusive patent suits” and suggested that the Innovation Act is “designed to eliminate the abuses of our patent system, discourage frivolous patent litigation and keep U.S. patent laws up to date.”7

The bill, as amended and passed in the House, seeks to fulfill its stated objectives as follows:8

  • Patent Infringement Actions The bill proposes five modifications to the statutory structure for patent infringement actions: (1) heightened pleading requirements; (2) presumptive attorneys’ fees to the prevailing party; (3) discretionary joinder at the defendants’ request; (4) limited pre-Markman discovery; and (5) penalties and disincentives for purposely evasive and vague demand letters.
  • Transparency of Patent Ownership Plaintiffs would be required to disclose ownership information to the court and the PTO upon filing an initial complaint for patent infringement.
  • Customer-Suit Exception The court shall grant a stay of litigation when timely requested by a customer where the same patent has been asserted against a manufacturer if (1) the manufacturer and customer both consent to the stay; and (2) the customer agrees to be bound by any judgment against the manufacturer with respect to any common issues between the manufacturer and customer.
  • Recommendations to Judicial Conference The bill would require the Judicial Conference to develop and implement rules to address discovery burdens, initial disclosure and early case management practices, and pleading standards in patent litigation. Among other topics, the bill would require the Judicial Conference to consider limitations on electronic discovery similar to the E-Discovery Model Order adopted by the Federal Circuit Advisory Council in 2011. The proposal also would protect patent licenses from elimination in bankruptcy.
  • Small Business, Education, Outreach, and Information Access The PTO would develop resources for small businesses to address patent infringement concerns and would devote a portion of its public website to notify the public when a new patent case is brought in federal court.
  • Studies on Patent Transactions, Quality, and Examination The bill would require studies related to: (1) oversight of the secondary market for patent rights; (2) treatment of patents owned or licensed by the U.S. Government; (3) the quality of examination at the PTO; (4) the idea of developing a pilot program for patent small claims procedures; (5) the prevalence and impact of bad faith patent demand letters; (6) the volume and nature of litigation involving business method patents; and (7) the economic impact on individuals’ and minority-owned small businesses’ ability to obtain and assert patent rights.
  • Improvements and Technical Corrections to the America Invents Act (AIA) In addition to the “technical corrections,” the bill would “improve” the AIA by limiting estoppel in post-grant review to “issues raised,” amending the standards and evidence in post-grant review and inter partes claim construction, codifying the double-patenting doctrine for first-to-file patents, and extending the patent pilot program in certain district courts for 20 years.

Although the bill passed the House and its policy objectives have generally been well-received, it may prove difficult for Congress to settle on statutory language that effectively achieves the stated objectives. For example, some commentators are concerned that the so-called war on patent trolls may inadvertently capture legitimate businesses and private inventors. If a publicly traded Fortune 500 company discontinues a patented product line then brings a suit for patent infringement, should it be treated differently than a company whose only business is to license patents and file suits for infringement? Are non-practicing private inventors, by definition, prejudiced by their financial inability to practice the invention?

We will continue to provide updates on these patent law reform efforts, including the Goodlatte bill, as they develop. If you have any questions about the content of this alert, please contact one of the authors listed above or any member of our Intellectual Property and Technology team.

——————————————————————————–
1 See, e.g., Kathleen Hunter & Susan Decker, Biggest Overhaul of Patent System Since 1952 Passes Senate, Bloomberg (Sept. 9, 2011).
2 See Raising the Bar for Pleading Patent Infringement (Aug. 23, 2013).
3 See Think Your Patent Case is Exceptional? (Oct. 3, 2013).
4 See White House Declares War on Patent Trolls Through Patent Reform (June 4, 2013).
5 See id.
6 See H.R. 3309, 113th Congress, Bill Summary and Status. Other pending patent reform bills include H.R. 3540, S. 1720, S. 1612, S. 1013 and S. 866.
7 Release, Goodlatte Introduces Patent Litigation Reform Bill (Oct. 23, 2013).
8 The full text of the Innovation Act, as passed in the House, is available here.

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When Congress passed the Leahy-Smith America Invents Act in September 2011, it was dubbed the “biggest overhaul of the patent system since 1952.”1 So why are we talking about another round of sweeping changes in patent law just two years later? TROLLS — not those collecting tolls to pass over the bridge, but those collecting damages to practice patent claims. Known less pejoratively as “non-practicing entities” or “patent assertion entities,” patent trolls are having a major impact on the U.S. economy, making them targets of a diverse collection of political initiatives. The three branches of the federal government are actively engaged in duplicative—perhaps contradictory—efforts to reform patent litigation.

Judicial Reform

The Judicial Conference is exploring a proposal to abrogate Rule 84 and the bare-bones model complaint for direct patent infringement contained in Form 18 of the Federal Rules of Civil Procedure.2 Similarly, the U.S. Supreme Court has granted certiorari on two cases that would clarify the standard for attorneys’ fee awards under 35 U.S.C. § 285.3

Executive Reform

On another front, the White House issued legislative priorities and executive actions on June 4, 2013 “designed to protect innovators from frivolous litigation and ensure the highest-quality patents in our system.”4 Among other things, these executive actions require the Patent and Trademark Office (PTO) and the International Trade Commission (ITC) to review their procedures to address the increasing impact of troll litigation on the U.S. economy.5

Legislative Reform and the Goodlatte Bill

Most recently, on December 5, 2013, the U.S. House of Representatives voted 325-91 to pass the “Innovation Act,” the most significant legislative proposal to come in the wake of the White House release.6 Republican Congressman Bob Goodlatte of Virginia introduced the “Innovation Act” on October 23, 2013 with cosponsors from both sides of the aisle. Rep. Goodlatte referenced “tens of billions of dollars spent on settlements and litigation expenses associated with abusive patent suits” and suggested that the Innovation Act is “designed to eliminate the abuses of our patent system, discourage frivolous patent litigation and keep U.S. patent laws up to date.”7

The bill, as amended and passed in the House, seeks to fulfill its stated objectives as follows:8

  • Patent Infringement Actions The bill proposes five modifications to the statutory structure for patent infringement actions: (1) heightened pleading requirements; (2) presumptive attorneys’ fees to the prevailing party; (3) discretionary joinder at the defendants’ request; (4) limited pre-Markman discovery; and (5) penalties and disincentives for purposely evasive and vague demand letters.
  • Transparency of Patent Ownership Plaintiffs would be required to disclose ownership information to the court and the PTO upon filing an initial complaint for patent infringement.
  • Customer-Suit Exception The court shall grant a stay of litigation when timely requested by a customer where the same patent has been asserted against a manufacturer if (1) the manufacturer and customer both consent to the stay; and (2) the customer agrees to be bound by any judgment against the manufacturer with respect to any common issues between the manufacturer and customer.
  • Recommendations to Judicial Conference The bill would require the Judicial Conference to develop and implement rules to address discovery burdens, initial disclosure and early case management practices, and pleading standards in patent litigation. Among other topics, the bill would require the Judicial Conference to consider limitations on electronic discovery similar to the E-Discovery Model Order adopted by the Federal Circuit Advisory Council in 2011. The proposal also would protect patent licenses from elimination in bankruptcy.
  • Small Business, Education, Outreach, and Information Access The PTO would develop resources for small businesses to address patent infringement concerns and would devote a portion of its public website to notify the public when a new patent case is brought in federal court.
  • Studies on Patent Transactions, Quality, and Examination The bill would require studies related to: (1) oversight of the secondary market for patent rights; (2) treatment of patents owned or licensed by the U.S. Government; (3) the quality of examination at the PTO; (4) the idea of developing a pilot program for patent small claims procedures; (5) the prevalence and impact of bad faith patent demand letters; (6) the volume and nature of litigation involving business method patents; and (7) the economic impact on individuals’ and minority-owned small businesses’ ability to obtain and assert patent rights.
  • Improvements and Technical Corrections to the America Invents Act (AIA) In addition to the “technical corrections,” the bill would “improve” the AIA by limiting estoppel in post-grant review to “issues raised,” amending the standards and evidence in post-grant review and inter partes claim construction, codifying the double-patenting doctrine for first-to-file patents, and extending the patent pilot program in certain district courts for 20 years.

Although the bill passed the House and its policy objectives have generally been well-received, it may prove difficult for Congress to settle on statutory language that effectively achieves the stated objectives. For example, some commentators are concerned that the so-called war on patent trolls may inadvertently capture legitimate businesses and private inventors. If a publicly traded Fortune 500 company discontinues a patented product line then brings a suit for patent infringement, should it be treated differently than a company whose only business is to license patents and file suits for infringement? Are non-practicing private inventors, by definition, prejudiced by their financial inability to practice the invention?

We will continue to provide updates on these patent law reform efforts, including the Goodlatte bill, as they develop. If you have any questions about the content of this alert, please contact one of the authors listed above or any member of our Intellectual Property and Technology team.

——————————————————————————–
1 See, e.g., Kathleen Hunter & Susan Decker, Biggest Overhaul of Patent System Since 1952 Passes Senate, Bloomberg (Sept. 9, 2011).
2 See Raising the Bar for Pleading Patent Infringement (Aug. 23, 2013).
3 See Think Your Patent Case is Exceptional? (Oct. 3, 2013).
4 See White House Declares War on Patent Trolls Through Patent Reform (June 4, 2013).
5 See id.
6 See H.R. 3309, 113th Congress, Bill Summary and Status. Other pending patent reform bills include H.R. 3540, S. 1720, S. 1612, S. 1013 and S. 866.
7 Release, Goodlatte Introduces Patent Litigation Reform Bill (Oct. 23, 2013).
8 The full text of the Innovation Act, as passed in the House, is available here.

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