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Goodlatte's Second Draft on Anti-Troll Legislation Drops, Adapts Provisions

Tuesday, September 24, 2013

Sept. 23 --Rep. Robert W. Goodlatte (R-Va.) released on Sept. 23 a second discussion draft proposing legislation to address abusive patent litigation.

The text presents significant differences from a May 23 first draft , incorporating proposals from other bills that have already been introduced and are now likely to be subsumed under Goodlatte's broader approach.

The new draft retains, however, a number of controversial provisions addressing issues unrelated to abuses by so-called “patent trolls.”

Rules on Patent Infringement Actions

The original draft contained a section titled “Incentivizing settlement in patent litigation” that would shift attorneys' fees and costs if a party offered a settlement, was rebuffed and later won. Goodlatte deleted that provision and replaced it with a section titled “Patent infringement actions,” with multiple parts:

• New 35 U.S.C. §281A would specify “Pleading requirements for patent infringement actions.” This section is a partial copy of similar proposals in the Patent Abuse Reduction Act (S. 1013) introduced May 22 by Sen. John Cornyn III (R-Texas) and H.R. 2639, the Patent Litigation and Innovation Act, sponsored by Reps. Hakeem S. Jeffries (D-N.Y.) and R. Blake Farenthold (R-Texas) and introduced on July 10.

• Goodlatte also adopted for the most part Cornyn's approach to awarding attorney's fees and costs, a court requirement except in “exceptional circumstances” or if “the position and conduct of the non-prevailing party were objectively reasonable and substantially justified.”

• A subsection on “Joinder of Interested Parties” allows alleged infringers to force joinder of patent assignees and parent companies, addressing the alleged patent troll abuse of shell subsidiaries bringing patent infringement lawsuits. The draft goes beyond S. 1013 and H.R. 2639 in defining the parties that may be joined.

• New 35 U.S.C. §299A on “Discovery in patent infringement action” suggests that district courts limit discovery until after claim construction.

 

More Related to Patent Troll Actions

The title of Section 4 of the draft remains “Transparency of Patent Ownership” but it is completely rewritten, and it does not mirror another bill on the same point, H.R. 2024, the End of Anonymous Patents Act, introduced by Rep. Theodore E. Deutch (D-Fla.) on May 16. The alleged abuse addressed here is that of patent trolls hiding the real party in interest to a patent or to a litigation award.

The first draft would have triggered a requirement to identify--by updating records held by the Patent and Trademark Office--the real party in interest to a patent after an entity sent 20 “demand letters” to alleged infringers. That provision is deleted and replaced by modifications to 35 U.S.C. §290, “Notice of patent suits.”

The new Section 290 would require updating the PTO's records as to the real party in interest upon filing a complaint in court and would generally require the information defendants would need to join parties, according to the draft's Section 4 joinder subsection noted above.

The draft's Section 5 is on a “Customer-suit exception,” addressing the abuse of a patent troll suing customers using an allegedly infringing product rather than the manufacturer that makes it. The proposed solution--allowing the customer to join the manufacturer and requiring the court to stay the action against the customer--is unchanged from the original draft, but Goodlatte modified the procedure in the second draft.

Finally, as to troll-related provisions, the draft would force the Judicial Conference of the United States to implement “rules and procedures” for such litigation, rather than add sections to the Patent Act requiring district courts to conduct litigation in a particular way.

Thus, the draft's Section 6, “Procedures and Practices to Implement and Recommendations to the Judicial Conference,” identifies broad patent litigation concepts rather than specific rules. For example, Goodlatte's draft identifies “core” and “additional” categories of discovery and distinguishes e-discovery, as does S. 1013. But while Cornyn's bill left it to the parties to negotiate the “discovery sequence and scope,” the Goodlatte draft would put the burden on the Judicial Conference to set out the rules and procedures to meet related requirements.

Beyond Patent Trolls

Goodlatte's first departure from a focus on patent trolls comes at the end of Section 6, in a subsection titled “Protection of Intellectual-property Licenses in Bankruptcy.” The issue arose in the context of recent litigation on Section 365(n) of the U.S. Bankruptcy Code, 11 U.S.C. §365(n).

Licensees do not want to lose rights to use patented technology if a patent licensor files for bankruptcy. A 1985 case rejected a licensee's attempt to retain its rights. Lubrizol Enterprises Inc. v. Richmond Metal Finishers Inc., 756 F.2d 1043, 226 U.S.P.Q. 961 (4th Cir. 1985).

Congress subsequently modified Section 365(n) to state that “the trustee, subject to the court's approval, may assume or reject any executory contract or unexpired lease of the debtor.” But issues remained in light of a German bankruptcy court's action in In re Qimonda A.G., No. 09-14766 (SSM) (Bankr. E.D. Va. Oct. 28, 2011).

Goodlatte's proposed bill would make clear that “section 365(n) applies to intellectual property of which the debtor is a licensor or which the debtor has transferred.”

The draft also puts more burdens on the PTO in Sections 7 and 8, deleting nothing from the May 23 draft even though the PTO is now subject to sequestration

• require the PTO to “develop educational resources for small businesses to address concerns arising from patent infringement;

• expand the agency's “ombudsman” role to deal with abusive litigation practices as well;

• modify its website to provide information on patent cases in federal court;

• conduct a study related to “patent transactions occurring on the secondary market”;

• conduct a study on patents owned by the U.S. government; and

• assist the Government Accountability Office in its conduct of “a study on patent examination at the Office and the technologies available to improve examination and improve patent quality.”

 

Repeal of Section 145

Finally, Section 9 of the discussion draft, “Improvements and Technical Corrections to the Leahy-Smith America Invents Act,” went even farther beyond patent troll issues, with a varied selection of issues mostly cut out of the bill that passed as the America Invents Act in 2011. Goodlatte made some modifications to the text but otherwise did not delete any provision suggested in the first draft's Section 9.

The proposed legislation would repeal 35 U.S.C. §145, which allows patent applicants who face rejections by the PTO to file a civil action in federal district court, rather than appeal to the U.S. Court of Appeals for the Federal Circuit, under 35 U.S.C. §141.

The controversy on this topic arose in light of the U.S. Supreme Court's decision in Kappos v. Hyatt, 132 S. Ct. 1690, 2012 BL 95452, 102 U.S.P.Q.2d 1337 (2012). The PTO was trying to limit the evidence that the applicant could present in court, but the high court held that Section 145 allows evidence subject only to usual evidence and civil procedure rules.

With the civil action option erased, all appeals would go to the Federal Circuit, which reviews only those facts in the record established during patent prosecution at the PTO. The intent, therefore, is to encourage full disclosure at the PTO, though arguably Goodlatte could have addressed that by limiting Section 145 rather than eliminating it.

Amending the AIA Post-Grant Challenges

Section 9(b) of Goodlatte's draft was an expected AIA amendment. Since the AIA's enactment, several stakeholders have argued that there was a “scrivener's error” in the provision on the estoppel effect of post-grant review, in 35 U.S.C. §325(e)(2).

Both of the AIA's sponsors--Sen. Patrick J. Leahy (D-Vt.) and Rep. Lamar S. Smith (R-Texas)--pledged to correct the error, but they have been challenged by other stakeholders who say the language reflected the patent reform compromise.

Specifically, under the provision, a PGR challenger “may not assert either in a civil action … that the [patent] claim is invalid on any ground that the petitioner raised or reasonably could have raised during that post-grant review.”

Goodlatte's draft would strike “or reasonably could have been raised.” The effect would be to give an accused infringer more options in court to challenge patent validity.

A second amendment to both PGR and the AIA-enabled inter partes review related to how the PTO is supposed to construe claim terms: “as such claim has been or would be in a civil action to invalidate a patent under section 282, including construing each claim of the patent in accordance with the ordinary and customary meaning of such claim as understood by one of ordinary skill in the art, the prosecution history pertaining to the patent, and prior judicial determinations and stipulations relating to the patent.”

A third AIA-related amendment was a “Codification of the Double-patenting Doctrine for First-inventor-to-file Patents.” The AIA moved the United States to a FITF system for patent applications submitted on or after May 16, 2013, changing the definition of prior art under 35 U.S.C. §102 accordingly.

Goodlatte's draft clarified prior art determinations, according to a May 23 “talking points” memo, “to ensure that patentees do not obtain multiple patents for what is basically the same invention and then sell those patents to different parties, requiring others to obtain multiple licenses from multiple parties to use the invention.”

Covered Business Method Issues

Another amendment addressed the AIA's post-grant opposition to a “covered business method,” which is the subject of yet another bill that arguably addresses patent troll behavior and has already been introduced in Congress.

Sen. Charles E. Schumer (D-N.Y.) introduced S. 866 ostensibly aimed at trolls, but really addressing the kinds of patents--“the practice, administration, or management of an enterprise, product, or service”--trolls tend to favor.

The Schumer bill would make permanent the option to bring a CBM challenge, also with an expanded business method definition.

Unlike the first bill, Goodlatte now agrees with Schumer to make the provision permanent--it was set to expire in 2019--but he does not go as far as Schumer in expanding the definition.

The CBM petition that has gone farthest in the new Patent Trial and Appeal Board is SAP America Inc. v. Versata Development Group Inc., No. CBM2012-00001. Early in the case, though, on Jan. 9, the PTAB released Paper 36, which analyzed in detail Versata's arguments that its patent claims were not directed to “covered business methods” per the definitions provided in Section 18(d)(1) of the AIA.

Goodlatte's original draft bill simply stated that the Paper 36 analysis was correct. But, according to the PTAB paper, “the plain language of § 18(d)(1) is consistent with the legislative history and Senator Schumer's commentary” during the patent reform debate. And Schumer's commentary at that time was contested as being too expansive.

In the second draft, Goodlatte only went so far as to clarify that “inventions in the natural sciences or computer operations” are not subject to CBM challenges, but it remains unclear exactly how far Paper 36 strays from Schumer's preferred definition.

 

To contact the reporter on this story: Tony Dutra in Washington at adutra@bna.com

To contact the editor responsible for this story: Naresh Sritharan at nsritharan@bna.com


Text is available at http://pub.bna.com/ptcj/GoodlatteDD13Sep6.pdf.

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