United States: Chairman Goodlatte Introduces "Innovation Act" To Curb Abusive Patent Litigation

Following two earlier drafts floated in May and September 2013, House Judiciary Committee Chairman Bob Goodlatte on October 23, 2013 formally introduced a bill, titled the "Innovation Act," aimed at curbing abusive patent litigation. While ostensibly triggered by concerns surrounding what some in the industry have termed non-practicing entities, the legislation introduced on October 23 contains very few provisions that actually single out non-practicing entities. Instead, the bill as written, would impact all patent owners and all litigants in patent infringement cases. While the bill would have to go through many steps before it has a chance to become law, studying the provisions in the current version will allow stakeholders a chance to provide meaningful input to improve the law before it is enacted and to develop a deeper understanding of its impact in case it becomes law.

A hearing on the bill has already been scheduled for Tuesday, October 29, 2013, in front of the full House Judiciary Committee, thus bypassing the IP Subcommittee.

Predictions of imminent passage of any of the diverse patent bills now before Congress, or in the pipeline, are premature. Absent cloture in the Senate (which requires 60 votes), any single senator can block passage of the bill. The most likely scenario is that legislation will be refined and go through committee considerations in the coming eight or nine months running up to the summer recess in 2014, with last-minute deal-making potentially occurring in the "lame duck" session after the November 2014 congressional elections.

Companies in any industry impacted by the patent system should carefully review the pending legislation and become involved early on in the debate. The numerous provisions in the diverse patent bills are likely to have a substantial (and perhaps unintended) impact on companies' patent litigation strategies and budgets.

The following is a section-by-section summary of the bill adapted from the Committee's summary.

Sec. 3. Patent Infringement Actions

  • Heightened initial pleading requirements—heightens the initial pleading requirements by requiring a patentee to identify the patents and claims infringed, the name and serial number of the accused product, and where each claim element is found in the accused product.
  • §285 Fee Shifting—replaces the "exceptional case" standard for fee-shifting with the standard used for awarding fees against the United States Government under the Equal Access to Justice Act, 28 U.S.C. § 2412(d) (fee shifting unless the non-prevailing party's position was "substantially justified or . . . special circumstances make an award unjust"). Fees can be awarded against any joined party.
  • Joinder provision—requires joinder of parties that have an interest in the patent, including the right to enforce or sublicense the patent, or the right to receive damages or licensing revenue.
  • Discovery in patent cases—limits discovery until after the court issues a claim construction ruling.

Sec. 4. Transparency of Patent Ownership

Plaintiff must inform the parties, the court, and the USPTO of the identity of any (1) assignee of the patent, (2) entity with right to sublicense or enforce the patent, (3) entity with any financial interest in the patent or in the plaintiff, and (4) ultimate parent entity of assignee. Plaintiff has an ongoing duty to update this information throughout the life of the patent or risk losing the ability to receive enhanced damages.

Sec. 5. Customer-Suit Exception

Allows a manufacturer (or supplier) to intervene in a suit against his customers, and allows the action to be stayed as to the customer, if both the manufacturer and customer both consent to the stay. The motion to stay must be filed within 120 days after first infringement pleading.

Sec. 6. Procedures and Practices to Implement and Recommendations to the Judicial Conference

  • Discovery of core documents—requires the Judicial Conference to promulgate rules and procedures on core document discovery. Any party that requests additional discovery would be responsible for paying the cost of the additional discovery.
  • Case Management—provides for procedures to ensure initial disclosure and early case management conference practices in District Courts and to help identify any potentially case-dispositive issues.
  • Elimination of Form 18 (patent infringement complaint).
  • Protection of IP licenses in bankruptcy—requires U.S. courts to follow U.S. law (11 U.S.C. § 365(n)) in cross-border bankruptcy cases.

Sec. 7. Small Business Education, Outreach, and Information Access

  • Requires the USPTO to provide educational resources and outreach programs for small businesses facing abusive patent litigation practices.
  • Requires the USPTO to develop a website that includes patent ownership (real party in interest; ultimate parent entity) information.

Sec. 8. Studies on Patent Transactions, Quality, and Examination

  • Study on secondary market oversight for patent transactions to promote transparency and ethical business practices.
  • Study on patents owned by the U.S. government.
  • Study on patent quality and access to the best information during examination.

Sec. 9. Improvements and Technical Corrections to the Leahy-Smith America Invents Act

  • Repeals Section 145's civil actions de novo against the USPTO.
  • Narrows Post-Grant Review estoppel to issues that the petitioner actually "raised" in PGR, not issues that the petitioner "reasonably could have raised" in PGR.
  • Eliminates "broadest reasonable interpretation" standard for claim construction in IPR and PGR, and instead requires USPTO to follow district court claim-construction methodology.
  • Codifies double-patenting doctrine for first-to-file patents.
  • Business Method Patent Review—(1) limits CBM to first-to-invent patents; (2) repeals 8-year sunset for CBM, thereby making CBM permanent; (3) adopts the USPTO's interpretation of "financial product or service" from SAP v. Versata, CBM2012-00001; and (4) expands the scope of prior art to further include prior art under 35 U.S.C. §§ 102(d) and (e).
  • Patent Term Adjustment—eliminates "B delay" patent-term adjustment for any time accrued after an applicant has restarted prosecution by filing a request for continued examination.

Foley IP attorneys will continue to monitor significant legal and legislative developments and provide timely updates to our clients.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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