United States: Revived Innovation Act To Curb Patent Trolls

Last Updated: February 18 2015
Article by Diana Rutowski and Cam Phan

Here we go again.

Back in October 2013, Rep. Bob Goodlatte, R-VA, introduced H.R.3309 entitled "Innovation Act" in the House of Representatives with the stated aim of curbing frivolous patent suits brought by non-practicing entities, aka patent trolls. That bill passed the House by a vote of 325 to 91. But in May 2014, the bill was then taken off the Senate Judiciary Committee Agenda, effectively dead.

Last Thursday, February 5, Rep. Goodlatte revived his bill with the support of 18 cosponsors from both sides of the aisle. H.R.9, again entitled "Innovation Act," is substantially similar to H.R. 3309. H.R. 9, for example, has the following provisions:

  • Heightened Pleading Requirements: The patent owner "shall" identify in the complaint each patent claim, name or model number of accused instrumentality, and how said instrumentality allegedly infringes each claim. This requirement would significantly expand the burdens on patent plaintiffs at the immediate outset of a case to clearly articulate their case, in contrast to the general "notice pleading" approach that currently applies to patent complaints;
  • Fees to Prevailing Party: The Court "shall" award reasonable fees and other expenses to the prevailing party unless the nonprevailing party's position was reasonably justified in law and fact or special circumstances makes an award unjust. The mandatory language of this provision would seem to make the award of attorneys fees to a prevailing defendant much more likely than the discretionary fee-shifting powers courts have under the Supreme Court decision in Octane Fitness v. Icon;
  • Limits discovery until claim construction ruling: Discovery prior to claim construction ruling is limited to information necessary for the court to determine the meaning of the terms. This could substantially decrease the discovery costs on defendants since claim construction issues are often dispositive in patent cases;
  • Pre-suit evidence for willful infringement: The patent owner may not rely on evidence of pre-suit notification of infringement as a basis for pre-suit damages for apparatus claims unless that notification identifies with particularity the asserted patent, the product or process accused and (if possible) how that instrumentality infringes the patent, and the parent entity of the claimant.
  • Transparency of ownership: The patent owner must disclose the assignee of the patent; any entity with a right to sublicense or enforce the patent; any entity that has a financial interest in the patent; and the ultimate parent entity of the assignee, sublicensee, or entity with the financial interest. This provision appears to be directed at allegations that certain non-practicing entities operate through shell corporations and other structures and obscure the true identify of the plaintiff.
  • Customer-Suit exception: If certain requirements are met, the court "shall" stay action against a customer if the manufacturer is a party to the action or initiated action to challenge the patent. The defendant customers is bound by any issues that are shared between the customer and the manufacturer. Again, this exception could substantially reduce costs associated with joint defense and indemnification claims.
  • Claim Construction Standard in IPR: In a provision that would seem to favor patent plaintiffs, the Innovation Act would require the Patent Trials and Appeals Board in post-grant and inter partes review to use the district court's claim construction standard, i.e., "construing each claim of the patent in accordance with the ordinary and customary meaning of such claim as understood by one of ordinary skill in the art and the prosecution history pertaining to the patent." And if the district court has previously construed the claim, the USPTO shall consider such claim construction. This is in contrast to the more permissive "Broadest Reasonable Interpretation" standard currently applied to IPRs, which tends to permit a broad range of prior art to be considered.

Thus, the net effect of the Innovation Act would be shift additional burdens on patent owners in demonstrating a reasonable basis for their claims early on and limiting certain discovery expenses that defendants may currently bear in complex multi-defendant cases. However, the provisions are substantially the same, in some cases identical, to the provisions in the previously-failed bill. So it remains an open question what the Senate will do this time.

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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