Congress Continues To Promote Patent Reform Efforts - Patent

In recent years, Congress has devoted a great deal of attention to patent reform. Those efforts led in 2011 to passage of the Leahy-Smith America Invents Act (AIA), which was the most extensive revision of the patent laws in decades. However, there is a widespread perception that additional reforms are needed to stem continued abuses of and inefficiencies in the patent system.

Immediately after the 2014 mid-term elections, leaders in both the House of Representatives and Senate vowed to take up patent reform early in the 114th Congress. They meant what they said, as currently there are seven proposals for patent reform in various stages of consideration: (1) The Innovation Act; (2) The PATENT Act; (3) The STRONG Act; (4) The TROL Act; (5) The Demand Letter Transparency Act of 2015; (6) The Innovation Protection Act; and (7) The Grace Period Restoration Act. A summary of each of these seven bills follows:

H.R. 9 - Innovation Act 2015

On February 5, 2015, Rep. Goodlatte (R-VA) reintroduced his patent reform bill: the Innovation Act. Co-sponsors of the Act include the bipartisan group of Reps. DeFazio (D-OR), Issa (R-CA), Nadler (D-NY), Smith (R-NJ), Lofgren (D-CA), Chabot (R-OH), Eshoo (D-CA), Forbes (R-VA), Pierlusi (D-PR), Chaffetz (R-UT), Jeffries (D-NY), Marino (R-PA), Farenthold (R-TX), Holding (R-NC), Johnson (D-GA), Huffman (D-CA), Honda (D-CA), and Larsen (D-WA).

The Innovation Act as initially introduced was essentially the same bill that Rep. Goodlatte introduced in 2013 and that passed the House of Representatives by a vote of 325 to 91. Later that year, the Act was pulled by Sen. Patrick Leahy (D-VT) at the behest of Senate Majority Leader Harry Reid (D-NV) before being voted on by the Senate Judiciary Committee. Sen. Reid was motivated by "objections from the pharmaceutical industry and trial lawyers" according to an article by Kate Tummarello in The Hill on May 21, 2014.

The 2015 version of the bill, as amended on June 9, 2015, includes the following key provisions:

Demand Letters: The Innovation Act states a belief that parties who send purposely evasive demand letters are abusing the patent system in a manner that contravenes public policy. It provides that such demand letters "should be considered" a fraudulent or deceptive practice and an exceptional circumstance when considering whether the litigation is abusive. It would also make a pre-suit demand letter inadmissible to prove that the alleged infringement was willful unless the demand letter identifies: (1) the asserted patent; (2) the ultimate parent entity of the claimant; (3) the accused product or process; and (4) how the accused product or process infringes at least one claim of the asserted patent.

Heightened Pleading Requirements: The Innovation Act would significantly raise the pleading requirement for patent cases. The complaint would need to provide specified details, if such information is "reasonably accessible," with respect to each patent allegedly infringed, including the identity of each accused instrumentality and a description of any alleged acts of induced or contributory infringement. The Act would also require plaintiffs to state whether the patent is essential or potentially essential to a standard-setting body. The Act would also eliminate Form 18 in the Appendix to the Federal Rules of Civil Procedure ("Form 18"), which has been relied upon to date to minimize the required contents of a patent infringement complaint. (The Judicial Conference has already proposed this step.) Pharmaceutical companies filing Hatch-Waxman infringement actions under 35 U.S.C. § 271(e)(2) would not need to comply with these enhanced pleading requirements.

Venue: The Innovation Act was amended on June 10, 2015 to add a venue provision that would substantially limit where patent suits could be filed. Except in cases filed by a foreign entity, such suits would have to be filed in a venue with a substantial connection to the case, such as because the defendant is incorporated there or has a physical facility there, or because the patented invention was conceived there, related R&D occurred in a physical facility there, or the patentee manufactures a patented product there. This provision would seem to limit the number of cases that could be brought in the Eastern District of Texas, while allowing such courts as the District of Delaware and the Northern District of California to remain major patent litigation venues.

Presumption of Attorney Fees: The Innovation Act would eliminate the American Rule presumption that a party bear its own attorney fees in patent cases, requiring instead that courts award prevailing parties their reasonable fees and other expenses unless (1) the position and conduct of the nonprevailing party was reasonably justified in law and fact or (2) special circumstances exist, such as severe economic hardship, that would make such an award unjust. The Innovation Act would also allow the court, if the nonprevailing party were an insolvent shell company unable to pay such a fee award, to join related persons and entities and make the joined parties liable for the unsatisfied portion of the award.

Post-Grant and Inter Partes Review: The Innovation Act would require, in post-grant and inter partes review proceedings, that patent claims be construed in the same manner as a court would construe such claims in a civil action to invalidate the patent. The Patent Trial and Appeal Board would also need to consider previous claim constructions from civil actions in which the patent owner was a party. This provision would effectively reject the Federal Circuit's recent Couzzo decision, under which unexpired patent claims must be construed under a "broadest reasonable interpretation" standard. An amendment introduced on June 9, 2015 would add several other procedural modifications, including placing limits on who would be permitted to institute a post-grant or inter partes review (to address market manipulation concerns) and authorizing the filing of declaration evidence in a preliminary response to a petition for post-grant or inter partes review.

Discovery Limits: The bill as originally introduced would have limited discovery during the early phases of litigation to information needed for claim construction. However, an amendment dated June 9, 2015 dropped that provision and replaced it with one that would instead (like the PATENT Act, discussed below) limit discovery pending a ruling on certain early-filed dispositive motions. The amendment defines such motions more narrowly than the PATENT Act, limiting them to a motion to sever a claim or drop a party for misjoinder under Rule 21; transfer the action under 28 U.S.C. § 1404(a); or transfer or dismiss the action under 28 U.S.C. § 1406(a). In an effort to encourage expeditious rulings, a court would be required to decide such a motion before deciding any other substantive motion or issuing a scheduling order under Rule 16(b). The discovery limitation would not apply in actions where the plaintiff is seeking a preliminary injunction against a competitor with an allegedly infringing product or process. The Act would also establish a pilot program under which at least six district courts would be required to develop rules and procedures addressing whether and to what extent a party should be entitled to receive, and/or should be required to pay the costs for, both "core" and "non-core" documentary evidence.

Transparency of Ownership: Upon filing a lawsuit, the patent owner would have to disclose to the court and the USPTO "the ultimate parent entity" of any assignee of the patent, as well as any entity with a right to sublicense or enforce the patent(s) at issue and any entity the plaintiff knows to have a financial interest in the patent(s). The patent owner would thereafter have to update this ownership information with the USPTO within 90 days of any change. Failure to comply would result in loss of the ability to recover reasonable fees and other expenses under section 285 or increased damages under section 284 with respect to infringing activities taking place during any period of noncompliance, unless the denial of such damages or fees would be manifestly unjust. Further, a prevailing party accused of infringement could recover, under section 285, reasonable fees and other expenses incurred to discover the identity of any undisclosed entities.

Stay of Customer Suits: The Innovation Act would require courts to grant a motion to stay a lawsuit against a customer who is a retailer or end user for alleged infringement of a patent by selling or using a product manufactured or supplied by another, or a process implemented using a product manufactured or supplied by another, if the following requirements are met: (1) the customer has not materially modified the product or process; (2) the manufacturer/supplier and the customer consent in writing to the stay (required only in certain instances); (3) the manufacturer/supplier is a party to the action or to a separate action involving the same patent or patents related to the same product or process; and (4) the customer agrees to be bound by any issues that the customer has in common with the manufacturer/supplier and are finally decided as to the manufacturer/supplier in an action. The motion to stay would have to be filed no later than the later of (1) 90 days after service of the first pleading that identifies the accused product or process and (2) the date on which the first scheduling order is entered. The stay could be lifted if the action involving the manufacturer/supplier would not resolve a major issue in suit against the customer, or if the stay would unreasonably prejudice and be manifestly unjust to the party seeking to lift the stay.

Foreign Bankruptcy: In cases where the executor in a foreign bankruptcy canceled U.S. intellectual property licenses, the Act would give the licensee(s) the rights under Section 365(n) of the Bankruptcy Code that are already accorded in connection with U.S. bankruptcy proceedings.

Codifying Double Patenting: The bill would codify judicial doctrine relating to the consideration of prior art in cases of double patenting for the purpose of determining the nonobviousness of a second patent's claimed invention.

Current Status: The bill was introduced and is pending in the House Judiciary Committee, which held a hearing on the bill on April 14, 2015 and will consider it again today (June 11, 2015). As discussed above, Rep. Goodlatte released a new version of the bill (the "manager's amendment") earlier this week, on June 9, 2015, bringing it closer in some ways to the PATENT Act (discussed below). Update: The House Judiciary Committee approved the Innovation Act by a vote of 24-8 and it now moves on to the full House of Representatives.

S.1137 - PATENT Act 2015

On April 29, 2015, Sen. Grassley (R-IA), along with Sens. Leahy (D-VT), Cornyn (R-TX), Schumer (D-NY), Lee (R-UT), Hatch (R-UT), and Klobuchar (D-MN), introduced the Protecting American Talent and Entrepreneurship Act of 2015 (PATENT) Act.

Pleading Requirements: Similar to the Innovation Act, the PATENT Act would require that additional information be included in a complaint, counterclaim, or cross-claim for patent infringement. The pleading would have to (1) identify each patent and patent claim allegedly infringed; (2) identify each instrumentality accused of infringing each asserted claim, stating specified details about each accused instrumentality if known; (3) describe how each accused instrumentality is alleged to infringe each asserted claim, on an element-by-element basis; and (4) for each claim of indirect infringement, describe the acts that are alleged to have contributed to or induced the direct infringement. It would be permissible to state the required information at a general level if the details are not accessible and the pleading explains the reasons for the inaccessibility.

Customer Stay: The PATENT Act would provide for a stay of patent suits against customers of allegedly infringing manufacturers and suppliers, and for the lifting of such stays, on substantially the same terms as described above in connection with the Innovation Act.

Discovery: The PATENT Act would direct the Judicial Conference to develop rules and procedures governing the extent to which a party should have to bear the cost of discovery beyond what is considered "core" for the case. The PATENT Act would prohibit such additional document discovery unless the parties agree otherwise, or the requesting party posts a bond or provides other security in an amount sufficient to cover the expected costs of the additional discovery, or the requesting party makes a showing that the other party has the financial capacity to bear the cost of such discovery. The PATENT Act would also require that district courts stay discovery while early dispositive motions (e.g., motions to dismiss and motions to transfer venue) are being considered.

USPTO Proceedings: A manager's amendment to the bill in the Senate Judiciary Committee would enact several changes to inter partes review and post-grant review proceedings. Similar to the Innovation Act and the STRONG Patents Act, this amendment would require that claims in USPTO trial proceedings be construed in the same manner as a court would construe such claims in a civil action, thus scrapping the Broadest Reasonable Interpretation (BRI) standard endorsed by Cuozzo and in use today. The amendment would allow the patent owner to submit evidence as part of the preliminary response. Other amendments would instruct the Director of the USPTO to prescribe rules to ensure that the panel adjudicating a post-grant or inter partes proceeding consists of not more than one individual who participated in the decision to institute the proceeding.

Attorney Fees: The PATENT Act would provide that if the position or conduct of the non-prevailing party in patent litigation was not objectively reasonable, the court shall, upon motion, award reasonable attorney fees to the prevailing party unless special circumstances would make an award unjust.

Demand Letters: The PATENT Act would subject plaintiffs engaged in widespread sending of bad-faith demand letters to penalties as an unfair or deceptive business practice under the Federal Trade Commission Act. If the initial written notice provided to the defendant prior to the filing of the civil action did not contain the information required by the new pleading rules described above, the defendant's time to respond to the complaint would be extended by 30 days.

Bankruptcy Provisions: As the official summary of the bill states, the PATENT Act would make clear "that as a matter of public policy, U.S. courts will not recognize the action of a foreign court to unilaterally cancel a license to a U.S. patent or trademark if the licensor goes bankrupt." The bill would also extend to trademarks the protection currently afforded to licensees of U.S. patents in connection with U.S. bankruptcy proceedings.

Current Status: The PATENT Act was introduced in the Senate Judiciary Committee, which held a hearing on the bill on May 7, 2015 and approved it by a vote of 16-4 last week. The bill will now move to the full Senate.

S.632 - STRONG Patents Act of 2015

Sen. Chris Coons (D-DE), along with co-sponsors Durbin (D-IL) and Hirono (D-HI), submitted the Support Technology and Research for Our Nation's Growth (STRONG) Patents Act of 2015. The STRONG Patents Act is narrower in scope than the two bills discussed above, focusing on revising the procedures applicable to the post-issuance review of patents. The Act does include a few omnibus provisions as well. Following is a summary of the Act's key provisions.

Post-Issuance Review Procedures

Claim Construction: The STRONG Patents Act would direct the USPTO to prescribe regulations requiring the PTAB to construe patent claims in post-grant or inter partes review proceedings in the same manner as a court in a civil action would do when determining the validity of a patent. The effect would be to eliminate the "broadest reasonable interpretation" standard currently used in USPTO proceedings. The Act would also require that the USPTO consider any prior court rulings construing the claims in a civil action to which the patent owner was a party.
Validity Determinations: The Act would require that the PTAB apply a presumption of validity during post-issuance challenges. The petitioner would bear the burden of proving the unpatentability of a previously issued claim by clear and convincing evidence, and proving the unpatentability of an amended claim by a preponderance of the evidence. Currently, the preponderance of evidence standard applies to all such claims.
Availability of Post-Issuance Review Procedures: The Act would require that ex parte reexaminations be filed within one year after the requester (or its privy or real party in interest) is served with a complaint alleging infringement of the subject patent(s). It would prohibit inter partes or post-grant reviews while the patent is the subject of a reissue or reexamination proceeding. It would limit all post-issuance review petitions to persons (or their privies or real parties in interest) who have been sued for or charged with infringement, or who demonstrate a reasonable possibility of being sued for or charged with infringement, or who demonstrate a competitive harm related to the validity of the patent.
Amendments: The bill would permit a patent owner to amend a patent during a post-issuance review if the owner has not already amended the patent during the review and the proposed number of substitute claims is reasonable. The PTAB would have discretion to grant or deny any additional motions to amend the patent.
Decisionmakers: The Act would prohibit a post-issuance review from being heard by PTAB members who participated in a decision to institute the review.
Real Parties in Interest: The Act would require that a reexamination request identify the real parties in interest on whose behalf the request is being filed. It would also allow a patent owner to conduct discovery for the purpose of identifying the petitioner's real party in interest.

Fee Division: The STRONG Patents Act would require that all patent and trademark fees be credited to a revolving fund in the Treasury to be known as the United States Patent and Trademark Office Innovation Promotion Fund. Fees in the Fund would be available to cover USPTO expenses without fiscal year limitation.

Expanded Micro-Entity Status: The Act would provide micro entity status (which makes certain small entities eligible for reduced patent fees) to certifying institutions of higher education or their related patent commercialization entities (provided that such entities certify that they have tax exempt status).

Pleading Requirements: As with the Innovation Act (described above), the Act would eliminate Form 18 of the Federal Rules of Civil Procedure.

Willful Infringement: The Act would provide courts with discretion to increase damages awarded to a claimant up to three times the amount found by a jury or assessed by the court upon determining, by a preponderance of the evidence, that infringement was willful or in bad faith.

Induced Infringement: The bill would allow a finding of liability for actively inducing infringement of a process patent, or for contributory infringement of a process patent, even if the steps of the patented process are not practiced by a single entity. This would effectively reverse the Supreme Court's unanimous decision in Limelight Networks, Inc. v. Akamai Technologies, Inc., which held that there can be no liability for induced infringement under 35 U.S.C. § 271(b) when there has been no direct infringement under 35 U.S.C. § 271(a).

Demand Letters: The STRONG Patents Act continues the theme of frowning upon bad faith demand letters. The Act would require that such letters be treated as an unfair or deceptive practice in violation of the Federal Trade Commission Act, direct the Federal Trade Commission to enforce the FTCA against those who engage in a pattern or practice of sending such letters, and authorize state attorneys general to do so as well.

Current Status: The STRONG Patents Act was introduced on March 3, 2015 and is currently in the Senate Judiciary Committee. A hearing was held in the Senate Committee on Small Business and Entrepreneurship on March 19, 2015.

H.R. 2045 – TROL Act

The Targeting Rogue and Opaque Letters (TROL) Act was introduced on April 28, 2015 by Rep. Burgess (R-TX). The co-sponsors of the bill include Reps. Kaptur (D-OH), Lance (R-NJ), Harper (R-MS), Mullin (R-OK), and Kinzinger (R-IL).

The Act would direct the Federal Trade Commission and authorize state attorneys general to prosecute parties sending bad faith demand letters as an unfair or deceptive act or practice in violation of the Federal Trade Commission Act. Several deceptive practices that would violate the act include: misrepresenting ownership or enforcement rights; falsely claiming that court actions have been filed against the party or other parties; falsely claiming that other parties have licensed the asserted patents or that an investigation regarding infringement of an accused product has occurred. The Act would require that communication with parties accused of infringement include an identification of the asserted patents and the accused products or methods, as well as contact information to discuss the assertions or claims.

The Act would further preempt any state law or regulation expressly relating to the transmission or contents of communications relating to the assertion of patent rights.

Current status: On April 29, 2015 the House Committee on Energy and Commerce approved the Act by a vote of 30-22. This vote means that the TROL Act will be favorably reported out of Committee and now moves on for consideration by the full House of Representatives.

H.R. 1896 – Demand Letter Transparency Act of 2015

Rep. Polis (D-CO) introduced the Demand Letter Transparency Act on April 20, 2015. The bill was co-sponsored by Reps. Marino (R-PA) and Deutch (D-FL).

The bill provides that any entity that sends more than 20 demand letters during any 365-day period must identify the following to the USPTO:

the patent, including a confirmation that the entity that sent the letter is the owner of the patent and is the last recorded entity in USPTO records for purposes of assignment, grant, or conveyance;
the entity that has the right to license the patent or the name of the exclusive licensee;
each entity asserting a claim with regard to the patent;\
each obligation to license the patent and the financial terms on which such patent has been licensed;
the ultimate parent entity of the entity asserting a claim with regard to the patent;
the number of recipients of the demand letter;\
any case that has been filed by the entity asserting a claim relating to such patent; and
any ex parte or inter partes review of such patent.

The bill would create a publicly accessible and searchable database of the information submitted. The Act would also require payment of a registration fee by a patent owner prior to filing a demand letter.

The bill would also require that any demand letter sent to another entity contain the following:

an identification of each patent and each claim thereof that is or may be allegedly infringed;
an identification of each accused instrumentality (by name or model number in the case of accused products, or by name in the case of accused methods, systems or processes);
the identity of each party alleging infringement;
for claims of indirect infringement, a description of the direct infringement and the acts that allegedly are contributing to or inducing the direct infringement;
a description of the principal business of the party alleging infringement;
a list of each complaint filed that asserts or asserted any of the same patents, each case filed by such entity, and any ex parte or inter partes reviews for each patent;
a statement of whether the patent is subject to any licensing term or pricing commitments;
the identity of any owners, co-owners, assignees, or exclusive licensees of the patent;
the identity of any person who has a legal right to enforce the patent;
the identity of any person with a direct financial interest in the license of the patent;
an explanation of how the recipient can access the USPTO demand letter database; and
a clear statement reading "You are not required to respond to this letter by law."

The Demand Letter Transparency Act would permit a recipient of a demand letter to petition the USPTO if it believes that the disclosure or patent letter information requirements have not been met. If the USPTO determines that a requirement has not been met for reasons other than a good faith mistake, it would be required to notify the patent owner that the patent will be voided unless a fee is paid.

Current Status: The bill was introduced and is pending in the House Judiciary Committee. On May 15, 2015 the bill was referred to the Subcommittee on Courts, Intellectual Property, and the Internet.

H.R. 1832 - Innovation Protection Act

Rep. Conyers (D-MI) introduced the Innovation Protection Act on April 16, 2015. The Act was co-sponsored by Reps. Sensenbrenner (R-WI), Nadler (D-NY), Franks (R-AZ), Lofgren (D-CA), Collins (R-GA), Deutch (D-FL), Rohrabacher (R-CA), and Jeffries (D-NY).

The bill is similar to a provision of the STRONG Patents Act, discussed above, in that it would establish in the Treasury a fund (here called the "United States Patent and Trademark Office Public Enterprise Fund") to be used as a revolving fund by the Director of the USPTO without fiscal year limitation. Fees collected by the USPTO would thus remain available to the USPTO until expended.

Congress's recent practice has been to divert a portion of the fees received by the USPTO for other purposes. Congress has diverted over $1 billion in user fees from the USPTO since 1992, according to the Intellectual Property Owners Association. The Innovation Protection Act would essentially end that practice.

The Leahy-Smith America Invents Act of 2011 created a fund for use by the USPTO, but how much the USPTO can expend from the AIA fund is still governed by appropriators. The Innovation Protection Act would provide the Director discretion on how to expend monies in the AIA fund that are generated by USPTO fees. The Innovation Protection Act would require that the Director of the USPTO arrange an annual independent audit of the USPTO's financial statements, to be conducted in accordance with generally accepted accounting principles.

H.R. 1791 / S. 926 - Grace Period Restoration Act of 2015

The Grace Period Restoration Act of 2015 was introduced on April 14, 2015 by Reps. Sensenbrenner (R-WI) and Conyers (D-MI) in the House of Representatives and by Sens. Baldwin and Vitter in the Senate.

The Act would amend federal patent law to clarify the one-year grace period under the Leahy-Smith America Invents Act (AIA). The grace period exists to encourage early publication by inventors, such as those who are affiliated with universities or other research entities. It provides that a claimed invention is not rendered ineligible for patent protection by virtue of certain public disclosures made during the year preceding the effective filing date of the patent application, including (A) disclosures "made by the inventor or joint inventor or by another who obtained the subject matter directly or indirectly from the inventor," and (B) disclosures made subsequent to an (A) disclosure. 35 U.S.C. § 102(b)(1)(A), (B).

An ambiguity has arisen as to whether the grace period eliminates as prior art all disclosures that follow an inventor's original disclosure made within the grace period, or only some such disclosures. The USPTO decided the latter, adopting a regulation under which a subsequent disclosure is disqualified as prior art only if it represents the same "subject matter" as the inventor's prior disclosure. 37 C.F.R. § 1.130. The USPTO also issued guidelines describing what some consider a narrow view of what constitutes the same subject matter. For example, the guidelines state that "if the inventor . . . had publicly disclosed a genus, and a subsequent intervening grace period disclosure discloses a species, the intervening grace period disclosure of the species would be available as prior art . . . ." Examination Guidelines for Implementing the First Inventor to File Provisions of the Leahy-Smith America Invents Act.

The sponsors of the Grace Period Restoration Act assert that the USPTO interpretation violates Congress's intent when it enacted the AIA's grace period provision. Their remedy is to provide in the Act that any disclosure made subsequent to a qualified disclosure by an inventor or other covered person "shall not be prior art." The inventor's prior disclosure would have to have been made "1 year or less before the effective filing date of the claimed invention" and "in a printed publication . . . in a manner that satisfies the relevant section 112(a) requirements [i.e., all § 112(a) requirements other than best mode]." The Act would also establish additional standards for determining whether the inventor's prior disclosure adequately disclosed the claimed invention for purposes of the grace period.

Current Status: The House version of the bill was introduced and is currently pending in the House Judiciary Committee. On May 15, 2015, it was referred to the Subcommittee on Courts, Intellectual Property, and the Internet. The Senate version of the bill was introduced and is currently pending in the Senate Judiciary Committee.

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United States: Congress Continues To Promote Patent Reform Efforts