Recently the House Judiciary Committee voted  24-8 to approve a revised version of the Innovation Act.  As we previously discussed, the Innovation Act was re-introduced in the House earlier this year in the same form approved by the entire House at the end of 2013.  The Judiciary Committee recently met to mark-up and vote on the bill.  A summary of the Act’s provisions as well as the approved amendments is provided below.

Demand letters and willful infringement.  The Innovation Act (Sec. 3, beginning at page 18) would prohibit a patent plaintiff from relying on a pre-suit demand letter as evidence of willful infringement if the demand letter did not identify “with particularity the asserted patent,” the “product or process accused,” and “the ultimate parent entity of the claimant” nor explain “with particularity, to the extent possible following a reasonable investigation or inquiry, how the product or process infringes one or more claims of the” asserted patent(s).  The PATENT Act, which was recently recently approved by the Senate Judiciary Committee, contains a similar provision but also goes farther.  Specifically, as we previously discussed, the PATENT Act would expressly regulate demand letters sent in bad faith by patent owners by granting the Federal Trade Commission the express authority to bring enforcement actions against individuals and entities that send such bad faith demand letters.  The Innovation Act simply requires the PTO to conduct a study of bad faith demand letters and their potential impact on the marketplace, with a report to Congress on the findings of the study due within a year.

Heightened infringement pleading standardsSimilar to the PATENT Act, the Innovation Act (§ 281A(a), beginning at page 2) would increase the specificity and information required to plead patent infringement.  Specifically, “unless the information is not reasonably accessible,” a patent plaintiff would be required to identify, in its initial complaint, the patents, the asserted patent claims, the accused infringing products or services, and an element-by-element description of how each accused product or service infringes the asserted patent claims.  As we previously discussed, the Judicial Conference has already taken steps to increase the specificity of patent infringement complaints by amending the Federal Rules of Civil Procedure to eliminate Form 18 “Complaint for Patent Infringement,” which only requires a patent plaintiff to provide a bare recitation for pleading direct patent infringement.  Form 18 will be eliminated in December of this year.  The Federal Circuit also held that, while Form 18 kept it from requiring more specificity in pleading direct infringement, it did not prevent it from requiring more specificity with respect to pleading indirect infringement.  The elimination of Form 18 may allow courts to require more detailed pleadings than the current Rules require.  Given this, the full House might consider whether and to what extent there remains support for the heightened pleading provisions of the reintroduced Innovation Act.

Patent ownership and financial information.  Like Section 3 of the Senate Judiciary Committee’s PATENT Act (§ 281B(b), beginning at page 7), the Innovation Act (Sec. 4(b), beginning at page 22) would require a patent plaintiff to disclose at the outset of an infringement case certain patent ownership and financial interest 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.

Disclosure of Standard Setting Obligations.  Simliar to the PATENT Act (§ 281B(b), beginning at page 8), the Innovation Act (Sec. 4, at page 23) would require a patent plaintiff to disclose to the court, other parties and the PTO certain information regarding obligations to Standard Setting Organizations (SSOs).  The Innovation Act would require a patent plaintiff to state “whether a standard-setting body has specifically declared” any of the asserted patents “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 licesning requirements with respect to such patent.”  As we explained previously, this language is a misnomer, as SSOs generally do not declare patents essential or potentially essential.  Instead, the patent owner declares whether its patent may be essential to an industry standard, usually by way of a a letter of assurance or similar assurance to the SSO.  These assurances often only state that the identified patents might cover a standard and what the patent owner would do as far as licensing the patent if the patent actually is essential to the standard.   And often patent owners submit blanket letters of assurance that do not identify any particular patent. The Senate’s PATENT Act more accurately reflects this practice, requiring a patent plaintiff to state “whether the patent is subject to an assurance made by the [patentee] to a standards development organization to license others under such patent[(s)]”  if “the assurance specifically identified such patent or claims therein” and “the allegation of infringement relates to such standard.”  The PATENT Act would also require a patent plaintiff to state “whether the Federal Government has imposed specific license requirements with respect to” the asserted patents, but not whether a foreign government has imposed specific licensing requirements.

Discovery cost shifting.  The Innovation Act (Sec. 6, beginning at page 34) would require six district courts participating in the patent pilot program to develop rules and procedures governing discovery of core documentary evidence, including rules addressing whether cost should be shifted for such discovery, potential phasing of discovery of electronic communications, and other limits on discovery in patent cases.  The PATENT Act (Sec. 6, beginning at page 19), would authorize the Judicial Conference to develop such rules and procedures.

Customer stay.  Like Section 4 of the PATENT Act (§ 299A(b), beginning at page 13), the Innovation Act (Sec. 5, § 296(b), beginning at page 30) would require district courts to stay patent infringement suits against customers of allegedly infringing products if certain conditions are met.  Specifically, courts would be required to stay a case against a customer if (1) the manufacturer of the accused product or process is a party to the action against the customer or a separate action involving the same patent(s) “related to the same covered product or covered process”; (2) the customer agrees to be bound by the court’s ruling on any issues in common between the customer and manufacturer; and (3) the stay is sought within 120 days after the first complaint for infringement is served or before the first order, whichever is later.   In cases where the customer impleads the manufacturer as a party to the infringement action against the customer, a district court would be required to stay the portion of the case against the customer if the manufacturer and the customer consent in writing to the stay.  “In any other case in which the covered manufacturer did not consent in writing to the stay, the court may not grant the motion to stay if the stay would be inconsistent with an indemnity or other agreement between the covered customer and the covered manufacturer,” or “if the covered manufacturer shows that the covered customer is in a better position to understand and defend against the claims of infringement.”

As we previously discussed, the Federal Circuit’s decision in In re Nintendo may impact this provision.  In Nintendo, the Federal Circuit ordered a district court to stay claims against defendant retailers accused of selling an infringing product in favor of letting the manufacturer of the accused product and the patentee litigate the merits of the infringement claims.  The district court was ordered to sever the claims against the retailers from those against the manufacturer, and to transfer the case against the manufacturer to the Western District of Washington, where the manufacturer’s U.S. operations are based.

Prevailing party fee/cost shifting.  Similar to Section 7 of the PATENT Act (§ 285(a), beginning at page 24) the Innovation Act (§ 285(a), beginning at page 5) also includes fee and cost shifting provisions, although the competing bills take a different approach.  Under the PATENT Act, a district court would first be required to determine “whether the position of the non-prevailing party was objectively reasonable in law and fact” as well as “whether the conduct of the non-prevailing party was objectively reasonable.”  Only 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” is the court required to “award reasonable attorney fees to the prevailing party unless special circumstances would make an award unjust.”

The Innovation Act, however, would set a default rule that would require fees and costs to be awarded to the prevailing party unless the positions of the non-prevailing party are shown to be objectively reasonable:

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 name inventor) make an award unjust.

As we previously discussed, recent Supreme Court decisions have relaxed the standard for showing a case to be “exceptional,” thereby permitting the prevailing party to collect their reasonable attorney fees, from “clear and convincing evidence” to the lower preponderance of the evidence standard.  The high Court also changed the standard of review of fee awards in patent cases from de novo to the more relaxed “abuse of discretion” standard which grants much more deference to the district court’s decision.  The House and the Senate may consider whether statutory fee shifting provisions are necessary given this recent Supreme Court jurisprudence.

The venue amendment.  One of the amendments that was approved during mark-up of the Innovation Act would change the rules governing where a patent infringement action or an action seeking a declaratory judgment of non-infringement or invalidity may be brought.  Under the Act’s provision, such cases may only be filed where: (1) the defendant has its principal place of business or is incorporated; (2) the defendant has committed an act of infringement and has a regular and established physical facility; (3) the defendant has agreed or consented to be sued; (4) the invention claimed in a patent-in-suit was conceived or actually reduced to practice; (5) significant research and development of an invention claimed in a patent-in-suit occurred at a regular and established physical facility; (6) a party has a regular and established physical facility that such party controls and operates and has (a) engaged in management of significant research and development of an invention claimed in a patent-in-suit, (b) manufactured a product that embodies an invention claimed in the patent-in-suit, or (c) implemented a manufacturing process that embodies an invention claimed in a paten-in-suit; or (7) for foreign defendants that do not meet (1) or (2) above, wherever personal jurisdiction may lie over them.

Supporters of this amendment indicated that it was designed to restore limits on venue in patent cases and make it more difficult for patentees to file infringement suits in district courts that they perceive as more favorable to patent owners but which are inconvenient for accused infringers who often do not have any real, substantial contacts with such fora.  The House Judiciary Committee’s website specifically states as follows:

Restores Congress’s intent that patent infringement suits only be brought in judicial districts that have some reasonable connection to the dispute.  Since 1987, Congress has regulated the venue in which patent actions may be brought.  These limits protect parties against the burden and inconvenience of litigating patent lawsuits in districts that are remote from any of the underlying events in the case.  In 1990, the U.S. Court of Appeals for the Federal Circuit ‘re-interpreted’ that statute in a way that robbed it of all effect.  The Innovation Act corrects the Federal Circuit’s error, and restores the congressional purpose of placing some reasonable limits on the venue where a patent action may be brought.

At this time, the House has not scheduled a full vote on the Innovation Act.

We previously discussed the Vermont attorney general’s enforcement action against MPHJ Technology Investments, LLC, a non-practicing entity that has recently been the subject of regulatory scrutiny.  The attorney general’s complaint, filed in Vermont state court in early May of 2013, alleges that MPHJ’s patent assertion conduct directed toward Vermonters violates the state’s Consumer Protection Act.  The state seeks permanent injunctive relief, an award of restitution to Vermont businesses that were damaged by MPHJ’s alleged conduct, civil penalties of up to $10,000 for each violation of the Consumer Protection Act, and costs.

A few weeks after the suit was filed, Vermont’s governor signed into law the Bad Faith Assertions of Patent Infringement Act (Bad Faith Demand Act) which, as its title suggests, attempts to regulate patent demand letters sent in bad faith.

After several unsuccessful attempts by MPHJ to remove the attorney general’s action to federal court (see our August 11, 2014 post), MPHJ filed a separate action against the attorney general in federal district court seeking a declaration that the Bad Faith Demand Act is constitutionally invalid or federally preempted as well as a declaration that the Vermont Consumer Protection Act — as it is being applied by the attorney general in the state court action against MPHJ — is constiutionally invalid or federally preempted.  MPHJ also sought an injunction prohibiting the attorney general from prosecuting the state court action against it.

Recently, the federal judge presiding over MPHJ’s case granted in part and denied in part the attorney general’s motion to dismiss MPHJ’s amended complaint.  A summary of the Bad Faith Demand Act, MPHJ’s claims, the motion to dismiss briefing and the court’s decision is provided below.

The Bad Faith Demand Act.  The Bad Faith Demand Act provides that “[a] person shall not make a bad faith assertion of patent infringement.”  The statute permits a court to consider several factors “as evidence that a person has made a bad faith assertion of patent infringement,” including, but not limited to:

  • The demand letter does not contain the patent number, the name and address of the patent owner(s) and assignee(s), or “factual allegations concerning the specific areas in which the” recipient’s “products, services, and technology infringe”;
  • The demand letter fails to include the above-listed information, the recipient of the letter requests it, and the patentee fails to provide it within a reasonable period of time;
  • The patent owner fails to compare the claims to the recipient’s products, services and technology prior to sending the demand letter, or such analysis was “done but does not identify the specific areas in which the” recipient’s products, services and technology are covered;
  • The demand letter demands payment of a license fee or response within an “unreasonably short period of time”;
  • The patentee “offers to license the patent for an amount that is not based on a reasonable estimate of the value of the license”;
  • The claim “of patent infringement is meritless, and  the person knew, or should have known, that the claim or assertion is meritless”‘; and
  • The patentee, its subsidiaries or affiliates “have previously filed or threatened to file” a lawsuit “based on the same or similar claim of patent infringement” and those threats lacked the information listed above (e.g., the patent number, name and address of the patent owner and assignee(s), etc.) and a court found the claims to be meritless.

In analyzing whether patent assertion conduct was done in bad faith, the Bad Faith Demand Act also permits a court to consider whether such conduct was “deceptive.”  The court may also consider “[a]ny other factor [it] finds relevant.”  The facial breadth of this language may give a court discretion to consider whether a standard essential patent owner has informed the recipient that the asserted patents have been declared essential by the patent owner to a standard setting organization (SSO) and/or whether the patent owner has promised to license the patents on reasonable and non-discriminatory (RAND) terms.

Conversely, the Bad Faith Demand Act also lists several factors that may show that patent assertion conduct was not committed in bad faith.  Among the factors that a court may consider are:

  • The demand letter contains the patent number, the name and address of the patent owner(s) and assignee(s), and “factual allegations concerning the specific areas in which the” recipient’s “products, services, and technology infringe”;
  • Where the demand letter lacks such information and the recipient requests it, the patent owner provides it within a reasonable time;
  • The patent owner “engages in a good faith effort to establish that the target has infringed the patent and to negotiate an appropriate remedy”;
  • The patent owner “makes a substantial investment in the use of the patent or in the production or sale of a product or item covered by the patent”;
  • The patent owner is the inventor or joint inventor of the asserted patent, the original assignee, an institution of higher education or a technology transfer organization owned or affiliated with an institution of higher education;
  • The patent owner has engaged in “good faith business practices in previous efforts to enforce the patent” or a “substantially similar patent” or successfully enforced the patent, or a substantially similar patent, through litigation”; and
  • Any other factor the court deems relevant.

The Vermont attorney general is empowered to bring enforcement actions for restitution, civil penalties and injunctive relief against violators of the statute.

Additionally, a recipient of a bad faith demand letter or target of other bad patent assertion conduct may bring an action and, if they prevail, may be awarded equitable relief, damages, costs and attorneys fees, exemplary damages in an amount equal to $50,000 or three times the total damages, costs, and fees, whichever is greater.

As an interim remedy, the Bad Faith Demand Act also provides that if a recipient of a demand letter or target of other patent assertion conduct establishes “a reasonable likelihood that a person has made a bad faith assertion of patent infringement” in violation of the statute, “the court shall require the person [making the demand] to post a bond in an amount equal to a good faith estimate of the target’s costs to litigate the claim and the amounts reasonably likely to be recovered” under the civil remedies provisions of the statute discussed above, “conditioned upon payment of any amounts finally determined to be due to the target” of the patent assertion conduct.  The bond may not exceed $250,000 and the court may waive it “if it finds [that] the person [making the demand] has available assets equal to the amount of the proposed bond or for other good cause shown.”

MPHJ’s Complaint.  In September of 2014, MPHJ filed a complaint against the attorney general challenging the constitutionality of the Bad Faith Demand Act as well as the attorney general’s application of Vermont’s Consumer Protection Act in the state court action against MPHJ.  In response to the attorney general’s motion to dismiss, MPHJ filed an amended complaint.

Count I-A seeks a declaration that the Bad Faith Demand Act is invalid under, or preempted by, the First and Fourteenth Amendments to the United States Constitution.  MPHJ also alleges that the Bad Faith Demand Act is preempted by Title 35 of the United States Code and the Federal Circuit’s decisions thereunder, in that it “permits liability to attach to patent owners, including injunctive and monetary liability, without a requirement that the plaintiff prove that the conduct at issue was both objectively baseless and subjectively baseless pursuant to the standard outlined in” the Federal Circuit’s 2004 decision in Globetrotter Software, Inc. v. Elan Computer Group, Inc.

Count I-B seeks a declaration that the Vermont Consumer Protection Act, as it is being applied by the attorney general in the state action against MPHJ, is also invalid under, or preempted by, the First and Fourteenth Amendments to the United States Constitution.  Specifically, MPHJ alleges that the attorney general “has [asserted] and currently asserts that the Vermont Consumer Protection Act may be applied against correspondence related to patent enforcement without pleading or proof that such conduct is objectively baseless and subjectively baseless.”  “As a result, as applied, the Vermont Consumer Protection Act is invalid or preempted under the First, Fifth and Fourteenth Amendments, and the Supremacy and Patent Clauses of the U.S. Constitution, and Title 35 of the U.S. Code.”

The other counts in MPHJ’s amended complaint assert causes of action for, inter alia, a declaration that the Bad Faith Demand Act and the Vermont Consumer Protection Act, as applied, are invalid under or preempted by the Dormant Commerce Clause as well as a count for attorneys fees under Section 1988 of Title 42 of the United States Code for the attorney general’s allegedly unconstitutional conduct.

Motion to dismiss to briefing.

The Vermont attorney general moved to dismiss MPHJ’s First Amended Complaint, arguing that the court should abstain from hearing any of MPHJ’s challenges to the constiutionality of the Vermont Consumer Protection Act because those claims could be litigated in the state court action as affirmative defenses or counterclaims.

The attorney general also argued that MPHJ lacked standing to challenge the constitutionality of the Bad Faith Demand Act because those claims were based on MPHJ’s intention to send demand letters in the future and, according to the attorney general, such potential future conduct was too speculative to support standing.  Even if MPHJ could establish standing, its claims were not ripe because the allegations of MPHJ’s potential future conduct were too “cursory.”

MPHJ opposed the motion.  MPHJ argued that, because the state court action did not involve claims under the Bad Faith Demand Act, abstention was not proper and MPHJ is entitled to pursue its federal challenges to the Bad Faith Demand Act.  MPHJ argued further that its challenges to the Bad Faith Demand Act were both ripe and that it has standing to pursue them because MPHJ has “alleged that Defendant’s conduct represents a credible threat of suit that chills the exercise of MPHJ’s First Amendment rights” to enforce its patents by sending demand letters.

With respect to its challenges to the attorney general’s application of the Consumer Protection Act in the state court action, MPHJ argued that abstention was not proper because, inter alia, the state does not have an important interest in deciding MPHJ’s claims.  Specifically, MPHJ argued that “it is clear that dominion over patents, and their enforcement, is not an attribute of sovereignty retained by the American states.”

The attorney general filed a reply, arguing, inter alia, that even substantial claims of federal preemption do not warrant federal court action, and that MPHJ should be required to litigate those claims in the state court action.  The attorney general also argued that MPHJ had not alleged that its asserted patent claim was valid and infringed and, therefore, MPHJ lacked standing to challenge the Bad Faith Demand Act based on potential future demand letters involving the patent claim at issue.

MPHJ filed a supplemental opposition identifying new authority regarding the attorney general’s abstention arguments that MPHJ contended required the denial of the attorney general’s motion.

The Court’s decision.  The court granted the attorney general’s motion to the extent it related to MPHJ’s challenges to the AG’s application of the Consumer Protection Act in the state action, deciding to abstain in favor of having those challenges resolved by the state court.  “The constiutionality of the [Consumer Protection Act] being enforced can be determined by the state courts…”

The court, however, denied the attorney general’s motion to dismiss MPHJ’s challenges to the Bad Faith Demand  Act.  “As there has been no civil enforcement action under the [Bad Faith Demand Act], abstention with respect to that statute is unwarranted.”

The court also rejected the attorney general’s argument that MPHJ lacked standing to challenge the Bad Faith Demand Act because the attorney general has not brought any enforcement action under that statute.  According to the court, the lack of any enforcement action was not dispositive to the standing issue.  Rather, because MPHJ “has made plain its intention to send enforcement letters in the future” and that the attorney general, in an interview, discussed the Bad Faith Demand Act’s intentions “to deter patent trolling in Vermont” and also mentioned MPHJ specifically in that same interview, “future enforcement under the [Bad Faith Demand Act] seems neither conjectural nor hypothetical.”  MPHJ, according to the court, had established “a credible threat of enforcement” sufficient to give it standing to challenge the constitutionality of the Bad Faith Demand Act and that such claims were ripe for review.

As we previously discussed, the Senate Judiciary Committee recently approved the PATENT Act, and that bill will soon go to the full Senate floor.  The House Judiciary Committee has also approved competing patent reform legislation that will be voted on by the full House.  Both of these bills contain provisions that would regulate patent demand letters and other patent assertion conduct.  Should either bill or revised versions of them be enacted into law, Vermont’s Bad Faith Demand Act as well as other states’ laws that attempt to regulate patent assertion conduct may be expressly pre-empted, likely mooting MPHJ’s constitutional challenges.  MPHJ’s claims for monetary damages, however, might not be mooted.

Yesterday, we reported on the manager’s amendments to the Protecting American Talent and Entrepreneurship Act, or “PATENT Act,” a bi-partisan patent reform bill introduced by Senator Leahy and several other Senators.  After two additional amendments by members of the Senate Judiciary Committee during yesterday’s mark-up session, the committee approved the bill by a vote of sixteen (16) to four (4).  The two amendments are discussed below.

Senators Feinstein and Tillis’ amendment made changes to the Act’s provisions governing pre-suit notification of infringement by patentees to accused infringers.  The amendment prohibits such pre-suit notification from containing, absent “consent of the intended recipient,” a “request for, demand for, or offer to accept a specific monetary amount in exchange for a license, settlement, or similar agreement to resolve allegations of patent infringement” or “a specific monetary amount demanded based on the cost of legal defense in a lawsuit concerning any asserted claim or claims.”

Senator Cornyn’s amendment permits certain “institution[s] of higher education” and employees thereof to qualify for micro entity status when applying for patents and, therefore, pay lower patent application fees.

Senator Coons, who has also introduced proposed patent reform legislation known as the STRONG Act, proposed several amendments to the PATENT Act, but none were approved.  One of his proposed amendments would have required petitioners in inter partes and post-grant reviews to prove that a previously issued patent claim is invalid “by clear and convincing evidence” and a proposed amended claim invalid by a preponderance of the evidence.  This same language is in Senator Coons’ proposed STRONG Act.  Senator Coons’ other proposed amendments would have exempted certain claims and parties from the Act’s provisions.  For example, one proposed amendment would have rendered inapplicable the heightened patent infringement pleading standards in the Act to patent plaintiffs that have “never previously brought a civil action alleging infringement of any patent” and who also allege “infringement of a patent that has never been the subject of litigation in any previous civil action.”

Senator Durbin proposed an amendment that would have exempted inventors, joint inventors, “or in the case of a patent filed by and awarded to an assignee of the original inventor or joint inventor, the original assignee of the patent” from the heightened patent infringement pleading standards in the PATENT Act.  This amendment was also not approved by the committee.

Prior to the PATENT Act going to the full Senate for a vote, it is expected that members of the committee will make revisions to Section 11’s provisions governing the amendment of patent claims in inter partes and post grant review proceedings.

On Tuesday, a proposed Manager’s Amendment was released for the Senate’s pending PATENT Act bill.  Following is a recap of the recent wave of patent legislation proposals this year.

Innovation Act.  Since 2013, the House and the Senate have considered various forms of patent reform legislation that attempt to address perceived patent litigation abuse.  See our Dec. 9, 2013 post.  In February, the House Judiciary Committee Chairman Bob Goodlatte (R-Va.) reintroduced the Innovation Act, which is identical to the bill the House passed in December of 2013 by a vote of 325-91.  A summary of the Innovation Act’s provision is in our Feb. 11, 2015 post.

TROL Act.  In April, the House Subcommittee on Commerce, Manufacturing and Trade — a subcommittee of the House’s Energy and Commerce Committee — voted to send a separate proposed patent legislation bill to the full committee for a vote.  This bill, known as the Targeting Rogue and Opaque Letters Act, or “TROL Act,” would expressly render misleading demand letters sent by patent holders to accused infringers a violation of Section 5 of the Federal Trade Commission Act.  Under the bill’s provisions, a demand letter that states or represents “that the recipients are or may be infringing” would be deemed unfair and deceptive under Section 5 if, among other things, the sender, “in bad faith,” misrepresents that

  • it has the right to enforce the patent (when it does not);
  • a patent infringement action has been filed against the recipient and/or other persons;
  • legal action for infringement will be taken against the recipient; or
  • other persons have purchased a license to the asserted patents.

The bill also prohibits sending a demand letter in bad faith seeking compensation for infringing a patent that has been held, in a final determination, to be invalid or unenforceable due to inequitable conduct.  The FTC and states attorneys general would be granted authority to bring civil actions for penalties and other relief against persons that violate the Act, with the FTC retaining the right to intervene in any civil action brought by a state attorney general.  A previous version of the TROL Act was introduced last year.  After mark up by the House’s Subcommittee on Commerce, Manufacturing and Trade, the bill was forwarded, as amended, to the full Energy and Commerce Committee for consideration, but did not advance further.

STRONG Act.  In May of this year, Senators Coons (D-DE), Durbin (D-IL) and Hirono (D-HI) introduced a proposed bill known as the Support Technology & Research for Our Nation’s Growth Act, or “STRONG Act.”  If enacted into law, this bill would, inter alia:

  • harmonize the claim-construction standard used in post-grant proceedings at the Patent Trial and Appeal Board (PTAB) with the standard used in District Court litigation;
  • clarify that during post-grant proceedings, the patent-holder may propose amended, narrower claims for the patent(s) under consideration;
  • maintain the presumption of validity for patent rights in post-grant proceedings, and clarifies that unpatentability may be proved for existing claims by the “clear and convincing evidence” standard used in District Court litigation;
  • attempt to minimize abuse of post-grant proceedings by ensuring that a petitioner has a business or financial reason to bring a case before the PTAB, to reduce incentives for privateering or extortion of nuisance settlements; and
  • permit evidence in post-grant discovery to determine the petition’s real party in interest.

PATENT Act.  At the end of 2013, Senators Leahy (D-VT) and Lee (R-UT) introduced the Patent Transparency and Improvements Act of 2013 (see our Nov. 19, 2013 post), but the bill was pulled from debate apparently due to lack of bi-partisan support (May 23, 2014 post).  In April of this year, Senator Leahy, along with several other Senators from both sides of the aisle, introduced a separate patent reform bill known as the Protecting American Talent and Entrepreneurship Act, or “PATENT Act.”  Here is an overview of some of that version of the PATENT Act’s provisions.

  • Pleading Requirements for Patent Infringement Complaint.  The PATENT Act would expressly direct the Supreme Court to eliminate Form 18, “Complaint for Patent Infringement,” in the Appendix to the Federal Rules of Civil Procedure (as we previously reported, the Judicial Conference has already recommended the elimination of Form 18, and this rule change is expected to take effect later this year).  Similar to the re-introduced Innovation Act by the House, the PATENT Act contains provisions that would increase the specificity and information required to plead patent infringement, requiring a patentee to identify the patents, the asserted patent claims, the accused infringing products or services, and an element-by-element description of how each accused product or service infringes the asserted patent claims.  District courts would be directed to dismiss any complaint that does not include such factual information unless the plaintiff alleges that such information is inaccessible, the reason(s) why the information is inaccessible, and also generally pleads the factual information that is available.
  • Patent Ownership and Financial Interest.  The PATENT Act would require a patent plaintiff to disclose at the outset of an infringement case certain patent ownership and financial interest information to the court, other parties and the Patent Office, including the identity of 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.
  • Other Complaints Involving the Asserted Patents.  The PATENT Act would also require a patent plaintiff to disclose at the outset of an infringement case all other complaints involving the asserted patents filed by the patentee or any of its affiliates within the preceding three (3) years.
  • Standard Setting Obligations.  The proposed PATENT Act would also require a patent plaintiff to disclose at the outset of an infringement case whether any of the asserted patents are subject to an assurance made “to a standards development organization to license others under such patent” if “the assurance specifically identifies such patent[s] or claims therein” and “the allegation of infringement relates to such standard.”
  • Customer Stay.  The PATENT Act also includes a customer stay provision, under which a District Court would be obligated to stay an infringement action against a “covered customer” (defined as a retailer or end user accused of infringement as a result of the sale, offer for sale or use of a patented product or process) where the manufacturer of the accused product or process is also a party to the action against the customer or a separate infringement action involving the same patent or patents, the covered customer agrees to be bound by the patent determinations that are made in the case against the manufacturer, and the motion to stay is filed no later than 120 days after service of the first pleading against the covered customer or the date on which the first scheduling order is entered.  If the covered customer impleads the manufacturer of the accused product or process into the case, then a stay may only be granted if the covered customer and manufacturer agree in writing to a stay.  If the manufacturer obtains or consents to entry of a consent judgment or fails to prosecute the patent issues to a final decision, the District Court may, upon motion, determine that the consent judgment or unappealed final decision is not binding on the customer if the customer shows that “such an outcome would unreasonably prejudice or be manifestly unjust to the covered customer in light of the circumstances of the case.”
  • Stay of Discovery Pending Decision on Certain Initial Motions.  The proposed PATENT Act would stay discovery in patent infringement actions during the pendency of a motion to dismiss, a motion to transfer venue and a motion to sever accused infringers if the motion or motions were filed prior to the first responsive pleading.  The District Court would retain discretion to allow limited discovery that is “necessary to resolve” such motions.
  • Discovery limitations.  The Act would also require the Judicial Conference to develop rules that address the extent to which each party in an infringement action is “entitled to receive core documentary evidence and should be responsible for the costs of producing core documentary evidence within the possession or control of each such party, and to what extent each party to the action may seek noncore documentary evidence.”
  • Fee Shifting.  Under the proposed PATENT Act, a District Court would be required to award reasonable attorney fees to a prevailing party if the court determines 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” unless “special circumstances would make an award unjust.”
  • Pre-suit written notice.  In an action alleging infringement “in which the plaintiff has provided written notice of the accusation of infringement to the party accused of infringement prior to filing the action,” the PATENT Act would require the “initial written notice” to: (1) identify each patent believed to be infringed and at least one claim of each patent that is believed to be infringed, (2) contain a “clear and detailed description of the reasons why the plaintiff believes each patent identified . . . is infringed,” (3) notify the recipient that they may have the right to a customer-suit stay, (4) identify any person that has the right to enforce the patent, and (5) if compensation is proposed, “a short and plain statement as to how the proposed compensation was determined.”  If the initial written notice does not contain such information, the defendant’s time to respond to a complaint alleging patent infringement is extended by thirty (30) days.  Additionally, a patent plaintiff seeking to establish willful infringement may not rely on evidence of pre-suit notification unless the notification includes such information.
  • Regulation of “Abusive” Demand Letters.  Similar to the proposed TROL Act, the PATENT Act would render the “widespread” sending of unfair and deceptive demand letters a violation of Section 5 of the FTC Act and expressly grant the FTC the authority to bring enforcement actions against alleged violators.  A demand letter would be deemed to be unlawful if, among other things:
    • it falsely represents that administrative or judicial relief has been sought against the recipient or others or threatens litigation if compensation is not paid, the infringement issue is not otherwise resolved, or the communication is not responded to and there is a pattern of false statements regarding administrative or judicial relief against the recipients or others having been made without litigation or other relief then having been pursued;
    • the assertions contained in the communications lack a reasonable basis in fact or law (e.g., the sender does not have the right to enforce the patent, the sender seeks compensation for acts occurring after the patent has expired, the patent has been finally held to be invalid or unenforceable); or
    • the content of the written communication is likely to materially mislead a reasonable recipient because the content fails to include facts reasonably necessary to inform the recipient (1) of the identity of the person asserting a right to license the patent to, or enforce the patent against, the intended recipient or any affiliated person, (2) of the patent allegedly infringed by the recipient, and (3) if infringement or the need to pay compensation for a license is alleged, of an identification of at least one product, service, or other activity of the recipient that is alleged to infringe the identified patent or patents and, unless the information is not readily accessible, an explanation of the basis for such allegation.

On Tuesday, the co-sponsors released the Committee Manager’s proposed amendments to the PATENT Act.  Among other things, the amendments would add language that changes the procedures for inter partes review (IPR) and post grant review (PGR) at the Patent Office.  Specifically, the amendments would:

  • require IPR and PGR proceedings to apply the same claim construction standard used in District Court and consider District Court claim constructions;
  • estop parties from eschewing in later court or Patent Office proceedings arguments made on claim construction to the Patent Office;
  • presume that patents are valid in IPR and PGR proceedings, though retaining the current preponderance of the evidence burden to invalidate a patent in such proceedings;
  • clarify that the Patent Office Director has discretion not to institute an IPR or PGR if doing so would not serve the interests of justice considering factors such as whether the same prior art or arguments were decided in a prior proceeding or the patent is the subject of a current Patent Office proceeding;
  • allow patent owners to submit evidence in response to a petition to institute an IPR or PGR, and permit petitioners to file a reply to respond to new issues;
  • direct the Patent Office to modify the IPR and PGR process so that institution and merits decisions are not made by the same panels;
  • direct the Patent Office to hold a rulemaking on instituting a Fed. R. Civ. P. 11-type obligation in IPR and PGR proceedings;
  • require PTAB decisions to be publicly available and searchable on the web; and
  • remove the ability to join additional claims to a timely-filed IPR after the time for filing has elapsed, except for claims that are newly-served against the petitioner in an amended complaint (which get 1 year from amendment).

The Judiciary Committee is scheduled to mark-up the PATENT Act today.

Patent claims have “limitations.”  Accused infringing products have “elements.”  A patent owner may argue that patent claim “limitations” read onto “elements” of an accused infringing product.  The Federal Circuit, sitting en banc, resolved this divisive issue fifteen years ago: “It is preferable to use the term ‘limitation’ when referring to claim language and the term ‘element’ when referring to the accused device.” Festo v. Shoketsu, 234 F.3d 558, 563 n.1 (Fed. Cir. 2000) (en banc).  Unfortunately, in the same breath in which the Federal Circuit gaveth clarity, it also tooketh it a way, the complete Festo statement being as follows:

In our prior cases, we have used both the term “element” and the term “limitation” to refer to words in a claim.  It is preferable to use the term “limitation” when referring to claim language and the term “element” when referring to the accused device.  However, because the en banc questions use the term “element,” we use that term in this opinion. [emphasis added; internal citations omitted]

So when attorneys and courts quote other language from this Festo decision — one of the most quoted decisions in patent law — that language improperly uses the term “element” to refer to patent claim language, rather than “limitation”, thus perpetuating the very confusion that the Festo footnote sought to clarify.  Darn … missed it by that much.

It is understandable, then, that language in the newly proposed Manager’s amendment to the Senate’s PATENT Act bill may misuse the term “element”, stating the following in a portion of the bill on what information must be provided in pleading patent infringement:

(5) For each claim identified under paragraph (2), a description of the elements thereof that are alleged to be infringed by the accused instrumentality and how the accused instrumentality is alleged to infringe those elements. [emphasis added]

Perhaps this language is intended to seek a description of how claim limitations read onto elements of an accused instrumentality?

This is part of a contested provision in the bill regarding how much information must be provided in a complaint in order to initiate a district court litigation on patent infringement.  The various interested parties, Senators and their staff may be more focused at the moment on the big picture of whether and to what extent there should even be such a provision at all.  Addressing this technical problem may not be high on the priority list.  Those who oppose this provision altogether may focus more on striking the entire provision than correcting this.  Those who want this provision may be wary about proposing any change lest the house of cards fall altogether.

Patent purists would want to see the words “limitations” and “elements” used correctly.  The Federal Circuit’s well-intended attempt in Festo to teach us how to use the terms “limitations” and “elements” was less than perfect in its execution.  The current bill misses the mark.  We take no position here whether any of the bill’s provision itself or anything like it should be enacted.  But if — for good or for bad — something is enacted, may “limitations” be limitations, “elements” be elements, and “bears” be bears (okay …  bears have nothing to do with this, but it made for a more interesting title to this post).

As we previously reported, the Senate Judiciary Committee has postponed a vote on proposed patent litigation reform legislation several times.  Now, the Senate is tabling the issue altogether due to an apparent lack of bi-partisan support for the provisions in the bill.  On Wednesday, Senator Leahy, the bill’s sponsor, announced that “there has been no agreement on how to combat the scourge of patent trolls on our economy without burdening the companies and universities who rely on the patent system every day to protect their inventions.”

Late last year, the House of Representatives passed the Innovation Act, a patent litigation reform bill that is aimed at reducing perceived abusive tactics by non-practicing entities (what some refer to as patent trolls) in patent litigation.  According to Senator Leahy, the Senate has “heard repeated concerns that the House-passed bill went beyond the scope of addressing patent trolls, and would have severe unintended consequences on legitimate patent holders who employ thousands of Americans.”

“I have said all along that we needed broad bipartisan support to get a bill through the Senate,” said Senator Leahy. “Regrettably, competing companies on both sides of this issue refused to come to agreement on how to achieve that goal.”  Therefore, “[b]ecause there is not sufficient support behind any comprehensive deal, I am taking the patent bill off the Senate Judiciary Committee agenda.”  “If the stakeholders are able to reach a more targeted agreement that focuses on the problem of patent trolls, there will be a path for passage this year and I will bring it immediately to the Committee.”

 

 

 

Today, the U.S. Supreme Court issued two opinions (Octane Fitness and Highmark) that create a more flexible, deferential standard for determining what constitutes an “exceptional” patent case in which a district court has discretion to award reasonable attorney’s fees to the prevailing party.  The Court rejected the Federal Circuit’s rigid test that required a clear and convincing burden of proof and adopted a more flexible, plain meaning approach to what makes a case “exceptional” as compared to run-of-the-mill cases under the lower preponderance of the evidence burden of proof.  The Court also rejected the Federal Circuit’s appellate de novo review of such awards, and adopted an abuse of discretion standard that is much more deferential to the district court’s fee-shifting ruling.

35 U.S.C. Section 285 governs attorney fee awards in patent cases, and provides as follows:  “The court in exceptional cases may award reasonable attorney fees to the prevailing party.”

Historically, courts applied the Federal Circuit’s holding in Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc. for determining whether a case is “exceptional” thereby permitting a court to award attorney fees to the prevailing party.  Under Brooks Furniture, a case was “exceptional” if (1) the case involved “material inappropriate conduct” in the litigation or prosecuting the patent or (2) the case was both “objectively baseless” and “brought in subjective bad faith.”  Brooks Furniture also required that parties establish the “exceptional” nature of a case by “clear and convincing evidence.”

Octane Fitness:  The Supreme Court’s decision today in Octane Fitness, LLC v. ICON Health & Fitness, Inc. overruled Brooks Furniture.  The patent owner, ICON Health, manufactured exercise equipment and sued its competitor Octane Fitness alleging infringement of a patent directed to a certain type of elliptical exercise machine.  The district court granted Octane’s motion for summary judgment of no infringement.  Octane then moved for attorney’s fees under §285.  The district court denied Octane’s motion given the stringent Brooks Furniture standard, because Octane could not show either that ICON’s claim was objectively baseless or that ICON brought the claim in subjective bad faith.  As to objective baselessness, the district court rejected Octane’s argument that the judgment of non-infringement “should have been a foregone conclusion to anyone who visually inspected” Octane’s machines.  Although the court rejected ICON’s infringement arguments, they were neither “frivolous” nor “objectively baseless.”  The district court also found no subjective bad faith on ICON’s part, dismissing as insufficient both “the fact that [ICON] is a bigger company which never commercialized the [asserted] patent” and an e-mail exchange between two ICON sales executives, which Octane had offered as evidence that ICON had brought the infringement action “as a matter of commercial strategy.”

ICON appealed the judgment of non-infringement, and Octane cross-appealed the denial of attorney’s fees.  The Federal Circuit affirmed both orders.  In upholding the denial of attorney’s fees, the Federal Circuit rejected Octane’s argument that the district court had “applied an overly restrictive standard in refusing to find the case exceptional under §285.”  The Supreme Court granted certiorari and reversed.

The Court held that “[i]n 1952, when Congress used the word [‘exceptional’] in §285 (and today, for that matter), ‘[e]xceptional’ meant ‘uncommon,’ ‘rare,’ or ‘not ordinary.'”   “We hold, then, that an ‘exceptional’ case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.”  Under the new Octane Fitness standard,       “[d]istrict courts may determine whether a case is ‘exceptional’ in the case-by-case exercise of their discretion, considering the totality of the circumstances.”  Drawing support from the Copyright Act, the Court held that “[t]here is no precise rule or formula for making these determinations, but instead equitable discretion should be exercised in light of the considerations we have identified.'”

According to the Court, the “Federal Circuit’s formulation [in Brooks Furniture] is overly rigid” because, under it, “a case is ‘exceptional’ only if a district court either finds litigation-related misconduct of an independently sanctionable magnitude or determines that the litigation was both ‘brought in subjective bad faith’ and ‘objectively baseless.'”  “This formulation superimposes an inflexible framework onto statutory text that is inherently flexible.”

Octane Fitness also overruled Brooks Furniture’s requirement that an “exceptional” case must be established by clear and convincing evidence.  “We have not interpreted comparable fee-shifting statutes to require proof of entitlement to fees by clear and convincing evidence” and “nothing in §285 justifies such a high standard of proof.”  Rather, “Section 285 demands a simple discretionary inquiry; it imposes no specific evidentiary burden, much less such a high one.”  “[P]atent-infringement litigation has always been governed by a preponderance of the evidence standard. . . and that is the standard generally applicable in civil actions, because it allows both parties to share the risk of error in roughly equal fashion.”

The Court reversed the Federal Circuit’s decision and remanded the case for further proceedings consistent with the Court’s holdings.

Highmark:  The Supreme Court’s decision in Highmark, Inc. v. Allcare Health Management System, Inc. concerned alleged infringer Highmark, a health insurance company, filing a declaratory judgment suit against patent owner Allcare alleging that Allcare’s patent directed to “utilization review” in “managed health care systems” was invalid, unenforceable and not infringed;  Allcare counterclaimed for patent infringement.  The district court granted summary judgment of non-infringement in favor of Highmark.

Highmark then moved for fees under §285.  The district court granted Highmark’s motion, reasoning that Allcare “had engaged in a pattern of ‘vexatious’ and ‘deceitful’ conduct throughout the litigation.”  Specifically, it found that Allcare had “pursued this suit as part of a bigger plan to identify companies potentially infringing the ‘105 patent under the guise of an informational survey, and then to force those companies to purchase a license of the ’105 patent under threat of litigation.”  The district court also “found that Allcare had ‘maintained infringement claims [against Highmark] well after such claims had been shown by its own experts to be without merit’ and had ‘asserted defenses it and its attorneys knew to be frivolous.'”  The district court fixed the award at $4,694,727.40 in attorney’s fees and $209,626.56 in expenses, in addition to $375,400.05 in expert fees.

The Federal Circuit affirmed in part and reversed in part.  It affirmed the district court’s exceptional-case determination with respect to the allegations that Highmark’s system infringed one claim of the ‘105 patent, but reversed the determination with respect to another patent claim in applying a de novo review of that determination.  The court held that because the question of whether litigation is “objectively baseless” under Brooks Furniture “‘is a question of law based on underlying mixed questions of law and fact,'” an objective-baselessness determination is reviewed on appeal “‘de novo‘” and “without deference.”  The Federal Circuit then determined that “Allcare’s argument” as to claim construction “was not ‘so unreasonable that no reasonable litigant could believe it would succeed.'”  The court further found that none of Allcare’s conduct warranted an award of fees under the Brooks Furniture litigation-misconduct prong.

The Supreme Court granted certiorari, vacated the Federal Circuit’s opinion, and remanded the case for further proceedings.  The Court began its analysis by citing its new Octane Fitness decision, which “rejects the Brooks Furniture framework as unduly rigid and inconsistent with the text of §285.”   Octane Fitness “instructs that ‘[d]istrict courts may determine whether a case is ‘exceptional’ in the case-by-case exercise of their discretion, considering the totality of the circumstances.'”  “Our holding in Octane settles this case: Because §285 commits the determination whether a case is ‘exceptional’ to the discretion of the district court, that decision is to be reviewed on appeal for abuse of discretion.”

Potential impact on pending patent legislation?:  As we previously reported, Congress is currently working on patent reform legislation targeted at reducing perceived negotiation and litigation abuses by non-practicing entities (what some call “patent trolls”).  Late last year, the House passed a bill that would, inter alia, require the losing party in patent cases to pay the prevailing party’s attorney’s fees unless the position and conduct of the non-prevailing party was reasonably justified in law and fact.  The Senate is currently debating a competing bill as well as compromise language that would insert similar fee-shifting language.  The Supreme Court’s two rulings today requiring a prevailing party to only show that a case is exceptional by a preponderance of the evidence and granting the district court broader discretion to rule which cases are indeed exceptional may impact the future of the fee-shifting provisions in the legislation under consideration.  Congress may consider tabling legislative fee-shifting provisions in favor of giving courts an opportunity to address patent litigation abuse under the new flexible and discretionary standard.

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 passedbill 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.

Hopefully the current patent reform effort to address perceived patent litigation abuse problems will result in carefully targeted tweaks to–without harming–our otherwise thriving U.S. patent system, the greatest system for innovation that the world has ever known (see our Patent Forest post).  The Senate is currently considering this balance.  The Senate Judiciary Committee was scheduled to mark-up and vote on a proposed bill designed to curb perceived litigation abuses by non-practicing entities (what some refer to as patent “trolls”) last Thursday but the vote was postponed to give Committee members and their staff time to continue working on language that strikes a balance between protecting the rights of patent holders to pursue good faith claims of infringement and reducing the alleged bad faith tactics of non-practicing entities.  According to Senator Leahy (D-Vt.), the bill’s sponsor, a proposed provision aimed at reducing the ability of non-practicing entities to hide behind shell corporations in order to be judgment proof had proven to be “complicated.”  However, the Senator noted that the bill had bipartisan support.

The Committee pushed the vote to Tuesday, April 8, however it was again postponed.  According to published reports, Democrats circulated revisions of the bill to the Committee but have yet to receive feedback from Republican members.  The Committee will attempt to mark-up the bill on April 10.

As we discussed in a prior post, the proposed bill would require patent-plaintiffs to disclose ownership information for asserted patents at the outset of infringement litigation.  The bill would also require courts to stay infringement suits against customers of infringing products or processes if the manufacturer and customer consent, the manufacturer is a party to an action involving the same patents or product(s), the customer agrees to be bound by the result of the manufacturer’s litigation, and the motion for stay is filed within a specified time early in the case.

The bill would also expressly grant the Federal Trade Commission authority to investigate and bring enforcement actions against patent holders that engage in unfair and deceptive acts and practices in connection with demand letters to accused infringers.

Late last year, the House of Representatives passed a competing bill that would impose heightened pleading standards for patent infringement complaints and also require a patent-plaintiff to plead       “[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.”  As we have discussed before, SSOs generally do not declare patents essential or potentially essential to their standards.  Rather, declarations of essentiality are usually made by the patent owners themselves in letters of assurances or similar disclosures. However, these disclosures frequently do not declare whether the patent covers the standard, but assert that it might cover the standard and set forth the obligations the patent owner agrees to if the patent actually is essential to the standard.

As we discussed in a prior post, the U.S. Senate is currently debating a patent reform bill (“the Innovation Act”) passed by the House of Representatives late last year directed to perceived patent litigation abuse by certain patent assertion entities (what some characterize as “patent trolls”).  The Senate is also debating a competing bill (“the Patent Transparency and Improvements Act of 2013”) introduced by Senator Patrick Leahy (D-Vt.), Chairman of the Senate Judiciary Committee.

The bill passed by the House would impose heightened pleading standards for patent infringement complaints, requiring patent-plaintiffs to identify — in their complaint — 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.  These standards would, if enacted into law, provide patent-defendants the opportunity to seek early dismissal of complaints that fail to plead the requisite factual information.

The House bill would also require a patent-plaintiff to plead “[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.”  As we noted previously, SSOs generally do not declare patents essential or potentially essential to their standards.  Instead, declarations of essentiality are usually made by the patent owners themselves in letters of assurances or similar disclosures.  These disclosures frequently do not declare whether the patent covers the standard, but assert that it might cover the standard and set forth the obligations the patent owner agrees to if the patent actually is essential to the standard.

The Senate bill would require patent-plaintiffs to be transparent with ownership information for asserted patents.  Specifically, at the outset of infringement litigaiton, patent-plaintiffs would be required to disclose to the Court and all adverse parties any persons, associations of persons, firms, partnerships, corporations (including parent corporations), or other entities other than the patentee itself known by the patentee to have “a financial interest (of any kind) in the subject matter in controversy or in a party to the proceeding; or (2) any other kind of interest that could be substantially affected by the outcome of the proceeding.”

The Senate bill would also require courts to stay infringement suits against customers of infringing products or processes if:

(1) the manufacturer and the customer consent in writing to the stay;

(2) the manufacturer is a party to the action or a separate action involving the same patent or patents relating to the same covered product or process;

(3) the customer agrees to be bound under the principles of collateral estoppel by any issues finally decided as to the manufacturer that the customer has in common with the manufacturer; and

(4) the motion for stay is filed after the first pleading in the action but not later than the later of—(a) 120 days after service of the first pleading in the action that specifically identifies the product or process as a basis for the alleged infringement of the patent by the customer, and specifically identifies how the product or process is alleged to infringe the patent; or (b) the date on which the first scheduling order in the case is entered.

The Senate bill would also expressly grant the Federal Trade Commission authority to investigate and bring enforcement actions against patent holders that engage in unfair and deceptive acts and practices in connection with demand letters to accused infringers.

Recently, Senator Leahy announced that he would be listing “bipartisan legislation for consideration on” the Senate’s next agenda.  As a result, the bipartisan bill will be discussed during the upcoming Executive Business Meeting of the Senate Judiciary Committee on March 27, 2014.  We will monitor the meeting and provide an update on the status of this legislation.