United States: Pending Patent Legislation—Round Two Of Patent Reform

The U.S. Congress is once again poised to enact a new round of patents reforms.  It is important to know the potential impact the legislation could have on your intellectual property portfolio and to be prepared to act.

On the heels of the recently enacted America Invents Act, the United States Congress is once again interested in patent reform.  Now the focus is on abusive patent litigation, specifically the activities of "patent trolls." 

On December 5, 2013, the House of Representatives passed the Innovation Act (H.R. 3309) by an overwhelming vote of 325–91, just six weeks after it was introduced.  The Senate also has its own version of the legislation (S. 1720; the Senate version, or Leahy-Smith Bill).  The Senate Judiciary Committee held a hearing on the proposed legislation on December 17, 2013, entitled "Protecting Small Businesses and Promoting Innovation by Limiting Patent Troll Abuse," and should soon release its version of the bill.

The pending legislation will affect the ability of all companies to enforce and protect their valuable patent rights.  In their current forms, both the House bill and the Leahy-Smith bill are not limited to patent trolls, but apply to all patent litigation.

Below is a brief synopsis of the proposed legislation and the potential impact it could have on companies.   

Disclosure of Patent Ownership

  • The House bill and Senate version both include provisions that require the plaintiff suing for infringement to disclose patent ownership information, including assignees and entities with a financial interest in the patent.
  • Senate version also requires that assignments of significant patent rights be recorded with the United States Patent and Trademark Office within three months of the assignment.
  • Potential Impact: Additional cost to analyze and record ownership; disclosure of confidential relationships; and failure to seek fees or enhanced damages for infringement if the patent owner fails to record.

Stays of Patent Suits Brought Against Customers and End-Users

  • The House bill and Senate version both provide for a stay of litigation against customers and end users, provided that the manufacturer is a party to the suit or involved in a separate suit with the plaintiff involving the same patents, and the customer agrees to be bound by the decision involving the manufacturer.  Both the manufacturer and the customer must agree to the stay.
  • Potential Impact: Gives manufacturers and suppliers the ability to indemnify retailors' and customers' litigation costs and not defend two separate actions.  Patent owners will be required to show that the stay is not justified (e.g., the product has been altered by the end user).  

Bad Faith Demand Letters

  • The Senate version makes the widespread dissemination of baseless demand letters an unfair or deceptive act to be investigated by the Federal Trade Commission.
  • The House bill authorizes a study on the practice and provides that plaintiffs may not use a demand letter as evidence of willful infringement to receive enhanced damages unless the letter identifies with particularity the alleged acts of infringement.
  • Potential Impact: Patent owners should consider obtaining the advice of counsel to make certain that demand letters to be issued are not covered by this provision.  This would delay the sending of demand letters and increase fees.

Modifications to Post-Grant Proceedings

  • Both the Senate version and the House bill eliminate the "reasonably could have raised" estoppel from the Post-Grant Review Proceedings and use the district court claim construction standard for all USPTO proceedings.
  • Potential Impact: Makes post-grant review a more desirable vehicle to challenge the validity of a patent.  Companies should put in place now a procedure to review patent publications of competitors before those patents are granted.  Using the district court claim construction standard will make it easier for patent owners to defend their claims.

Fee Shifting

  • The House bill provides for an award of attorneys' fees and expenses to the prevailing party unless the court finds that the position and conduct of the non-prevailing party were reasonably justified.  The Senate version does not have this provision.
  • Potential Impact: Before filing suit, an assessment should be made to determine the likelihood of being liable for fees and costs and the ability to pay.  Before settling, determine whether fees and costs may be recoverable if litigation proceeds.  Contingent fee arrangements may be incentivized and other parties who have an interest in the patent may end up being liable for the fees and costs.

More Detailed Complaints

  • The House bill requires that complaints for patent infringement provide a more detailed explanation of the alleged infringement, including an identification of the claims of each patent infringed, an identification of the infringing instrumentality, how the instrumentality infringes the claims and whether the patents are standard essential patents.  The Senate version does not have this provision.
  • Potential Impact: Requires investigation and fact gathering before filing suit, which could result in delays in filing suit and additional costs, and initial disputes in litigation about the adequacy of the complaints would increase the costs of litigation.

Limited Discovery Until Claim Construction Determined

  • The House bill stages discovery and limits discovery to those matters necessary for claim construction until the district court determines claim construction in the Markman ruling.  The Senate version does not have this provision.
  • Potential Impact: Delays resolution of suit to disadvantage of patent owner with meritorious claims; alleged infringer is incentivized to draw out Markman ruling.

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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