Patent Reform Advances on Capitol Hill

By Gene Quinn
April 30, 2015

capitol-335-223Yesterday the House Committee on Energy and Commerce voted to approve the Targeting Rogue and Opaque Letters (TROL) 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.

That the TROL Act is the first bill to get voted out of Committee has to be at least a little surprising to those who have followed the genesis of patent reform in the House over the past several years. Last year the Innovation Act passed the entire House by more than a 3 to 1 margin. A verbatim version of the Innovation Act was introduced in the House early in the 114th Congress by Congressman Bob Goodlatte (R-VA), who is Chairman of the House Judiciary Committee.

Shortly after the November 2014 elections, Republican leaders in the House and Senate Judiciary Committees announced that patent reform was going to be a top priority and would be taken up very early in the new Congress. This lead many to assume that the Innovation Act would be resurrected, which it was, but also that it would move through the House in rapid fashion, which it has not. It was also believed that the Senate would likely move quickly on similar legislation, perhaps as a way to demonstrate that the new Republican majority could act on bipartisan legislation. Whatever the ultimate outcome, there is no doubt that opponents of patent reform have at the very least slowed things considerably.

It is now believed that Congressman Goodlatte may have a hearing or markup with respect to the Innovation Act at some point during the week of May 11th. Rumors of an impending markup have leaked previously, and have proven incorrect. The House is also not in session next week, which means that those who oppose patent reform will have further opportunity to get to Members of the House while they are back home in their districts. With members returning to their districts activist inventors and innovative companies who need strong patents will likely press hard in what could be a final push against the Innovation Act. Indeed, some are now starting to suspect that the Innovation Act is becoming too controversial. There are even whispers that the Innovation Act may not be able to make it out of the House Judiciary Committee. Obviously, there has been a strong headwind against the bill or it would have been voted out well before this. Still, it would be shocking if the Innovation Act is unable to make it out of Committee.

Meanwhile, the Protecting American Talent and Entrepreneurship Act (the PATENT Act) was introduced into the Senate. This bill, which has nothing to do with either talent or entrepreneurship, is the Senate companion to the Innovation Act. Still, you have to admire the creativity with respect to naming the bill. Who could possibly be against protecting America, talent and/or entrepreneurship?

[Patent-Reform]

 

Key Provisions of the PATENT Act

Regardless of the forced acronym, the key provisions of the PATENT Act are as follows.

Pleading Standards – The bill would establish higher pleading standards for patent infringement complaints, which the sponsors say would give defendants real notice of the claims against them. The Innovation Act would similarly heighten pleading standards, and so to would the STRONG Patents Act, although the later would only do away with Form 18 of the Federal Rules of Civil Procedure, which truly authorize patent litigation by ambush by allowing the most nebulous and non-informing complaints. Few argue that more information is needed in complaints, but there is a divergence of opinion on how much the patent owner should be required to plead at the outset in the initial complaint. The PATENT Act does make clear that litigants are not required to plead information they cannot obtain. If information is not accessible the patent owner can make general assertions and then later amend the complaint.

Customer Stays – The bill appears to have identical language to the controversial customer stay provision found in the Innovation Act. This could prove to be a huge stumbling block because the way the provisions are written even the largest tech companies could move to indefinitely stay patent litigation because they are themselves consumers (i.e., have purchased something from another manufacturing company). According to Brian Pomper, Executive Director of the Innovation Alliance, “Congress must ensure that any ‘customer stay’ provision does not effectively immunize from liability large companies that use infringing technology and leave patent owners without redress for infringement by foreign manufacturers outside the jurisdiction of U.S. courts.”

Limits on Discovery – The bill would require district courts to stay discovery while early dispositive motions (i.e., motions to dismiss and motions to transfer venue) are being considered. The bill also would direct the Judicial Conference to develop rules about how much a party should bear the cost of discovery beyond what is considered core for the case. The goal here is to limit harassing fishing expeditions, but limiting discovery is a thorny issue given that in many instances it may seem as if there is ongoing infringement but the evidence that would prove literal infringement of all elements of a claim is only in the possession of the alleged infringer.

Fee-Shifting – This is one area where there is a meaningful difference between the Senate version and House version. The Innovation Act creates a presumption that the loser should pay the attorneys fees of the prevailing party unless there is a finding that the losing party pursued only reasonable theories in the case. In the Senate fees would shift if the prevailing party proves and the district court rules that the losing party was not “objectively reasonable.” This is a subtle but important difference, although fee-shifting in any form can be expected to generate real opposition. Whether any form of legislative fee-shifting is even necessary given the Supreme Court’s rulings in Octane and Highmark in 2014 remains in doubt.

Ownership Transparency – The bill would also require the United States Patent and Trademark Office (USPTO) to keep information about patent ownership in order to provide a resource about patents being asserted in a demand letter or lawsuit. Those who watch the USPTO know that this was on the agenda for rulemaking, but after receiving enormous opposition from patent owners with large portfolios rulemaking plans were scuttled.

 

Predictions and Analysis

While there are differences around the edges between the PATENT Act in the Senate and the Innovation Act in the House, if you are in favor of the Innovation Act you are likely going to be in favor of the PATENT Act, although you probably would prefer stronger fee-shifting provisions of the Innovation Act. If, however, you are against the Innovation Act then you will likely be against the PATENT Act even though it takes a more even-handed approach (in at least some ways) than the Innovation Act.

For some time now I have been predicting either no patent reform this year or patent reform limited specifically, and narrowly, targeting fraudulent and misleading demand letters. At this point it seems that the Innovation Act will not become law. Even if it is voted out of the House the Senate seems disinclined to pursue the most controversial provisions, at least not in the same way. But if the Innovation Act is viewed as too radical it could make it difficult to get enough support for what will undoubtedly be viewed as a “lite-version” of the Innovation Act (i.e., the PATENT Act).

The TROL Act does narrowly target fraudulent and misleading demand letters. Although not a perfect companion bill, the STRONG Patents Act introduced by Senator Chris Coons (D-DE) in early March 2015 does similarly address demand letters. That would tend to suggest that if the TROL Act makes it out of the House there could be an audience in the Senate that would rally around a similar bill. But it is hard to discount what Senator John Cornyn (R-TX) said during a Senate Judiciary Committee hearing in March 2015: “I’m personally of the view that if we don’t have an adequate fee shifting mechanism in the legislation it isn’t worth doing.” Given that he is No. 2 in the Republican Leadership in the Senate his views have to be given disproportionate weight even though he does not Chair the Senate Judiciary Committee.

I continue to believe that the two most likely scenarios are either no patent reform or demand letter reform only. Given that the TROL Act has been voted out of Committee and moves on to the House, and also given how adamant Republicans were about tackling the issue of patent reform, I tend to believe there is a legitimate chance that we could see patent reform that is limited to providing the Federal Trade Commission and State Attorneys General with greater ability to go after fraudulent and misleading demand letters, which many have characterized as nothing more than extortion-like activity.

Of course, everyone in the industry believes that it is only a matter of time before Congress is going to act to do something to stop Kyle Bass and others from shorting stocks and filing Inter Partes Reviews at the Patent Trial and Appeal Board (PTAB). Lobbying is reportedly intense, and has been on the highest of levels with CEOs flying into town to personally register their complaints. But will a Kyle Bass fix become a stand-alone bill or could it get attached to something already pending? If the Kyle Bass fix gets attached to one of the pending patent reform bills all bets are off. The Pharmaceutical and Biotechnology industries could collectively put their considerable lobbying might behind anything that provides IPR relief.

 

[Program-Endnote]

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and President & CEO ofIPWatchdog, Inc.. Gene founded IPWatchdog.com in 1999. Gene is also a principal lecturer in the PLI Patent Bar Review Course and Of Counsel to the law firm of Berenato & White, LLC. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 7 Comments comments.

  1. Mark Summerfield April 30, 2015 7:03 am

    Are your Congresspeople unaware that Google is not case-sensitive? Maybe they are getting their Capitol confused with their capitals? One person’s “clever” is another person’s “confusing”.

    Your elected representatives – well-paid grown men and women, as I understand it – seem obsessed with devising snappy acronyms. Perhaps if they put the same effort into the content of these bills, you would have less to criticise!

  2. Night Writer April 30, 2015 10:16 am

    So not all bad news. Seems the problem is that everything has become so political. There are no rational voices that can be turned to for objective evaluations of effects the legislation. This round of reform sounds like it may be dispositive of which direction the patent system is going.

  3. Brian Smith April 30, 2015 12:17 pm

    PATENT Act is written for Big companies so they can steal from small companies.

    This bill requires a startup to “guarantee” that it has Funds to cover the cost of Goolge lawyers.

    The startup has to provide a certificate to the court that it has the FUNDS to cover Googles lawyer fees!

    It is bad for the small companies, Because a small company will never be able to enforce their patents!

    Before saying it is the best thing since sliced bread. Please go read the Bill.

    http://www.judiciary.senate.gov/imo/media/doc/PATENT%20Act.pdf

    Page 26 Line 7 -15
    ————————–

    Not later than 45 days after being served with an initial state-ment under subparagraph (A), a party alleging infringement shall file a certification that—

    (i) establishes and certifies to the court, under oath, that it will have sufficient funds available to satisfy any award of reasonable attorney fees under this section if an award is assessed;
    ————————————————

    That mean if you are a startup: you will never be able to go after Google, Microsoft, Facebook, or any other big company.

    This would be the biggest gift to the Big company Lobbyist from the congress. It is bipartisan because both republican and democrats what these big companies to write checks to them.

    Great day for crony capitalism !

  4. Night Writer April 30, 2015 1:11 pm

    I agree Brian Smith. I meant the bill is horrible but it sounds like there is some solid opposition that might keep it from passing.

    But, the Google bucks of lobbying are continuing to pour in.

  5. Randy Landreneau May 1, 2015 10:12 am

    I’m not an attorney, but as I read it, the “fee shifting” in the Senate’s Patent Act is presumptive – an inventor who tries to defend his patent and does not prevail is presumed guilty until proven innocent. Interested parties (investors) are still liable in the fee shifting (Joinder), just like the Innovation Act. These provisions alone will cause a typical independent inventor to be unable to defend a patent or attract investment in a patent-related startup.

    To add insult to injury, there is a carve-out for universities – they aren’t joined (see ‘‘INSTITUTIONS OF HIGHER EDUCATION EXCEPTION”). So, will a great ally in this fight now disappear (like they did when they got their trade secret carve-out in the AIA)?

    Will there be carve-outs for Bio and Pharma? Will the group that is the key to American innovation, the independent inventor, be slaughtered because they don’t have enough political influence?

    I have been in DC three of the last four weeks. I’ve talked to many offices, and I can tell you that we are definitely in danger. The forces arrayed against us are massive. If universities stop fighting, the danger rises significantly.

    The fight may end up depending on independent inventors getting active in large numbers, which is an almost impossible task. Many inventors are clueless about what is going on. Attorneys reading this need to get their independent inventor clients aware of this issue. Send them to me (www.IndependentInventorsofAmerica.org) – I’ll get them going. Do it anonymously if you must, just do it.

    If we don’t all start doing something about this, we could lose big.

    Randy Landreneau, Founder
    Independent Inventors of America

  6. TJM May 1, 2015 10:56 am

    “Customer Stays – The bill appears to have identical language to the controversial customer stay provision found in the Innovation Act. This could prove to be a huge stumbling block because the way the provisions are written even the largest tech companies could move to indefinitely stay patent litigation because they are themselves consumers (i.e., have purchased something from another manufacturing company).”

    I don’t agree with this concern. In order for the large tech company to request a stay, they would need to prove that whichever vendor sold them the component in question was also committing infringement. That is, say a large company buys 4 different components from four different vendors, and the company then puts the components together in a manner to constitutes infringement. None of the vendors in this situation have committed infringement, since the individual components do not infringe. Therefore, the large company would not be able to stay the lawsuit. Am I missing something?

  7. angry dude May 1, 2015 12:51 pm

    Randy,

    This has been going on for many years now (starting with Ebay or even before that):
    a steady relentless push by big tech CEOs to kill US patent system.
    This year or next year – who cares ?
    As far as I’m concerned patent system is already dead