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By Tony Dutra
The Obama administration joined the chorus of complaints about abusive patent assertions by so-called patent trolls on June 4 with a series of executive actions directed to government agency operations and with suggestions to Congress to pass new patent reform legislation.
The five executive actions are intended “to help bring about greater transparency to the patent system and level the playing field for innovators.” Two ask for rule making by the Patent and Trademark Office already in its early stages.
Most of the seven legislative measures mentioned are currently under consideration in Congress.
“Today's announcement from the White House is a good indicator that momentum is building behind efforts to enact meaningful legislation to address abusive patent litigation, which strikes at the very heart of American innovation and jobs,” Rep. Robert W. Goodlatte (R-Va.) said in a press release. Goodlatte published on May 23 (105 PTD, 5/31/13)a discussion draft of a bill he intends to introduce that will address many of the suggestions Obama made in his announcement.
In the statement, Goodlatte pledged to work with Sen. Patrick J. Leahy (D-Vt.) “and all the stakeholders involved on this very important issue.”
Leahy, who endorsed Goodlatte's draft publication and pledged a similar bill in the Senate, was quick to offer his support in a statement of his own.
“ I look forward to working with the President as I continue my bipartisan and bicameral work to reduce trolling and protect American innovators and retailers,” he said.
The folks that you're talking about [PAEs] are a classic example; they don't actually produce anything themselves. They're just trying to essentially leverage and hijack somebody else's idea and see if they can extort some money out of them. … [O]ur efforts at patent reform only went about halfway to where we need to go and what we need to do is pull together additional stakeholders and see if we can build some additional consensus on smarter patent laws.
The president's “halfway” remark was referring to the America Invents Act, enacted in September. Though litigation reform was a highlight of legislative measures introduced in 2005, those concerns diminished over time as the U.S. Court of Appeals for the Federal Circuit and Supreme Court addressed problems with injunctions, inequitable conduct, venue selection, and damages.
The troll litigation issue is more recent, and it was clear from the June 4 steps that the administration has been active in building its case. The announcement was accompanied by a 15-page report--prepared by the President's Council of Economic Advisers, the National Economic Council, and the Office of Science & Technology Policy--titled “Patent Assertion and U.S. Innovation.”
The report concluded that PAEs “act to significantly retard innovation in the United States and result in economic 'dead weight loss' in the form of reduced innovation, income, and jobs for the American economy.”
One executive action requires the PTO to implement changes in recording the real party in interest to a patent--a topic the PTO has been pursuing since November 2011 (76 Fed. Reg. 72,372; (228 PTD, 11/28/11); (16 PTD, 1/24/13).
The intent of the recordation requirement is to prevent abuses by patent trolls hiding true ownership for licensing purposes. But the abuse extends to litigation, when parties who have a financial interest in the outcome are not known.
Another action asks the agency to tighten its standards for functional claiming, including the requirement to “develop strategies to improve claim clarity, such as by use of glossaries in patent specifications to assist examiners in the software field.” This reflects another PTO initiative, a Jan. 15 request for comments on “Patent Application Preparation” (78 Fed. Reg. 2,960; (12 PTD, 1/17/13).
Three additional executive actions call for more outreach or analysis of patent troll-related problems:
• The PTO will create a website that will provide information for end users of patented technology threatened by a patent troll, whose true target should be the manufacturer of the product alleged to be infringing.
• The PTO appears to be the lead agency called on to conduct “six months of high-profile events across the country to develop new ideas and consensus around updates to patent policies and laws.”
• The U.S. Intellectual Property Enforcement Coordinator will lead a review of practices by Customs and Border Protection and the International Trade Commission with the goal of strengthening the enforcement of ITC exclusion orders.
A White House “fact sheet” also called for legislation in seven distinct areas, many of which are already under consideration in Congress:
1. Apply principles of identifying the real party in interest to litigation as well, as noted above. This is the topic addressed in legislation proposed by Rep. Theodore E. Deutch (D-Fla.) on May 16, the End of Anonymous Patents Act (H.R. 2024) (97 PTD, 5/20/13), and also included in Goodlatte's Discussion Draft.
2. Fee shifting, or “loser pays.” Goodlatte's draft offers fee-shifting provisions and it is the primary issue addressed by the Saving High-Tech Innovators from Egregious Legal Disputes Act of 2013 (H.R. 845), or Shield Act (40 PTD, 2/28/13). It is also included in a bill addressing abusive patent litigation more broadly, the Patent Abuse Reduction Act, introduced May 22 by Sen. John Cornyn III (R-Texas) (102 PTD, 5/28/13).
3. Expand the AIA-initiated “transitional program for covered business method patents to include a broader category of computer-enabled patents and permit a wider range of challengers to petition for review.” Sen. Charles E. Schumer (D-N.Y.) introduced S. 866 for precisely that purpose.
4. “Protect off-the-shelf use by consumers and businesses.” The Deutch and Goodlatte bills would enable a stay of any litigation against a customer, but that does not address customers who receive threats from PAEs prior to legislation. The Vermont legislature grew tired of waiting for Congress to address this issue, and enacted H. 299, as part of the state's consumer fraud law, to create a cause of action for anyone receiving a demand letter from the PAE.
5. Lessen the likelihood of a an ITC exclusion order. Trolls go to the ITC to create the threat of an injunction when infringing goods are made overseas. The ITC has been the preferred forum since a Supreme Court decision made it difficult for PAEs to get injunctions in court. eBay Inc. v. MercExchange L.L.C., 547 U.S. 388, 78 U.S.P.Q.2d 1577 (2006)(97 PTD, 5/19/06). Obama sought legislation to allow the ITC to apply the eBay four-factor test. That topic has been featured in hearings on patent trolls by the House Judiciary Committee's Subcommittee on Courts, Intellectual Property and the Internet (51 PTD, 3/15/13), but is not a feature of any bill introduced to date.
6. Incentivize public filing of demand letters “in a way that makes them accessible and searchable to the public.”
7. “Ensure the ITC has adequate flexibility in hiring qualified Administrative Law Judges.”
The last two are not provisions of any bill before Congress now. The assignment of ALJs is governed by 5 U.S.C. §1305, which in turn leaves it to the Office of Personnel Management to govern the hiring process. A contact at the ITC, speaking on background, suggested that the commission might have asked for the ability to be in direct control of hiring judges.
Senior administration officials, speaking on background, held a media briefing after the president's fact sheet was published.
“There is not question that [PAEs] are putting abusive litigation over innovation,” one official said. “The top technology companies spending more defending against lawsuits than in research and development.”
The officials' focus was on the legislative suggestions, but they declined the opportunity to express views on the four bills and Goodlatte draft currently in play. They said that the administration put out its list “to help shape and enrich the discussion.”
“But I would say we are encouraged by the bipartisan approach that is being taken,” one official said, particularly praising Leahy and Goodlatte. “We are going to now start a more in-depth conversation with those interested in [this kind of legislation].”
As to the executive actions, another official said the administration was pleased with the PTO's activities on real-party-in-interest transparency and functional claiming to date, but that the office was now being encouraged to “go forward with rulemaking” in both areas.
Gene B. Sperling, director of the National Economic Council, authored a blog post later on June 4 titled “Taking on Patent Trolls to Protect American Innovation,” repeating the same themes and providing more detail.
“[I]n recent years, there has been an explosion of abusive patent litigation designed not to reward innovation and enforce intellectual property, but to threaten companies in order to extract settlements based on questionable claims,” Sperling said.
“We are excited to announce these steps to give innovators a fair fight in the legal battle against patent trolls, bring clarity to the high-tech patent space, and protect the everyday citizen against their abusive tactics,” he said in conclusion.
The White House did not make the executive actions available immediately; the fact sheet is available at http://pub.bna.com/ptcj/WHPatentFactSheet13Jun4.pdf.
Text of the report is available at http://www.whitehouse.gov/sites/default/files/docs/patent_report.pdf.
Blog post is available at http://www.whitehouse.gov/blog/2013/06/04/taking-patent-trolls-protect-american-innovation.
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