On Thursday, March 27, 2014, the Senate Judiciary Committee held another meeting on patent reform legislation.  A markup of Senator Leahy’s bill (S. 1720, “Patent Transparency and Improvements Act”) may happen as early as this week.  During Thursday’s meeting Senator Leahy, who Chairs the Committee, indicated a willingness to incorporate in his bill other provisions from Senator Cornyn’s and Senator Hatch’s bills.

Momentum is clearly building for more patent legislation, but the myriad bills and provisions make it difficult even for folks close to Capitol Hill to keep track of them all.  To fill that need, today’s post is part of a series of articles based on the white paper, Patent Reform 2014.  IPWatchdog.com has already published articles on Joinder of Interested Parties and Loser-Pays Fee-Shifting. Today’s focus is on the proposed FTC enforcement provisions found in several pending bills.

In September 2013, Senator Klobuchar’s staff circulated draft language that would require the FTC to initiate a rulemaking proceeding, in accordance with 5 U.S.C. §553, to prohibit the assertion or enforcement of patents in a manner that is an unfair method of competition, or unfair or deceptive act or practice, under section 5 of the Federal Trade Commission Act (15 U.S.C. 45).

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?

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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.

Art Gardner, a Republican patent attorney seeking election to the U.S. Senate in Georgia, has recently proposed a reform to the nation’s patent laws to address the artificially high price of prescription medicines in the U.S.

Specifically, Gardner proposes to make it patent misuse to charge much more in the United States for the same drug than in the rest of the G7. According to Gardner, “it would be presumptive patent misuse to charge more than 125% of the average price in the other 6 countries in the G7 and it would be conclusive patent misuse to charge more than 150%.” This innovative change would be a simple change in the U.S. patent laws and would be very impactful. Said Gardner, “If the patent is being ‘misused’ in this way, the patent would be invalidated and/or unenforceable, opening up competition for generics. So the owner of a drug patent would have a strong interest in avoiding losing the protection of the patent and would hold down U.S. prices and/or drive up prices around the world.  Either way, we (the U.S. consumers) would over time end up paying the real price of patented medicines, not the exaggerated price which includes a subsidy for foreigner consumers.”

EDITORIAL NOTE: The following article has been posted as an online petition you may sign by visiting IndependentInventorsofAmerica.org. On Friday the United States Senate held additional hearings and seem poised to act relatively quickly on the Senate version of patent reform. For information about how to directly contact your U.S. Senators please see Senators of the 113th Congress.

We represent independent inventors and small patent-based businesses across the country and we are against any patent legislation that includes provisions of the Innovation Act (H.R. 3309) and the many variations and additions under consideration in the Senate. This legislation will levy grave harm upon independent inventors and small patent-based businesses, as well as the investors we need to help commercialize new technologies and to protect our inventions.

The American patent system is a trade between an inventor and society. An inventor discloses an invention for all to see and build upon, and the government grants and protects for the inventor an exclusive right to the invention for a short period. The American patent system was intended to enable anyone, regardless of economic status, race or gender, to profit from the invention of something new and valuable. This system has worked as intended for over 200 years, fueling the creation of the greatest economy in the world.

WASHINGTON – As the Senate debate on patents and their role in innovation and job creation continues in 2014, the Innovation Alliance today renewed its call for a thoughtful, inclusive legislative process that takes into account the impacts of any changes to the current system on all stakeholders and successfully targets abusive behavior without harming innovators, job creators and the economy as a whole.

“The Innovation Alliance supports efforts by Congress to address behavior abusive of the patent system, but we must do so in a way that safeguards the strength of that system, which is at the very heart of our nation’s economic power. We continue to have concerns with many of the proposals under consideration in the Senate and firmly believe that we need to take the time to get this right. That’s why we stand ready to work with leaders in the Senate to develop a consensus product that will be a force for progress for the full range of American innovation,” said Brian Pomper, Executive Director of the Innovation Alliance.

Last month, following a Senate Judiciary Committee hearing on patent issues, a wide spectrum of stakeholders – from inventors, judges, and universities to companies and organizations representing America’s innovators – voiced their concerns with the proposals being considered by the Senate. While measures to target abusive behavior would be worthwhile, they should not be adopted at the expense of a patent system that has created the greatest economy in the world.

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.

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.