By Tony Dutra
Dec. 5 --The House approved the Innovation Act (H.R. 3309) by a vote of 325-91 on Dec. 5.
The legislation is aimed at so-called patent trolls but essentially is focused on specific abusive behavior--by any patent owner--in patent infringement litigation. The bill's main provisions would create a “loser pays” scheme in most cases, require greater transparency in patent ownership, enhance the requirements for pleading patent infringement and dictate litigation discovery timing and content.
The bill approved was only slightly modified from the version reported out of the Judiciary Committee on Nov. 30 (226 PTD, 11/22/13). Amendments seeking to delete the main provisions were defeated or had been barred Dec. 2 by the Rules Committee's decisions on which amendments to move forward.
The roughly equivalent bill in the Senate, the Patent Transparency and Improvements Act (S. 1720) (224 PTD, 11/20/13)is stripped down considerably from the House version, and is proceeding at a slower pace.
An amendment in the form of a substitute, the Deceptive Patent Practices Reduction Act proposed by Reps. John Conyers Jr. (D-Mich.) and Melvin L. Watt (D-N.C.), was the last amendment considered. It would have more closely mapped to the Senate version, but it was defeated by a vote of 258-157.
The Judiciary Committee published on Dec. 2 its report on the bill, including:
• “dissenting views” by Conyers, Watt, and Reps. Robert C. ''Bobby'' Scott (D-Va.), Sheila Jackson Lee (D-Texas) and Henry C. ''Hank'' Johnson Jr. (D-Ga.) opposed to the bill because “it has been considered pursuant to a rushed and unfair process,” and
• “additional views”--by Reps. Stephen I. Cohen (D-Tenn.), Luis V. Gutierrez (D-Ill.), Cedric L. Richmond (D-La.) and Jose A. “Joe” Garcia Jr. (D-Fla.)--expressing concerns that certain provisions of the bill “would impact the independence of the federal judiciary, impose limits on pleadings and discovery, and place intrusive mandates on the court system.”
All those legislators are Democrats, and partisan voting predominated--except for the final vote--in the Judiciary Committee markup session. However, support from the White House appeared to counter the concern that--contrary to recent history--intellectual property legislation might succumb to the partisan divide in Congress.
The Obama administration announced on June 4 a set of executive actions aimed at curbing litigation abuses. The announcement also called on Congress to pass seven related legislative measures.
In a Dec. 3 statement, the White House said, “The Administration appreciates the inclusion of many of these measures in H.R. 3309.” The statement said that the President “supports the bill's provisions to require disclosures in patent infringement cases, streamline actions involving end-users, and provide educational resources for small businesses.”
The administration tempered its support, though, particularly with respect to the litigation case management provisions.
“The Administration supports the effort to discourage abusive court filings, but hopes that, as final legislation is crafted, appropriate recognition is given to the importance of judicial discretion in balancing competing interests,” the statement said.
It became clear in opening statements on the floor of the House on Dec. 5 that H.R. 3309 had opponents and proponents in each party. For example, Republican Reps. Thomas H. Massie (R-Ky.) and Dana T. Rohrabacher (R-Calif.) spoke against the bill; Democrat Rep. Suzan K. DelBene (D-Wash.) spoke in support, while Rep. Jerrold L. Nadler (D-N.Y.) tepidly supported the bill but he “encourage[d] our friends in the Senate to do a better job” and later rose in support of the Conyers/Watt substitute.
Eight amendments were considered. Goodlatte's manager's amendment, which passed by a vote of 341-73, made minor changes:
• Discovery. Section 3(d) of the bill would add new 35 U.S.C. §299A on “Discovery in patent infringement action.” It suggests that district courts limit early discovery and delay more costly discovery “if the court determines that a ruling relating to the construction of terms used in a patent claim asserted in the complaint is required.” In the face of complaints that this goes too far in telling the judiciary how to handle cases, the amendment adding an exclusion saying, “The parties may voluntarily consent to be excluded, in whole or in part, from the limitation on discovery.”
• License rights in bankruptcy. Section 6(d) of H.R. 3309 would reverse a court's opinion that can cause a licensee to lose rights to use patented technology if the patent licensor files for bankruptcy. The Goodlatte amendment makes clarifying changes intended to ensure that foreign courts cannot terminate licenses.
• PTO small business efforts. The amendment made clarifications to Section 7, which calls for PTO outreach and education to small businesses focused on “concerns arising from patent infringement and abusive patent litigation practices.”
• Reports. Section 8 of the bill calls for multiple studies by and reports to Congress from the Patent and Trademark Office and the Government Accountability Office. The amendment extends the time required by the agencies to submit the reports, but also clarifies that Congress would give no additional funds to either agency to conduct the studies.
• Double patenting. Obviousness-type double-patenting is a judicially created standard. Section 9(d) would codify it for patent applications submitted on or after May 16, 2013, but the original text was criticized for failing to properly reflect the standard. The amendment makes changes intended to reflect PTO examination standards.
Three other amendments passed, two of which Goodlatte supported.
• Demand letters. The media's attention to patent troll abuse has typically focused on “demand letter” practices, whereby patent owners send vague or ambiguous letters by the thousands to small businesses, consumers and Internet application developers, asserting patent infringement and seeking royalty payments, threatening litigation otherwise. Section 3(f) of H.R. 3309 addresses that practice only in the sense that such a mailing would limit remedy options to the patent owner in any subsequent litigation.
Rep. Jared S. Polis (D-Colo.) presented an amendment to that section that would find a “nonconforming” demand letter unless the sender “identifies the ultimate parent entity of the claimant.” The members of the House agreed to the amendment on a voice vote.
• Impact report. Rep. Sheila Jackson Lee (D-Texas)'s amendment called on the PTO to study the effects of this bill on small businesses and report on it two years after enactment. After a voice vote approving the new study, it now is added to six other studies in Section 8 that must be performed by administrative agencies “using existing resources.”
• Section 145 Repeal. Section 9(a) of H.R. 3309 would have repealed 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 Federal Circuit, under 35 U.S.C. §141.
Rep. Dana T. Rohrabacher (R-Calif.)'s amendment deleted Section 9(a), thus leaving Section 145 intact. Goodlatte opposed this amendment, but it passed by a vote of 266-156.
Three other amendments would have made significant changes to two H.R. 3309 provisions. Goodlatte opposed them and they were rejected.
• Loser pays. Section 3(b) would shift attorneys' fees and costs to the prevailing party “unless the court finds that the position and conduct of the nonprevailing party or parties were reasonably justified in law and fact or that special circumstances (such as severe economic hardship to a named inventor) make an award unjust.” Watt's amendment would have further limited fee shifting by “[a]llowing a judge to consider dilatory or other abusive tactics by the prevailing party in determining whether to reduce or deny a fee award.” It was defeated by a vote of 266-156.
• Customer-suit exception. Section 5 of the bill addresses the abuse of a patent troll suing customers using an allegedly infringing product rather than suing the manufacturer that makes it. The provision allows the customer to join the manufacturer and requires the court to stay the action against the customer. Massie introduced an amendment to delete Section 5 in its entirety. The House defeated that amendment by a vote of 296-119, with both parties against.
Jackson Lee's amendment would keep Section 5, but would limit the customers who would be able to get the stay to small businesses with “an annual revenue of $25,000,000 or less.” That amendment was defeated 266-144 in a slightly partisan vote.
Finally, the House considered the Conyers and Watt amendment in the nature of a substitute bill, as they had tried in the Judiciary Committee without success. The amendment essentially represented a last opportunity for opponents to stop H.R. 3309.
The dissenting views to the committee report complained that H.R. 3309 “excludes the single most important step we can take to improve patent quality and protect against abusive litigation--ending US Patent and Trademark Office (PTO) fee diversion.”
Conyers has introduced a separate bill to end fee diversion (H.R. 3349) on Oct. 28, but Goodlatte opposed his attempts to add it to H.R. 3309 during committee markup and did so again here.
Sen. Patrick J. Leahy (D-Vt.) introduced a bill (S. 1720) in the Senate Nov. 18 to address patent litigation reform, following the House's lead but with key provisions missing.
The most significant difference between the bills is that S. 1720 does not include the provisions that would force patent infringement case management rules and procedures as to pleading, discovery timing and limits, cost-shifting related to discovery and loser-pays fee shifting.
Goodlatte has repeatedly defended Congress's authority to tell the Judicial Conference what a district court's rules and procedures should look like, but members of the Judicial Conference wrote letters to Goodlatte and Conyers expressing its concern that the provisions conflict with the 80-year-old Rules Enabling Act. The Federal Circuit Bar Association built on the concerns expressed by the Judicial Conference, citing the unintended consequences of specific provisions, however “well intentioned,” in a Dec. 4 letter to the House.
Leahy's bill also does not include the Section 145 repeal, which now was deleted from H.R. 3309 after Rohrabacher's successful challenge on the House floor.
Other differences in S. 1720 compared to its H.R. 3309 counterparts are:
• Recording real party in interest. Section 3 of S. 1720, titled “Transparency of Patent Ownership,” matches Section 4 of H.R. 3309, intended to address the alleged abuse of patent trolls hiding the real party in interest to a patent or to a litigation award, including the “ultimate parent entity.” Penalties for nondisclosure would apply to court proceedings, generally in a limitation on damages recoverable.
But whereas H.R. 3309 would require recordation at the PTO only just before filing a civil action, S. 1720 would require recording any change in the ultimate parent entity of a patent within three months of the change, even absent litigation.
• Demand letters. Leahy's bill goes further than the House approach. Section 5 of S. 1720 would expand Section 5(a)(1) of the Federal Trade Commission Act, 15 U.S.C. §45(a)(1), making it an unfair or deceptive practice “to engage in the widespread sending of written communications that state that the intended recipients or any affiliated persons are infringing or have infringed the patent and bear liability or owe compensation to another.” The contents of the letter would have to “falsely threaten,” “lack a reasonable basis in fact or law” or be “likely to materially mislead a reasonable recipient.”
Polis and Rep. Thomas A. Marino (R-Pa.) sponsor a comparative bill in the House, the Demand Letter Transparency Act (H.R. 3540) that goes even further (224 PTD, 11/20/13). It requires that the PTO, after receiving notice of a noncompliant letter, “notify the patent owner that the patent will be voided unless a fee is paid not later than 3 months after the date on which the notification is sent.”
Two other provisions have been the subject of some controversy since Goodlatte first introduced them in an early “discussion draft” of the bill, but remain in both H.R. 3309 and S. 1720:
• Post-grant procedure changes. Section 7(a) includes a fix to a purported “scrivener's error” in the AIA's provision on the estoppel effect of post-grant review, in 35 U.S.C. §325(e)(2). Specifically, under the AIA provision as currently written, a PGR challenger is estopped from asserting in a subsequent court case “that the [patent] claim is invalid on any ground that the petitioner raised or reasonably could have raised during that post-grant review.” The bills--it is Section 9(b) of H.R. 3309--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.
Some of the stakeholders involved in the AIA negotiations disagree that this was a scrivener's error.
• PTAB claim construction. S. 1720's Section 7(b) emulates H.R. 3309's Section 9(c) in changing the Patent Trial and Appeal Board's standards and procedures as to claim construction to match those of district courts. Ex-PTO executives have generally criticized this provision, because the PTAB gives patent owners the option to amend claims, which cannot happen in court.
The result of the change would be no inconsistency between the PTAB and a district court for unchanged claims, as the provision's supporters want, but an inconsistency at the PTO between how claims are construed in an application or reexamination and how amended claims are construed in PTAB challenges.
The two bills also include a number of additional modifications to AIA provisions--such as the inventor's oath or declaration, assignment and joint inventorship--that have H.R. 3309 equivalents and have not been contested in hearings to date.
Sens. Amy J. Klobuchar (D-Minn.), Michael S. Lee (R-Utah) and Sheldon Whitehouse (D-R.I.) are co-sponsors of S. 1720. Lee coauthored with Goodlatte a National Review Online article on Dec. 4 that supported the legislation generally and mentioned each bill specifically, without citing any preference for one or the other.
H.R. 3309 as reported to the floor is available at http://pub.bna.com/ptcj/HR3309Reported13Nov20.pdf.
Judiciary Committee report is available at http://pub.bna.com/ptcj/HR3309JCreport.pdf.
Goodlatte's manager's amendment is available at http://pub.bna.com/ptcj/HR3309Amend26.pdf.
Polis's accepted amendment is available at http://pub.bna.com/ptcj/HR3309Amend04.pdf.
Jackson Lee's accepted amendment is available at http://pub.bna.com/ptcj/HR3309Amend08.pdf.
Differences in Conyers/Watt defeated substitute are available at http://pub.bna.com/ptcj/HR3309Substitute.pdf.
S. 1720 is available at http://pub.bna.com/ptcj/S172013Nov18.pdf.
To contact the reporter on this story: Tony Dutra in Washington at email@example.com
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