Editorial Note: This article is a portion of a larger work by Andrew Baluch titled Patent Reform 2014, modified here for purposes of publication on IPWatchdog.com. Baluch’s article is a comprehensive review of pending legislation developments in Congress, the Executive Branch, the Courts and the States. For more specifically on fee-shifting please also see Will Fee Shifting Solve the Patent Troll Problem?
U.S. patent litigation has followed the centuries-old “American Rule” under which each party to a litigation pays its own legal fees and costs, regardless whether it wins or loses the litigation. A narrow exception exists in patent cases, but only in “exceptional cases” under 35 U.S.C. § 285, such as where the losing party engaged in litigation misconduct, or if the patent was fraudulently procured, or if the losing party raised arguments that were both objectively baseless and made in bad faith.
Despite the long tradition of litigants paying their own legal fees and costs, Congress has shown interest in changing the playing field and deviating from the American Rule in patent cases. This comes at a time when the U.S. Supreme Court is already considering two cases that relate to the definition of “exceptional cases” in § 285 that may well alter how this existing exception to the American Rule is applied in practice.
What follows is discussion of various legislative proposals relative to fee-shifting, as well as a brief discussion of the two cases currently pending before the Supreme Court.
2013 turned out to be a very big year for IP, and especially patents, and the year took a course that few would have predicted this time last year. At that time, the senior team at the PTO was primarily focused on the imminent departure of our then-boss, David Kappos, and the end of what had clearly been an extraordinarily active and successful tenure. The AIA had been almost entirely implemented, the new Patent Trial and Appeal Board was up and running, and most of us expected 2013 to be focused on implementation and execution of the AIA and the other initiatives that had been set in motion under Director Kappos.
But things turned out rather differently. Nobody would have predicted a year ago that President Obama would personally call for additional patent reform legislation to curb patent troll litigation. Or that a comprehensive patent litigation reform bill would speed through the House by a lopsided margin and be heading to Senate consideration with a full head of steam. Nobody also would have predicted that the USPTO would also fall victim to sequestration and once again be denied full access to its fees so shortly after the passage of the AIA, which held forth the promise of full access to fees. And few would have predicted that the PTO would be without stable political leadership since Dave Kappos left eleven months ago. Or that a new Chief of Staff and a new Deputy and Acting Director would be named before a new Director was nominated. This unusual and lengthy transition period has caused understandable concern in the IP community, but we should all be pleased that a new Acting Director has been named and will take the reins on an acting basis in just two weeks.
James Madison, father of the Constitution and proponent of strong patent rights.
As the end of 2013 approaches and I look back on what has transpired I am saddened to see that through the year patent rights have continued to erode. It is difficult to comprehend just how far the pendulum has swung. At one time strong patent rights were viewed by our Founding Fathers as obviously necessary. Now any patent rights are ridiculed as a relic of the past that simply stands in the way of innovation. The reality, however, is that patents don’t stand in the way of innovation; patents foster innovation. But so many won’t even take the time to inform themselves. Rather they equate “innovation” with a new consumer product. But to innovate is to do something new. Innovation has nothing in and of itself to do with a new products or services.
What those urging a weaker patent system want is the ability to release products and establish services regardless of whether they are infringing others. But those who infringe are not innovators, at least not in the most broad sense. Sure, they may have improved something, but if they are infringing then what they have done is copy an innovator. How and why that isn’t self-evident is a mystery. Copying is not innovating!
And if patents were getting in the way of innovation then why aren’t we seeing a standstill in the smartphone industry? The arguments made by the anti-patent crowd are ridiculous on their face, yet decision makers just nod their head in agreement as if they speak the gospel. The truth is the smartphone industry started with the iPhone in late 2007. It is just 6 years old! The phones from 2007 look and function nothing like the smartphones do today, and every new version has new improvements, better battery life, stronger structural integrity, glass that is harder to break, operates faster, has better cameras, etc. etc. For an area that is allegedly being suffocated by patents there sure is a lot of readily apparent improvement.
Yesterday, the House Judiciary Committee held a hearing on the “Innovation Act,” HR 3309, a bill sponsored by the Chairman of the House Judiciary Committee and co-sponsored by 10 other Members from both sides of the aisle, including the Chairman of the IP Subcommittee.
The hearing focused on the effect the Innovation Act would have on the problem of abusive litigation practices and on the patent system as a whole. Three central themes emerged from the hearing: 1) there is an urgent need to fully fund the PTO; 2) significant skepticism remains about expansion of the Covered Business Method (“CBM”) program; and 3) some of the more technical aspects of the Innovation Act would help rid the patent system of expensive and wasteful lawsuits. Divergence of opinion remained among the Members, however, about whether Congress should address fee shifting at this time or wait for the Supreme Court to hear the two fee shifting cases before it, although the witnesses agreed that legislation on fee shifting would be helpful, and Congress should proceed with legislation on this front.
Note when reading the report below that the “Innovation Act,” HR 3309, is different than the “Innovation Protection Act,” HR 3349. The Innovation Act is the patent litigation reform measure introduced by House Judiciary Committee Goodlatte and others. The Innovation Protection Act is the PTO funding bill introduced by House Judiciary Committee Ranking Member Conyers and others.
EDITOR’S NOTE: What follows is a summary of the Goodlatte patent bill created by American Continental Group, which is a government affairs and strategic consulting firm in Washington, DC. Manus Cooney, a former Chief Counsel of the Senate Judiciary Committee is one of the partners at ACG, and is also frequent guest contributor on IPWatchdog.com. Cooney and his partners and associates worked to prepare this summary, which was described as a team effort. It is republished here with permission.
Manus Cooney, ACG
Sec. 3. Patent Infringement Actions
Pleading Requirements (p.2)
Amends Title 35 to establish heightened pleading requirements for patent infringement actions. A party alleging infringement must include in the pleading, unless the information is not reasonably accessible, the following:
Each patent allegedly infringed and each claim of each patent that is allegedly infringed
For each claim, which product, feature, method or process are allegedly infringed, including the name or model number; where each element of the claim is fount within the accused product/method; and how the terms of the asserted claim correspond to the functionality of the accused product/method.
Whether each element is infringed literally or under the doctrine of equivalents
A description of the direct infringement, the acts of the alleged indirect infringement that contribute to or are inducing direct infringement
A description of the right of the party alleging infringement to assert each patent identified and patent claim identified
A description of the principal business of the party alleging infringement
A list of each complaint filed, of which the party alleging infringement has knowledge, that asserts or asserted any of the patents identified
Whether each patent is subject to any licensing term or pricing commitments through any agency or standard-setting body
Even though the USPTO is funded solely by patent user fees, the sequester requires cuts of nearly $150 million in the agency’s funding. Without a legislative remedy, the shortfall effectively stops the agency from opening new, highly anticipated regional patent offices across the country, including one located in Silicon Valley. See USPTO Announces Satellite Office Locations. Not surprisingly, each of the sponsors of the bill represent districts in Northern California in the greater San Jose area, which explains their keen interest in the opening of the Silicon Valley satellite Patent Office location. Honda represents the 17th District, Lofgren represents the 19th District and Eshoo represents the 18th District.
The PATENT Jobs Act would enable USPTO to access the fee revenue sequestered in Fiscal Year 2013, which would otherwise sit unused and untouchable, and would add the USPTO to the list of agencies exempt from sequestration orders. This is not a new budgetary concept. Congress has recognized the uniqueness of user-fee-funded agencies in the past, exempting them from sequestration in the Statutory Pay-As-You-Go Act of 2010. The legislation follows a bipartisan letter sent earlier this week by members of the California delegation to the Commerce, Justice, and Science Appropriations Subcommittee asking for a remedy.
Senator Ron Wyden (D- OR) is a man with an idea for lowering health care costs. Unfortunately, it’s an idea which proved disastrous the last time it was forced on the National Institutes of Health. But that hasn’t dissuaded the Senator from trotting it out again. He believes if a company commercializes a new drug whose development is in some way relatedto a cooperative R&D agreement (CRADA) it had at one time with NIH, that the government can then insure “a reasonable relationship between the pricing of a licensed product, the public investment in that product, and the health and safety needs of the public.”
Sen. Wyden seems sincere in his concern with the ever escalating costs of medicine. Unfortunately, his proposed solution empowering the government bureaucracy to second guess industry drug pricing decisions simply because they worked with NIH would make things worse. We could see fewer new drugs at any price. We may see more research shifted to India and China as our public research institutions are viewed as unreliable partners. And we may throw away a key strategic advantage of the hard pressed U.S. life science industry—its ability to draw on the unparalleled resources and expertise in our federal laboratory and university research systems.
If this path is chosen, we have fair warning of the hazards. We’ve been down it before.
On December 18, 2012, the House of Representatives passed the AIA technical amendments bill by a vote of 308 to 89. Here is the link to the bill as passed.
* * * * * * * * * *
During the last six days of a session the Speaker of the House of Representatives is allowed to suspend Rules in order to expeditiously dispose of non-controversial matters quickly before the end of a session. See Suspension of the Rules.
This year there will be several intellectual property bills that will move under suspension of House Rules on Tuesday afternoon, December 18, 2012. One is a substitute version of HR 6621, the America Invents Act (AIA) technical corrections bill.
Section 1(m) has been amended to include a PTO study in lieu of the original pre-GATT provision.