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By Tony Dutra
In testimony on curbing litigation abuses by so-called patent trolls, patent community stakeholders have frequently asked Congress to focus on the acts and not the plaintiffs. A bill (S. 1013) introduced May 22 by Sen. John Cornyn III (R-Texas) meets that request with a comprehensive prescription for how patent infringement cases should be pleaded; joinder of real parties in interest; discovery timing, scope, and cost-shifting; and cost-shifting upon termination of the litigation.
S. 1013 joins other anti-troll legislation under consideration in Congress that would shift fees, extend challenge options at the Patent and Trademark Office, or require PTO recordation of the real party in interest.
A same-day statement posted by Julie Samuels of the Electronic Frontier Foundation generally lauded S. 1013 but expressed concern that it did not include elements of those other bills.
Nevertheless, she said, “we are encouraged to see the introduction of large scale-reform that would go to the heart of the patent troll business model. We hope that those policy makers who have publicly recognized the patent troll problem will join in the upcoming debate on this important legislation.”
Congress's displeasure with patent troll litigation tactics has been evident over the last year, with three hearings in the House Judiciary Committee's Subcommittee on Courts, Intellectual Property, and the Internet (most recently, (51 PTD, 3/15/13), and three different bills preceding S. 1013:
• The Saving High-Tech Innovators from Egregious Legal Disputes Act of 2013 (H.R. 845), or Shield Act, would force a patent troll to put up a bond early in litigation and, if it loses, to pay the defendant's costs (40 PTD, 2/28/13).
• 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 (88 PTD, 5/7/13). The bill would make permanent a provision of the America Invents Act--challenges to “covered business methods” at the PTO--under the expanded business method definition.
• Rep. Theodore E. Deutch (D-Fla.)'s bill, the End of Anonymous Patents Act (H.R. 2024) would require notice to the PTO of the real parties in interest, upon patent issuance and maintenance, and on every ownership transfer.
Cornyn's bill diverges from the Shield Act on the cost-shifting issues, so those two bills would have to be reconciled. S. 1013 has no overlap with Schumer's bill, and its only potential conflict with H.R. 2024 relates to different definitions of the real party in interest.
Section 2 of the bill would add 35 U.S.C. §281A, “Pleading requirements for patent infringement actions.” It lays out 14 requirements for a patent infringement complaint, far beyond the minimal requirements in Form 18 of the Federal Rules of Civil Procedure.
Notably, in detail likely to arouse the interest of the patent community generally and not just trolls, the pleading would have to identify “each accused apparatus, product, feature, device, method, system, process, function, act, service, or other instrumentality … alleged to infringe [each specifically identified patent] claim.”
The troll-specific requirements are related to the identification of any parties that would have any ownership or other economic interest in the patent or the outcome of the action. Such an “interested party” would be joined in the action if the allegedly infringing party so moves.
The PTO has proposed new requirements for identifying a real party in interest with a similar concern that patent assertion entities--a nicer name than patent trolls--hide the true ownership of a patent for various licensing and litigation purposes. H.R. 2024 would make that recordation a requirement to be eligible for damages in litigation.
The H.R. 2024 definition of “real party in interest” includes “any ultimate parent entity” of the assignee and “any entity that has a controlling interest in the enforcement of the patent.”
The S. 1013 definition of “interested party” has parallels to the latter entity type, but in place of a parent entity refers only to a party who “owns or co-owns a patent.”
Section 4 of S. 1013 would add 35 U.S.C. §300, “Discovery in patent infringement suits.”
The cost of discovery has been cited as favoring the patent troll business model. Anti-troll advocates claim that the asymmetry in costs--most are borne by the alleged infringer--lead defendants to settle even when the asserted patents are weak or a noninfringement finding is likely.
Courts and the International Trade Commission are in the process of addressing this issue by devising best practices for case management so as to push potentially dispositive issues earlier and discovery later.
Cornyn's bill takes the same approach generally:
• Discovery would be limited before claim construction, with few exceptions.
• Each party would be responsible for “core documentary evidence” only. Cornyn's definition of that term excludes “computer code or electronic communication, such as e-mail, text messages, instant messaging, and other forms of electronic communication.”
• For such e-discovery and other “additional discovery,” a party may request it, but would have to pay the other party's expenses or post a bond to cover anticipated expenses.
• Even with a party willing to make such payment, additional discovery could be delayed if the other party cites “any issues relating to infringement, invalidity, or damages that, if resolved before the additional discovery … commences, will simplify or streamline the case.”
Finally, Section 5 of S. 1013 addresses the “loser pays” approach that is the focus of the Shield Act.
The Shield Act would define parties that do not qualify as patent trolls. All plaintiffs not fitting that definition would have to post a bond intended to cover the alleged infringer's litigation costs. After a final judgment, according to that bill, the judge “shall award the recovery of full costs to any prevailing party asserting invalidity or noninfringement, … unless the court finds that exceptional circumstances make an award unjust.”
Other than as to the “additional discovery” noted above, Cornyn's bill does not require the bond. Further, it shifts costs to “the prevailing party,” which could be either the plaintiff or defendant.
S. 1013 also excludes shifting in “exceptional circumstances,” but more importantly, it allows an exception if “the position and conduct of the non-prevailing party were objectively reasonable and substantially justified.” With current jurisprudence by the U.S. Court of Appeals for the Federal Circuit on sanctions, that exception could swallow the rule.
Cornyn does, however, go farther than the Shield Act by prohibiting a court from changing its “loser pays” analysis if the parties settled. And because it addresses the problem of identifying “interested parties,” S. 1013 allows the court to shift costs to a real party in interest if the actual party in suit cannot pay.
The bill was referred to the Senate Judiciary Committee, of which Cornyn is a member. Schumer's bill is referred to that committee as well.
The Shield Act and the End of Anonymous Patents Act have been referred to the House Judiciary Committee.
Text is available at http://pub.bna.com/ptcj/S1013intro.pdf.
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