Patent Reform Primer

WHAT’S UNDER THE BRIDGE? A PATENT REFORM PRIMER

By Ann E. Motl, Volume 99 Online Managing Editor

Just a few years after passing the most sweeping changes in patent law since 1952, Congress is considering patent reform again.[1] Whereas the America Invents Act of 2011 (AIA) focused heavily on patent examination, the proposed reform would alter patent litigation.[2] Members of both the Senate and House agree that new legislation is necessary to combat “abusive litigation,” but they disagree on the scope and cause of abusive litigation.[3] These differences are evident between the House bill (the Innovation Act) and Senate bill (the STRONG Act),[4] but the newly Republican-controlled Congress makes patent reform likely this term. [5] Practitioners should thus be aware of the reforms under consideration.

Patent law seeks to balance the rights and incentives given to technological innovators with the rights of the public. In general, a patent gives its owner a limited-term monopoly to capitalize on its invention and invest in research and development by licensing its patent rights to others, and by suing others for infringing these rights where use occurs without a license.[6] Recently, plaintiff patent owners, sometimes termed “patent trolls,” have come under scrutiny for suing others for infringing patents covering inventions that the plaintiffs do not actually practice.[7] Such plaintiffs could include firms that buy up patents and send thousands of vague letters accusing companies and individual consumers of infringing a patent that may or may not cover the recipient’s actions.[8] On the other hand, plaintiffs that do not practice their inventions could also include universities or individual inventors who do not have the finances or desire to commercialize their invention and thus license or assign their patent rights to others.[9] The bills in Congress seek to address abusive litigation tactics while protecting the legitimate rights of patent owners. Consider how each bill handles these issues.

The Innovation Act in the House

Sponsors of the Innovation Act in the House promote it as the solution to abusive litigation.[10] This bill is substantially the same as its predecessor, which passed in the House last term, but whose counterpart died in the Senate.[11] According to Rep. Bob Goodlatte who introduced the bill, the Innovation Act includes several measures for targeting the “exponential increase in the use of weak or poorly granted patents by patent trolls.”[12] The bill, for instance, would heighten pleading standards in patent infringement suits.[13] Currently, the model complaint for patent infringement, Form 18 of the Federal Rules of Civil Procedure, does not require that plaintiffs state which of the patent’s claims the defendant allegedly infringed.[14] The Innovation Act would require the party alleging infringement to state each patent allegedly infringed, each claim allegedly infringed, the name or model number of each accused instrumentality, a clear statement of how the accused instrumentality infringes the claims, a description of the principal business of the plaintiff, other complaints that assert the same patent, and more.[15]

The most controversial section of the Innovation Act would require fee shifting, granting “reasonable fees and other expenses” to the prevailing party in patent litigation, except where the nonprevailing party was “reasonably justified in law and fact” or where special circumstances would make the award unjust.[16] Many have decried this proposed departure from the long-established American rule.[17] Former Patent and Trademark Office (PTO) Director David Kappos publicly stated his opposition, noting that the Supreme Court decided two cases last term which considerably cleared the path for courts to grant fees in exceptional cases.[18] He also noted the confusion that will likely arise from identifying the “prevailing party” and defining “reasonable fees.”[19] Even one of the bill’s cosponsors has expressed concern over the fee shifting provision.[20]

Other substantial changes affect transparency and fairness between parties. The bill would limit discovery “so that Patent Trolls cannot use the high costs of discovery to extort money from small businesses and entrepreneurs.”[21] Specifically, the bill would limit discovery to claim construction issues until the court issues its construction order[22] and command the Judicial Conference of the United States to develop discovery rules that cure any disparities between parties.[23] Another section of the bill requires plaintiffs to disclose owners, assignees, or other parties with a financial interest in the patent to the court, PTO, and adverse parties.[24] The Innovation Act also includes a customer-suit exception, which generally requires courts to stay litigation against customers while suits against the accused manufacturers proceed.[25] The aforementioned provisions would all make it more difficult for patent trolls and legitimate patent owners to enforce their rights.

Although many have called the Innovation Act anti-patent, the bill includes a technical correction to the AIA that is actually favorable to patent owners. Specifically, it would change the claim construction standard in post-grant reviews and inter partes reviews from “broadest reasonable interpretation” to the narrower standard that district courts use.[26]The AIA created post-grant review and inter partes review as administrative patent trials in which anyone other than the patent owner can challenge the validity of a patent.[27] Congress created these trials to allow a speedy process for potential defendants to challenge patents perceived as weak without participating in exhaustive district court litigation that determines both infringement and validity.[28] Since their creation, these procedures have achieved immense popularity, with the PTO invalidating claims in seventy-seven percent of cases that proceed to final disposition.[29] This invalidation rate has motivated calls for change to many factors of these trials which disadvantage patent owners.[30]

As stated, the Innovation Act addresses one of these factors—the claim construction standard. Under the AIA, administrative judges in post-grant review and inter partes review trials give claims their “broadest reasonable interpretation,” making invalidation the more likely result.[31] Broad interpretations cover more prior art, thus facilitating invalidation for lack of novelty or nonobviousness.[32] District courts, by contrast, apply a narrower claim construction standard, making invalidation—but also infringement—more difficult to achieve.[33] The differing claim construction standards remain divisive in the patent community. The PTO originally applied the “broadest reasonable interpretation” to AIA trials because examiners use this standard when examining patents, and a broader interpretation during examination ensures that patent owners cannot broaden their claims after issuance.[34] AIA trials, however, are unlike examination, and even though claim amendments are technically allowed in inter partes review, the PTO has approved amendments in only two cases.[35] The Federal Circuit recently heard its first appeal from an inter partes review, and the panel approved the use of “broadest reasonable interpretation” in a 2-1 decision.[36] This issue may be ripe for an en banc hearing at the Federal Circuit. Passage of the Innovation Act would moot the issue, however.

The other patent reform bill currently pending in Congress in the Senate, the STRONG Patents Act, would also change the claim construction in AIA trials from “broadest reasonable interpretation” to the narrower district court standard.[37] Indeed, this bill focuses on changing the procedures of AIA trials.[38] For instance, the administrative judges who decided whether to institute an AIA trial—approximately seventy-five percent of which are instituted[39]—would be ineligible to participate in the actual review.[40] Additionally, this bill would change patent challengers’ burden of proof with regards to invalidity from preponderance of the evidence to clear and convincing evidence, the standard used in district court.[41] Further, challengers could only petition for AIA trials if already accused of patent infringement on that particular patent.[42] These changes would all serve to make invalidation in administrative trials before the PTO far more difficult to achieve.

Although one attorney has called the STRONG Patents Act “manna from heaven for patent trolls,” the bill also includes provisions targeting abusive litigation in federal court.[43] Like the Innovation Act, this bill would eliminate Form 18 and impose heightened pleading standards in patent infringement suits.[44] The STRONG Patents Act also targets demand letters sent by patent owners accusing their recipients of infringement. Specifically, this bill would allow the Federal Trade Commission to assess up to $5 million against those who send accusatory demand letters in “bad faith.”[45]

The Bridge

Despite similarities, such as the heightened pleading and demand letter provisions, the STRONG Patents Act certainly proves a counterpoint to the Innovation Act. As STRONG Patents Act sponsor Sen. Dick Durbin stated, “It’s time to move past the false premise that the only way to deter ‘patent troll’ abuses is to enact sweeping reforms that weaken patent protections for everyone.”[46] One’s preference for either bill stems from what one sees under the bridge. Is it a patent troll using its bridge to block rightful uses of technology? Or is it an inventor looking for constitutionally-granted gold under the bridge? Though many believe the Innovation Act is a more likely candidate than the STRONG Patents Act,[47] the differences between the bills will force Congress and the public to reconcile their views on the patent strength necessary to encourage innovation.