Last Thursday, December 5, the House of Representatives passed H.R. 3309 (“the Innovation Act”), a patent reform bill generally directed to perceived patent litigation abuse by certain patent assertion entities (what some call “patent trolls”). Prior draft versions of the House bill had gone through several revisions in the past few months (see our September 24 and October 23 posts), and the bill as passed by the House contains a number of provisions that will directly affect future litigation involving Standard Essential Patents (SEPs). These provisions are discussed in more detail below.
Heightened Pleading Standards. The Innovation Act requires specific details regarding a complainant’s patent infringement allegations. Similar to existing Patent Local Rules adopted by district courts in E.D. Tex. and N.D. Cal., the Innovation Act requires a patentee to identify the patents, the patent claims specifically asserted, the instrumentalities accused of infringement, and an element-by-element description of how each accused instrumentality practices the asserted patent claims. Such provisions will undoubtedly provide proponents of early stage Twombly/Iqbal motions with ample grounds to seek dismissal of bare-bones counts for patent infringement.
The Act also requires a patent plaintiff to disclose some basic patent ownership information to the court, other parties, and the U.S. Patent and Trademark Office (PTO), including the patent assignee, the assignee’s parent entity, any entity with a right to sublicense or enforce the patent, and any entity with a financial interest in the patent.
Although it does not appear that a patent-plaintiff must identify existing licensees, it must identify any SSOs to which the patent has been declared essential. The Act specifically provides a claim for patent infringement must set forth:
[W]hether a standard-setting body has specifically declared such patent to be essential, potentially essential, or having potential to become essential to that standard-setting body, and whether the United States Government or a foreign government has imposed specific licensing requirements with respect to such patent.
The original drafts of this language created problems in requiring a plaintiff to plead “whether such patent is subject to any licensing term or pricing commitments through an agency or standard-setting body” and addressed that by focusing on more knowable facts of whether a patent was “declared” essential or potentially essential (see our September 24 post). The provision as passed kept the more fact-specific pleading of whether a patent has been declared essential, but misses the mark by requiring disclosure of “whether a standard setting body has specifically declared such patent to be essential …”. SSOs generally do not declare patents essential, potentially essential or the like; rather, such declarations typically are made by the patent owners themselves in letters of assurances or similar disclosures that often don’t state definitively whether the patent does cover the standard, but that it might cover the standard and what the patent owner would do if the patent actually is essential to the standard. One wonders whether this issue will be cleaned-up when the Senate considers it.
The provision about pleading whether the U.S. or other government body has imposed licensing obligations probably is in response to some limited actions by competition agencies that require certain procedures to be followed before a patent owner may seek injunctive relief (like the U.S. FTC’s consent order with Google or what Samsung has proposed to the European Commission) or court orders that have sought to put similar limits on injunctive relief.
The revised language goes hand-in-hand with another section of the Act directed to proposed Judicial Conference rules and procedures governing discovery burdens and costs, the Act proposes that the Judicial Conference consider “documents relating to any licensing term or pricing commitment to which the patent or patents may be subject through any agency or standard-setting body” to be included among the categories of “core documentary evidence” that must be produced by a patent-plaintiff to defendants in every litigation. Such rules would provide defendants with documentary evidence directly related to establishing RAND obligations at an early stage in litigation.
Licensing Obligations Continue Through Bankruptcy. The Innovation Act ensures that IP licenses are not eliminated in bankruptcy, resolving an apparent discrepancy between U.S. and foreign law in favor of the American rule. As we discussed in a post earlier this month, the Fourth Circuit recently affirmed a district court decision that licensees could rely on Section 365(n) of the U.S. bankruptcy code to preserve the existing licenses to U.S. patents. The present legislation codifies this principle, barring a bankruptcy trustee from terminating certain licenses to patents and other intellectual property of the debtor, adding trademarks to definition of “intellectual property” in title 11 proceedings, and requiring a bankruptcy trustee to meet any existing contractual obligation to monitor and control the quality of a licensed product or service covered by a licensed trademark.
The Customer-Suit Exception. The Innovation Act allows a manufacturer to intervene in a patent suit brought against its customer. These provisions allow a patent suit to be stayed as to the customer while the manufacturer and patent plaintiff litigate the merits of the infringement action, so long as (1) the manufacturer and the customer consent, (2) the stay is sought within 120 days after the first complaint for infringement, and (3) the customer agrees to be bound by the court’s ruling on any issues in common between the customer and manufacturer.
Other Key Provisions. Although we haven’t discussed them here, the Innovation Act contains a number of other key provisions, including:
- Cost Shifting, awarding costs and attorneys fees to a prevailing party unless the position and conduct of the nonprevailing party was reasonably justified in law and fact;
- Post Grant and Inter Partes Review, allowing a PGR petitioner to later assert invalidity defenses in a civil action that could have been, but were not raised during PGR and requiring the PTO to use district court claim constructions in PGR and IPR proceedings;
- Expanding the scope of prior art used in transitional program for business method patents covering financial products;
- Core Discovery and Discover Fee Shifting, limiting the types of discovery prior to claim construction and requiring Judicial Conference to develop rules and proposals limiting discovery in patent cases and to study the efficacy of the rules enacted;
- Codifying Doctrine of Double Patenting for first-inventor-to-file patents; and
- Demand Letters, requiring a claimant seeking to establish willful infringement may not rely on evidence of pre-suit notification that fails to set forth claimant’s infringement allegations with particularity.
Next Steps. Now that the bill has passed the House, the Senate is expected to move quickly. Last Thursday, Senate Judiciary Committee Chairman Patrick Leahy (D-Vt.) confirmed a legislative hearing will be held on December 17 to consider the upper house’s patent reform bill (S. 1702). The House and Senate measures will have to be merged before the Act is presented for President Obama’s signature, but it is expected the proposed legislation will be signed into law early next year. Because the bill’s litigation provisions apply to patent cases filed after the date of enactment, and not pending cases, we may see an uptick in the filing of patent cases prior to the anticipated date of enactment (as we saw with enactment of the America Invents Act).