At the end of a three-hour long hearing held by the U.S. Senate Committee on the Judiciary yesterday, S.1137, the proposed legislation known as the PATENT Act, was approved to move to the floor of the United States Senate by a 16-4 vote of the Senate committee. Proponents of the bill lauded the bipartisan support which brought the bill committee approval. Interestingly, a small but vocal bipartisan minority has developed, a couple of whom have pledged to continue debate aspects of this legislation which they fear will pose a threat to American innovation.
We reported yesterday that the PATENT Act would likely receive the approval it needed to leave committee and wind up on the floor of the Senate for debate. The protracted discussions are somewhat ironic given the opening statements by Sen. Chuck Grassley (R-IA) who urged his colleagues on the committee to cooperate by keeping their comments concise and moving to a vote on the bill in short order.
The role of patent trolls and abusive demand letter behaviors were foremost on the minds of every judiciary committee member who offered comments. Sen. Dianne Feinstein (D-CA) took particular issue to the fact that demand letters specify an amount of money to settle a dispute, equating it to extortion that borders on criminal blackmail because of the implied threat of legal issues. Sen. Chuck Schumer (D-NY) proffered some very harsh words on the economic impact of patent trolls: “We cannot keep these tapeworms on the body politic.”
A manager’s amendment prepared by the six co-sponsors of the proposed patent reform du jour was unanimously approved at the start of the hearing. The amendment addresses a number issues which have been turned up by the recent debates on Capitol Hill on the topic of patent reform. Fee shifting provisions that would be enacted by the PATENT Act were amended so that economic hardship could be a special circumstance considered by a judge when deciding an award for attorney’s fees. The amendment also seeks to address some of the alleged abuses of the inter partes review (IPR) and post-grant review (PGR) proceedings created by the 2011 America Invents Act. Notably, the amendment requires the IPR and PGR decisions of the Patent Trial and Appeals Board to be made publicly available and searchable online. It also directs PTAB to apply the Phillips district court claim construction standard during review proceedings.
The first member of the judiciary committee to raise any serious opposition to committee approval of the PATENT Act was Sen. Dick Durbin (D-IL). He pointed out that, prior to the 2011 passage of the AIA, the last major reforms to the patent system were enacted in 1952. “We’ve returned to this issue of patent reform very quickly after first effort,” he said. Durbin pointed out a lot of the hyperbole involved in this debate, including Schumer’s characterization of patent trolls as tapeworms, which became a rhetorical target for a couple of Senators opposing the bill. “If [patent trolls] are really the target group, why does this current bill have the oppositions of the inventors, investors, universities and small businesses,” Durbin said. In no uncertain terms, Durbin stated to the rest of the judiciary committee that the PATENT Act would end up hurting honest innovators all in the name of ending the problem of patent trolls.
Sen. Durbin’s words did not fall on deaf ears. Sen. Ted Cruz (R-TX) indicated that he found Durbin’s comments to be quite persuasive. “We have in our economy a particular obligation to protect innovators, the little guy inventing the next great invention that will change the world,” Cruz said. He also said that he would vote against the legislation at that day’s committee hearing but may be able to support it on the Senate floor depending upon any amendments made to the bill’s language.
Sen. Sheldon Whitehouse (D-RI) added his voice to the few who urged caution at the passage of the PATENT Act and the one who was able to most explicitly stated an issue regarding all of the recent patent reform bills being proposed and debated in Congress. “Over the years, I’ve come to recognize a certain pattern,” Whitehouse said. “We start with a really important issue like getting rid of abusive demand letters… but as soon as we address that problem, really big interests start to come to the door and say, ‘By the way, as long as you’re looking at patents, here’s what we want.’” Whitehouse would go on to offer the Benjamin Franklin proverb about the importance of doubting a little bit in our own infallibility, despite the bipartisan support behind the bill. Sen. Richard Blumenthal (D-CT) also observed that Congress should be very careful before placing hurdles in the way of litigants pursuing a legitimate claim of patent infringement.
Another major dissenting voice calling out for caution in approving the PATENT Act was Sen. David Vitter (R-LA). Despite the fact that major Republican figures like Sen. John Cornyn (R-TX) and Sen. Orrin Hatch (R-UT) are sponsors of the PATENT Act, Vitter felt that the legislation was not appropriate from a conservative’s standpoint. Not only do aspects of the PATENT Act weaken patents in a way that makes it difficult to enforce a property right that has been recognized by our country since the passage of the U.S. Constitution but Vitter also found the comprehensive nature of the bill to be less desirable than smaller, targeted approaches. He proposed that an amendment should be made to the bill that would create a small business exemption so that Congress could see how provisions of the PATENT Act would play out between larger corporate entities first.
Perhaps the most valiant defense of a patent holder’s right to legitimately enforce their intellectual properties against an infringing party was mounted by Sen. Chris Coons (D-DE). He cited letters from numerous stakeholder groups such as the Medical Device Manufacturers Association, the National Venture Capital Association and the Alliance of U.S. Startups and Inventors for Jobs, all of which opposed passage of the PATENT Act as currently worded. “My core concern is that much of the negotiations have happened between interests that are dominant in many sectors,” Coons said. “Every inventor in the eyes of this bill who needs to defend their legitimate invention is also considered a troll.” Coons also spoke to the difficulties that this bill would pose in helping startups and small inventors obtain funding from venture capitalists who are worried that weakened patent rights would pose a threat to their investment activities.
Two amendments proposed by judiciary committee members were approved at the hearing. Sen. Feinstein introduced a measure that prohibits the inclusion of specific monetary amounts within a demand letter. Any patent holder who has successfully negotiated for licensing rights on a case of legitimate patent infringement would likely be able to tell you how problematic this measure is when negotiating in good faith. An Amendment submitted by Sen. Cornyn alters the definition of micro entities under U.S. patent code.
Sen. Durbin submitted seven amendments to the PATENT Act. Several of his amendments related to attorneys fees. While the relative merits of legislatively enacting a fee-shifting provision can be debated, the Durbin Amendment would have made the fee-shifting provision much more even handed, requiring the district courts to consider the conduct of both the non-prevailing and the prevailing party. The proposed amendment read in total: “In determining the amount of attorney fees that is reasonable to award to the prevailing party, the court shall take into consideration the position and conduct of both the non-prevailing party and the prevailing party.”
A separate Durbin Amendment would have directed the district courts to assess the reasonableness of the positions of the non-prevailing party at the time those positions were taken, rather than allowing for a hindsight inquiry. The Amendment read: ‘‘It is further the sense of Congress that the reasonableness of the position or conduct of the non-prevailing party should be assessed based on information that was known or should have been known by the non-prevailing party at the time the position was taken or the conduct occurred.’’
Another Durbin Amendment would have explained that Congress does not want district courts to award attorneys fees based on conduct that “not material to the consideration or outcome of the litigation.” The proposed Amendment read: ‘‘In keeping with the intent to strike a balance and to avoid vexatious or frivolous motions for attorney fees by prevailing parties, it is further the sense of Congress that attorney fees should not be awarded based on allegedly unreasonable litigation positions or actions of non-prevailing parties that are de minimis or are not material to the consideration or outcome of the litigation.”
Sen. Vitter also submitted three amendments. His first proposed Amendment would hold those who file fraudulent or harassing IPRs liable to patent owners. This IPR amendment, as well as several others, were not voted on by the Committee. Vitter’s second proposed Amendment was submitted on his behalf and with the support of Senators Coons and Durbin. Vitter’s second proposed Amendment would exempt Universities, independent inventors and non-profit organizations from needing to meet the heightened pleading requirements of the PATENT Act in order to bring a patent infringement action.
Sen. Tillis submitted an amendment that would extend the sunset date on Covered Business Method (CBM) review. Currently, as a result of the AIA, CBM will sunset 8 years after it became effective, which would be September 16, 2020. Under the Tillis Amendment CBM would not sunset for an additional 8 years, or until September 16, 2028.
While the Tillis Amendment relating to CBM will likely be viewed very skeptically by many within the industry, the biotechnology and pharmaceutical industries were undoubtedly extremely pleased with his second proposed Amendment, which would make it impossible for an IPR to be filed against pharmaceutical patents or patents that cover biological products that have been approved by the FDA. The proposed Amendment read: “An inter partes review shall not be instituted or maintained for a patent that claims a drug or biological product, method of use, or method of manufacturing a drug or biological product approved under section 505 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355) or section 351 of the Public Health Service Act (42 U.S.C. 262), including any patent listed in the Food and Drug Administration publication Approved Drug Products with Therapeutic Equivalence Evaluations or identified by the patent owner in a certification in its response to the petition.’’
Sen. Coons submitted 12 amendments to the PATENT Act, which largely seem to be attempts to amend the PATENT Act to incorporate the language of the STRONG Patents Act, which he submitted along with Senators Durbin and Hirono.
One of Coons’ 12 amendments was particularly important because would raise the burden to clear and convincing evidence to invalidate a patent claim in inter partes review (IPR). This would change the standard to match the burden required to invalidate patent claims in federal district court. Another of Coon’s proposed amendments would have allowed the United States Patent and Trademark Office to keep the fees it collects and use those funds for ongoing business operations. While the America Invents Act (AIA) did create a revolving fund for the USPTO to tap into, the USPTO remains under the control of Congressional Appropriations. This and another similar attempt in the House of Representatives would take the USPTO out from under Congressional Appropriations and allow the agency to use 100% of the fees collected. This would have put an end to the controversial practice of fee diversion.
The most vocal and consistent opposition to the string of amendments proposed by Sen. Coons came from Sen. Cornyn, who urged the entire committee to vote against each Coons measure. The crux of the debate between those two statesmen was Coons efforts to create targeted reforms while Cornyn insisted that any amendments protecting certain groups undermined the delicate balance wrought by the negotiations involving this legislation. Both of these gentlemen presumed to be speaking on behalf of the rights of small inventors.
If you are interested in patent reform please consider joining me for a live program in Washington, DC, on Friday, June 12, 2015, that will take a look at the major patent reform bills pending in Congress. The program will take place at the Washington, DC, offices of DrinkerBiddle. Bob Stoll, former Commissioner for Patents and current DrinkerBiddle partner will co-host the event with me. Former Federal Circuit Chief Judge Paul Michel will deliver a keynote speech, and will also participate on the first panel, which I will moderate. Other participants will include Brad Olson (Barnes Thornburg), Michael Remington (Drinker Biddle), Dean John Whealan (George Washington University Law School), Vince Garlock (AIPLA), Hans Sauer (Biotechnology Industry Organization) and Adam Mossoff (George Mason University School of Law). Stoll will moderate the second panel and provide opening remarks. The event is free and Virginia CLE is being requested. To Register CLICK HERE.