Patent Legislation Stalled But Supporters Keep Fighting

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By Tony Dutra

Oct. 28 — Legislation that would change how courts handle patent infringement cases is unlikely to move forward in its current form, sources familiar with the effort told Bloomberg BNA.

Court cases that have changed key aspects of patent infringement cases, along with an impasse on language related to drug patent challenges, have combined to stall a bill that had been seen as on track to passage sometime this year.

The House version (H.R. 9) is so broad that it invites a wider net of opposition, and the Senate bill (S. 1137) may not be broad enough to be worth it to companies pushing for the Congress to act, a congressional aide said Oct. 27.

“It has become harder to gauge the current appetite for legislation among the stakeholder groups that were so energized about these bills earlier this year,” a representative of a biopharma organization told Bloomberg BNA on condition of anonymity.

The representative was referring primarily to high technology firms that drove the narrative of so-called “patent trolls” abusing the courts that originally spurred lawmakers to act. Alleged trolling behavior could be stopped, tech firms argued, by requiring very specific pleading of infringement and more shifting of attorneys' fees when the defendant wins.

But, after a Supreme Court decision last year, more courts are already shifting attorneys' fees, and a new pleading requirement established by the Judicial Conference is set to take effect Dec. 1.

Given those developments, the Congressional aide said, “Congress is probably not the next venue to look to for major changes.”

The House bill's sponsor, Rep. Robert W. Goodlatte (R-Va.), disagreed with that characterization, citing ongoing work to address other legislators' concerns about some provisions. And lobbyists favoring the bill claimed they were still actively engaged with lawmakers to find votes.

Biopharma's Predicament

The life sciences industry has a strong interest in passage of a patent bill, but only if it includes a specific provision not currently in either bill. And their ask may also be the biggest stumbling block in the whole effort.

Life sciences companies and their lobbying groups mostly sat on the sidelines until this spring. The development that sparked their concern was the new “reverse trolling” practice of filing for inter partes review (IPR) of a drug patent at the U.S. Patent and Trademark Office.

In those actions, hedge funds challenge patents primarily to take advantage of a short sell position in the company owning the patent. If the market sees the challenge as an indicator that the patent is in trouble, the stock will drop and the hedge fund will walk away with a hefty return, regardless of the PTO's final decision.

Life sciences patent holders are pushing lawmakers to include language to exempt patents from IPR challenges. But generic drug makers are fighting the addition, and tech companies are reluctant to see any dilution of IPR challenge procedures.

If the broader legislative package were to stall, the stakeholder community would use this “cooling-off time” to reassess the need for comprehensive legislation, the biopharma representative said. Unfortunately, though, the representative said, “opportunities to make urgently-needed changes to the IPR process would be postponed as well.”

Proponents: We're Still Working on It

The high tech lobbying groups—now part of an umbrella coalition known as United for Patent Reform (UPR)—support Goodlatte's Innovation Act (H.R. 9).

“H.R. 9 is the product of much bipartisan work and I am proud that it was reported out of the House Judiciary Committee by an overwhelming vote and is supported by over 350 groups,” Goodlatte said in response to a request for comment.

However, a plan to put it on the agenda for a full House vote was scrapped this summer, and the Republican majority has given no sign that H.R. 9 will be pushed any time soon. Nevertheless, Goodlatte remained positive.

“We are using our time to grow the supporters list even more, allow our Members to hear directly from stakeholders about how abusive patent litigation harms American businesses large and small, and address some Members concerns regarding the bill,” he said in an e-mail.

The UPR coalition also is continuing its push.

“The hundreds of companies and trade associations that make up United for Patent Reform remain active and fully committed to passage of patent litigation reform litigation,” said coalition co-chair Beth Provenzano, vice president of federal government relations at the National Retail Federation.

“Every month, hundreds of businesses in nearly every U.S. state are sued by patent trolls,” she said. “Many of those are small businesses, which are forced to lay off workers, cut payroll, or shut down as a result.”

A representative of one of the other UPR organizations said, on condition of anonymity, that the group is conducting “fly-ins” in the upcoming week “to meet with lawmakers and advocate for passage of H.R. 9 and [the Senate's] S. 1137.”

But Are Biggest Issues Resolved?

The “loser pays” aspect of the legislation—a feature of H.R. 9 but not the Senate bill—is already being addressed, opponents of the bill have argued.

The Supreme Court loosened the standard for shifting attorneys' fees in patent cases in its April 2014 Octane Fitness decision, and there has been a marked increase in awards since then: The grant rate for requests for attorneys' fees was 50 percent for the first three months of 2015.

As to the detailed pleading requirements in H.R. 9, “That likely had the wind taken out of its sails because of the Dec. 1 changes instigated by the Judicial Conference,” the congressional aide said.

The reference is to a series of changes to the Federal Rules of Civil Procedure. In particular, the changes get rid of the patent world's “Form 18,” which allowed an infringement charge without any identification of specific patent claims allegedly infringed or even the purportedly infringing products.

Though it will take time for the new pleading standard to develop through the courts, all stakeholders believe it will be tougher on patent holders. The aide suggested that some members of Congress might now be more willing to let that development play out rather than intervene with legislation.

Another Judicial Conference change is likely to reduce high-cost discovery in patent infringement cases. That, too, would mitigate the need for H.R. 9's discovery-related provision. Again, S. 1137 would provide more flexibility to courts than H.R. 9.

Small Ball Possible?

Even if the all-encompassing bills are not possible, some stakeholders have theorized that individual provisions could be tacked onto other, non-patent bills before the end of the year.

“You can never say never, but I don’t believe there is currently an initiative to do it that way,” the Congressional aide said.

“It’s very hard to legislate without doing something very big,” the aide said. “Small ball changes are exceedingly difficult to get done.”

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

To contact the editor responsible for this story: Mike Wilczek in Washington at mwilczek@bna.com