United States: Two Signs That Patent Reform Momentum May Be Slowing

With the rise of patent trolls, software patents, and spiraling patent litigation costs over the past 10 years, there arose a call for patent reform. There was a call to limit the ability of patent assertion entities to extort settlements from manufacturers and sellers. There was a call to prevent the issuance of weak and vague software patents containing language that could be applied to myriad of technology regardless of what was actually contemplated. And, there was a call to change litigation rules involving patents so that defendants could better challenge invalid or overly-broad patents without incurring unduly burdensome legal bills.

These cries for reform resulted, in part, in the passage of the America Invents Act (AIA) — the most significant alteration of patent law in decades. Of note, the AIA expanded and incentivized administrative alternatives to litigation, providing a lower cost option for those seeking to invalidate issued patents. The cries also resulted in judicial reform. In cases like Alice v. CLS Bank, courts invalidated overly broad or vague software patents (the backbone of patent assertion entity practice) as being incapable of patent protection. Sensitive to complaints about litigation costs and the common patent assertion entity tactic of using litigation costs to extort settlements, courts welcomed changes to patent litigation procedures. They prioritized claim construction over discovery, resulting in cheaper avenues to invalidate patents early in proceedings and lower litigation costs. In Octane Fitness v. Icon Health & Fitness, they lowered the once insurmountable burden of persuasion necessary to obtain an award of attorneys' fees, creating real fear for patent plaintiffs in meritless claims.

These reforms have had a measurable impact. AIA administrative challenges continue to increase in number, and, most of the time, they result in the invalidation of challenged patent claims. Recent reports also indicate a drop in overall patent litigation numbers. And, while in no way the norm, the award of attorneys' fees in patent litigation is now increasingly possible. This change has increased defendants' desire to fight against meritless or dubious claims and further increased the risks to patent holders.

But as another round of legislative patent reforms are contemplated in Congress, the question becomes whether patent reform still has the appeal it once did. Two indicators point to an ebb in the desire for patent reform, perhaps signaling the earliest shift in favor of patent protection.

Patent reform no longer a 'slam dunk'
At the beginning of this legislative session, with a clear Republican majority in both houses of Congress and Sen. Reid's roadblock from last year out of the way, it appeared a foregone conclusion that the patent reform legislation that passed the House last year, would pass both houses this year and be sent to the President (who had voiced approval for the measure in the past). But, just like last year, cracks are forming in the unified Republican front on this issue. Pressure has risen from business groups opposed to some of the reform measures. The pharmaceutical industry has  voiced their concern at the impact of reform on so-called, "legitimate" patents and innovation. Universities and smaller players were concerned that fee-shifting provisions (requiring unsuccessful parties to pay the winners' attorneys' fees) may make the potential cost of litigation  too expensive to risk in all but the most certain of cases.

While patent reform legislation is still considered likely to pass, there is increased talk that the concerns raised by businesses and universities may result in the softening of some of the most highly touted reforms like fee-shifting. Supporters also fear this softening may remove all the teeth from the legislation — leaving it reform in name only.

The tide turns against 'unfair' AIA review proceedings
AIA post-grant reviews of issued patents have done exactly what they were designed to do. They have provided a cheaper alternative to patent litigation that allows improperly issued patent claims to be invalidated. But, increasingly, the success of these challenges is being derided as unfair.

The rules governing these reviews give patent holders little opportunity to amend claims to avoid cited prior art. Without the ability to amend claims, challenged patent claims are almost always found invalid. This has, in the words of one practitioner, created an " intense backlash" among patent holders who believe the current process is unfair.

There is also concern that the process for deciding whether to institute patent reviews — and the eventual outcome of those reviews — is unfair. Currently, the same three-judge panel that reviews the petition to determine whether a significant validity issue is raised is the same panel that ultimately decides the issue of validity.  Some have complained that allowing the same judges who instituted the review to also judge the review taints the judges' objectivity — as success for patent holders can only be had if they can change the mind of two judges who earlier found issues with the patent's validity.

To combat these complaints, as well as some others, the PTO announced on March 27, 2015, that it would be rolling out rule changes to its AIA reviews. The PTO has hinted that it will be easing the ability for patent holders to amend patent claims during proceedings — allowing more claims to survive review and later be asserted in litigation. In addition, the PTO has begun a pilot program that would allow one judge to decide whether to institute a review and then have that judge joined by two others (with "fresh eyes") before deciding the ultimate issue. This would allow patent holders to succeed if they can convince two judges, for the first time, that the claims of the patent are valid.

So, is patent reform dead? Hardly. The fact remains that aggressive patent assertion entities still poses serious problems. But the drum beat for change is no longer unanimous. There are signs that earlier reforms are having the desired effect and should just be given more time. Perhaps these shifts indicate the start of the patent reform pendulum swinging back to center.

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