The Senate Judiciary Committee was scheduled to mark-up and vote on the Patent Transparency and Improvements Act of 2013 last Thursday but again postponed the vote until after the Senate recess. The mark-up and vote have been postponed several times before. As we discussed in a prior post, the bill, if passed would require patent-plaintiffs to disclose ownership information for asserted patents at the outset of infringement litigation and would also require courts to stay infringement suits against customers of infringing products or processes in certain situations where the manufacturer is also a party to an action involving the same patents, products or services.
A statement released by Senator Leahy, the Committee’s Chairman and the sponsor of the bill, indicated that “[f]or weeks, members of the Judiciary Committee have been engaged in extensive bipartisan negotiations on legislation to address abuses in the patent system” that the bill is supposed to remedy. The Committee has apparently “made enormous progress, and . . . now have a broad bipartisan agreement in principle” regarding the bill’s provisions. However, the vote was again postponed to allow Committee members and their staff to attempt to reach agreement on fee-shifting provisions proposed by Republican Committee members that would require the loser in cases involving non-practicing entities to pay the winner’s attorneys’ fees. According to Senator Leahy, this “is a complex issue” and the Committee needs “additional time to draft the important provisions that have been the subject of discussion.” Senator Leahy went on to indicate that he would circulate a revised version of the bill on April 28, the day the Committee returns from recess. The Committee “will consider [the bill] the first week [they] are back.”
The House of Representatives has already passed a bill that includes fee-shifting provisions. Specifically, the House bill includes provisions providing for the award of costs and attorneys fees to a prevailing party unless the position and conduct of the nonprevailing party was reasonably justified in law and fact.
Update: Senators reach tentative compromise on patent reform legislation
Senators Chuck Schumer (D-NY) and John Cornyn (R-TX) have apparently reached a bipartisan compromise on certain provisions of the Patent Transparency and Improvements Act of 2013. A revised version of the bill including the compromise will be circulated to the Committee for a vote the week of April 28 after the Senate recess concludes.
Heightened Pleading Standards: The compromise would add a provision to the Senate bill imposing heightened pleading requirements similar those in the Innovation Act passed by the House late last year. Specifically, unless the following “information is not readily accessible,” patent-plaintiffs will be required to include “in a complaint, counterclaim, or cross-claim” a “short and plain statement setting forth” 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.
The compromise also attempts to resolve a misnomer in the House bill that we identified in a prior post. The House bill would require complaints for patent infringement to describe
whether a standard-setting body has specifically declared [the asserted] 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.
As we discuss in our prior post, standard setting organizations (SSOs) generally do not declare patents essential or potentially essential. Instead, declarations of potential essentiality are generally made by patent holders themselves in a letter of assurance or similar disclosure to the SSO. These disclosures typically do not state definitively whether the patent covers the standard, but that it may cover the standard and what the patent owner agrees to do if the patent actually is essential to the standard.
The compromise language from Senators Schumer and Conyn attempts to clean-up this issue and would require pleadings alleging patent infringement to include, for each asserted patent:
a statement as to whether the patent is subject to an assurance made to a standards development organization to license others under such patent should the patent be deemed essential under the relevant standards development organization’s policy to practice that standard, provided that the allegation of infringement is related to such standard.
Unlike the House bill, the compromise language would specifically require patent infringement plaintiffs to plead whether the patent is encumbered by a licensing obligation as a result of an assurance made to an SSO.
However, the last phrase of the compromise language – “provided that the allegation of infringement is related to such standard” – may create further controversy. A plaintiff that files a complaint asserting infringement of potentially essential patents may not specifically plead in their complaint that the defendant is practicing the respective standard and, therefore, infringing plaintiff’s patents. In some cases, it is the accused infringer that raises a patent-plaintiff’s alleged license obligation to the SSO as a defense to a claim of infringement. The language in the compromise, as currently drafted, may create further dispute as to whether it is the patent-plaintiff’s complaint or the defendant’s answer or counterclaim (or, potentially, both) that controls whether “the allegation of infringement is related to such standard” thereby requiring the plaintiff to include a statement about whether the asserted patent(s) is/are encumbered by an assurance made to an SSO.
Some other differences between the compromise language and the House bill on heightened pleading standards are:
• The House bill would require patent-plaintiffs to list all other complaints that have asserted the same patents. The Senate compromise would only require patent-plaintiffs to identify such other complaints that were filed within the three years preceding the date of the filing of the instant suit.
• The compromise expressly includes language permitting amendment of pleadings based on newly discovered information.
Fee Shifting: Unlike the bill passed by the House, the Senate bill does not currently include any language addressing fee-shifting. The Schumer-Cornyn compromise adds such language to the Senate bill, attempting to resolve what Senator Leahy has characterized as a “complex issue.” The House fee-shifting language provides as follows:
The court shall award, to a prevailing party, reasonable fees and other expenses incurred by that party in connection with a civil action in which any party asserts a claim for relief arising under any Act of Congress relating to patents, 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.
The Senate compromise expressly requires the Court to determine whether the positions of the non-prevailing party as well as such party’s conduct were “objectively reasonable”, and only addresses an award of fees, not expenses:
[U]pon on a motion by a prevailing party, the court shall determine whether the position of the non-prevailing party was objectively reasonable in law and fact, and whether the conduct of the non-prevailing party was objectively reasonable. If the court finds that the position of the non-prevailing party was not objectively reasonable in law or fact or that the conduct of the non-prevailing party was not objectively reasonable, it shall award reasonable attorney’s fees unless special circumstances make an award unjust.
Other Provisions: With some modification, the Schumer-Cornyn Compromise also includes provisions that are similar to those of the bill passed by the House, such as:
• Core Discovery and Discovery Fee Shifting, limiting the types of discovery prior to claim construction and requiring the Judicial Conference to develop rules and proposals limiting discovery in patent cases;
• Demand Letters, 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.