The STRONGER Patents Act: Swinging the Pendulum in Favor of Patent Owners

While the House Judiciary Committee conducts hearings today on “The Impact of Bad Patents on American Businesses,” a movement is afoot in the Senate to revitalize the U.S. patent system.  On June 21, 2017, a bipartisan group of Senators led by Chris Coons (D-Del.) introduced the STRONGER Patents Act.¹  The Act seeks to legislatively overrule several recent U.S. Supreme Court decisions and to change key components of the Leahy-Smith America Invents Act of 2011 (AIA).  Although the STRONGER Patents Act has solid support and is viewed as the most promising patent reform legislation this session, critics argue that it empowers patent trolls and encourages companies to send their research and development activities overseas.  The balance between protecting strong patent rights and preventing patent-related harassment is difficult to strike, and some believe this bill goes too far in favor of patent owners.

As discussed in greater detail below, Title I generally would reform post-grant invalidation proceedings in the U.S. Patent and Trademark Office and provide new standards for certain aspects of infringement litigation.  Title II seeks to curb the practice of sending letters alleging patent infringement in bad faith.

Title I would make these sweeping changes to Inter Partes Review (IPR) and Post-Grant Review (PGR) proceedings before the Patent Trial and Appeal Board (PTAB):

• Harmonize Claim Construction and Burden of Proof with District Court Litigation:  The bill would change the claim construction standard in PTAB proceedings from the broadest reasonable interpretation to the ordinary and customary meaning in view of the specification and the prosecution history.  The PTAB would also be forced to consider a court’s earlier construction of a claim term and apply the clear and convincing evidence standard to invalidity determinations.  These provisions effectively seek to overrule portions of Cuozzo Speed Technologies, LLC v. Lee, 136 S. Ct. 2131 (2016).

• Petitioners Must Demonstrate Standing:  The AIA did not contain a standing requirement for IPR or PGR proceedings, thereby allowing trade groups and wholly disinterested parties to seek invalidation.  This created a cottage industry in which creative and enterprising investors, like hedge fund manager Kyle Bass, would seek investment gains by short selling a company’s stock and then filing an IPR petition against the company’s key patents.  Under the STRONGER Patents Act, the petitioner must establish standing by showing that the petitioner or its real party in interest or privy has been sued for infringement or charged with infringement of the patent.

• Only One Proceeding Per Patent Claim:  The bill would allow only one IPR or PGR per patent claim.  While the bill’s proponents suggest this will “[r]educe repetitive and harassing attacks on patents,” others have expressed concern that it effectively guts the utility of the PTAB proceedings altogether, especially in the scenario where a non-practicing entity files suit against many defendants who may have access to different prior art.

• One-Sided Interlocutory Appeals:  The bill would uphold the U.S. Supreme Court’s holding in Cuozzo that decisions not to institute an IPR are final and non-appealable.  However, the bill would create a new one-sided interlocutory appeal allowing the patent owner to seek review of a decision to institute an IPR at the U.S. Court of Appeals for the Federal Circuit.

• Broader Estoppel:  The bill would expand the current IPR estoppel provisions, providing that a petitioner, or its real party in interest or privy, may not petition for another IPR on the same patent unless subsequently charged with infringement of additional claims.  It would also prohibit the petitioner from raising any invalidity arguments under Section 102 or 103 in subsequent proceedings in district court or before the International Trade Commission (ITC), except for arguments based on the on-sale bar.

• Expanded Real Party-in-Interest Definition:  The STRONGER Patents Act would expand the definition of real party-in-interest to include any entity making a financial contribution to the challenge.  This provision would cause serious concern for industry associations or other collective groups that are funded by their members but retain autonomy to control the PTAB proceedings.  The bill would also allow the PTAB to enforce the expanded real party-in-interest definition through additional discovery focused on the issue.

• No IPR After District Court Validity Determination:  The new legislation would prohibit the PTAB from instituting an IPR if the ITC or any district court has entered a final judgment on validity with respect to Sections 102 or 103.

• Free Amendment of Claims:  The U.S. Court of Appeals for the Federal Circuit has affirmed the PTAB’s high bar for amending claims during an IPR,²  but the STRONGER Patents Act would substantially reduce the burden for patent owners.  Under the proposed legislation, patent owners would have the option to pursue “expedited” ex parte examination of proposed substitute claims.  If, however, the patent owner decides to have the substitute claims adjudicated by the PTAB during the IPR, the patent owner is entitled to a presumption of patentability upon making a prima facie showing.

Among the remaining changes proposed in Title I, the bill seeks to legislatively overrule three additional U.S. Supreme Court decisions for infringement proceedings by: (1) restoring a presumption of injunctive relief upon a judgment of infringement;³  (2) clarifying that inducement requires proof only of intent to cause the infringing acts, without regard for whether the accused infringer had knowledge of the patent;⁴  and (3) eliminating a requirement that a single entity practice all steps of a method before finding an entity liable for inducement or contributory infringement.⁵  Other sections address USPTO fees, classification of universities as “micro-entities,” and assistance to small businesses.

Perhaps the most controversial section of Title I relates to overseas manufacturing.  The bill would amend Section 271 to provide that a person or entity is liable for infringement if she supplies a design from the United States to actively induce manufacturing outside the United States in a manner that would infringe if made in the United States.  The bill’s proponents argue that this amendment would close a loophole created by the U.S. Supreme Court’s decision in Microsoft Corp. v. AT&T Corp., 550 U.S. 437 (2007), but critics argue that it discourages research and development activities in the United States.

Finally, Title II mirrors the Targeting Rogue and Opaque Letters (TROL) legislation originally introduced in the House in 2015 and would make it an “unfair and deceptive act or practice” under the Federal Trade Commission Act (FTC) to engage in a pattern or practice of sending letters alleging patent infringement in bad faith.  The bill would give enforcement jurisdiction to the FTC and would preempt state laws on patent demand letters.

Patent trolls have been grabbing headlines over the past few years, and they have generated a wave of legislative, judicial and executive actions to reduce nuisance patent infringement suits.  However, the term “patent troll” is a nebulous concept with no easy or universally accepted definition.  Moreover, there is substantial policy disagreement over whether a patent owner who chooses not to practice its patented technology (for whatever reason) should have the same enforcement rights against infringers.  The STRONGER Patents Act may be an indication that the pendulum swung too far against patent owners in recent years, leading some policymakers to push for stronger patent rights for all.

We will continue to monitor the STRONGER Patents Act and will provide updates as they are available.

¹The acronym stands for “Support Technology and Research for Our Nation’s Growth and Economic Resilience,” and the bill is co-sponsored by Sens. Cotton (R-Ark.), Durbin (D-Ill.) and Hirono (D-Haw.).  The STRONGER Patents Act is a revised version of the STRONG Patents Act, which Sen. Coons introduced in 2015.

²See, e.g., Microsoft Corp. v. Proxyconn, Inc., 789 F.3d 1292, 1307 (Fed. Cir. 2015).  The issue is currently pending en banc review in Aqua Prods., Inc. v. Matal, Case No. 15-1177 (Fed. Cir. argued Dec. 9, 2016).

³This would legislatively overrule eBay, Inc. v. MercExchange, LLC, 547 U.S. 388 (2006).

⁴This would legislatively overrule Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754 (2011).

⁵This would arguably modify the rules from Limelight Networks, Inc. v. Akamai Techs., Inc., 134 S. Ct. 2111 (2014) and Akamai Techs., Inc. v. Limelight Networks, Inc., 797 F.3d 1020 (Fed. Cir. 2015), although Sen. Coons suggests that it is a “clarifi[cation].”