United States: "Patent Troll" Reform Bills Moving Through Congress

Last Updated: January 2 2014
Article by Jeffri A. Kaminski, Tyler Hale and William R. Nordwind

Patent litigation has become an enormous industry impacting companies of all sizes, from independent coffee shops to multinational technology firms.  In 2012 alone, there were 5,189 patent suits filed, which was a 29% increase from the previous year. Over half of all patent suits are brought by corporations created solely for the purpose of enforcing patent rights, formally called "non-practicing entities" (NPEs) or "patent assertion entities" (PAEs) -- colloquially referred to as "patent trolls." Over 70% of patents now being asserted are acquired patents, that is, the patents are not being asserted by the inventor(s) or original owner, compared to 10 years ago, when only 30% of asserted patents were acquired.

Notwithstanding the relatively recent enactment of major patent reform (i.e., the "America Invents Act"), key Congressional leaders remain focused on the continued rise in, and perceived abusive nature of, patent litigation; patent trolls are perceived to be the culprit.  As a result, several patent reform bills focused on patent trolls are under active consideration in the House and Senate, and, in the current political climate characterized by discord and obstruction, patent reform has drawn strong bipartisan support and cooperation. 

On December 5, 2013, major patent reform legislation, House Judiciary Committee Chairman Goodlatte's (R-VA) "Innovation Act" (H.R. 3309)(described below), overwhelmingly passed the House by a vote of 325-91.  Meanwhile, Senate Judiciary Committee Chairman Leahy (D-VT) and Senator Lee (R-UT) recently introduced bipartisan patent reform legislation, S. 1720 (described below), and, on Dec. 17, 2013, held a hearing on it in anticipation of further committee consideration of the bill, likely in early 2014.  In addition, bills (described below) introduced by Senators Hatch (R-UT), Cornyn (R-TX), and Schumer (D-NY) are among those most likely to be considered as potential amendments during further committee consideration of S. 1720. 

In addition, in early 2014, both the House Energy & Commerce Committee and the Senate Commerce Committee likely will consider legislation specifically focused on the Federal Trade Commission's (FTC) authority over unfair and deceptive trade practices relating to patent settlement demand letters, something which S. 1720, in part, also addresses. 

The following are summaries of the bills referenced above:

Innovation Act (H.R. 3309) (Rep. Goodlatte, R-VA)

H.R. 3309 attempts to reduce the granting of overbroad patents by repealing a provision of the U.S. Code enabling applicants to circumvent the USPTO by filing an action in federal district court instead of having to appeal a rejection to the Federal Circuit. It also redefines and narrows the estoppel impact of post-grant review and prevents double-patenting by amending the prior art requirements. The bill would reduce the impact of vaguely-written demand letters, heighten pleading standards, and impose new procedural and disclosure requirements on would-be patent asserters. It would allow prevailing parties to more readily recover litigation fees and discovery costs. Finally, the bill permits accused infringers to add parties having an ownership or financial interest in the patent to the litigation and expedite overall case disposition by streamlining case management and discovery procedures.

Patent Transparency and Improvements Act of 2013 (S. 1720) (Sen. Leahy, D-VT)

Senate Judiciary Committee Chairman Leahy's bill makes similar strides to curb overbroad patents and prevent double patenting. The bill would take a stronger stance on demand letters by labeling them unfair and deceptive trade practices under the Federal Trade Commission Act § 5(a)(1) and authorize the FTC to bring enforcement actions against issuers of false threats. S. 1720 would also require financial interest disclosures at the onset of litigation and create a customer stay provision.

Patent Litigation Integrity Act of 2013 (S. 1612) (Sen. Hatch, R-UT)

Sen. Hatch's bill is designed to make patent enforcement a high-risk gamble for the asserting entity. It would introduce a mandatory, two-way shifting of attorneys' fees to the losing party absent any special circumstances and would further require the patent asserter to post a bond sufficient to ensure the payment of such at the commencement of the action.

Patent Abuse Reduction Act (S. 1013) (Sen. Cornyn, R-TX)

Sen. Cornyn's bill largely mirrors the "Innovation Act" (H.R. 3309) (see above). It provides for heightened pleading standards, increased initial disclosures, shifting of discovery costs and fees, permissive joinder or parties, and the curtailing of runaway discovery.

Patent Quality Improvement Act (S. 866) (Sen. Schumer, D-NY)

Expands the existing post-grant review procedures established under the transitional program for covered business method patents to allow challenges to, inter alia, all software patents.

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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