Rep. Goodlatte Introduces His Patent Reform Bill (Again)

Goodlatte, BobAs expected by almost everyone (and anticipated by several groups who urged him not to do so; see “Pro-Patent Coalition Writes Letter to the House and Senate Judiciary Committees” and “Big Ten Lobbies Congress to Tread Lightly on “Patent Reform””), Rep. Bob Goodlatte (R, VA-6th), joined by Rep. Peter DeFazio (D, OR-4th), Rep. Darrell Issa (R, CA-49th), Rep. Jerrold Nadler (D, NY-10th), Rep. Lamar Smith (R, TX-21st), Rep. Zoe Lofgren (D, CA-19th),  Rep. Steve Chabot (R, OH-1st), Rep. Anna Eshoo (D, CA-18th), Rep. Randy Forbes (R, VA-4th), Mr. Pedro Pierluisi (D, Representative for Puerto Rico), Rep. Jason Chaffetz (R, UT-3rd), Rep. Hakeem Jeffries (D, NY-8th), Rep. Tom Marino (R, PA-10th), Rep. Blake Farenthold (R, TX-27th), Rep. George Holding (R, NC-13th), Rep. Bill Johnson (R, OH-6th), Rep. Jared Huffman (D, CA-2nd), Rep. Mike Honda (D, CA-17th), and Rep. Rick Johnson (D, WA-2nd) (in other words, a true bipartisan bill) today introduced his “Innovation Act” bill in substantially the same form as in the last Congress (H.R. 3309).  The bill is “bipartisan” for the same reason the Smith-Leahy America Invents Act (the AIA) was bipartisan — it is a bill whose provisions can be spun as being “a jobs bill” or one that “protects American innovation” by members on both sides of the aisle, and is sufficiently arcane that most members of the public will not be overly concerned about it.  Which is too bad, because the evidence is mounting that most of the provisions are unnecessary or could be accomplished by a much more limited bill directed at actual abuses of the patent system.  But if the same lineup of lobbying groups representing industries who need not rely on patents spends about as much money and is opposed by a fractured coterie of industries that actually do depend on patents, then passage is certain in the House, and likely also in the Republican-controlled Senate.  It is also a certainty that the President will sign such a bill; Mr. Obama has shown neither any understanding nor any affection for the patent system that would make him inclined to wield his veto pen.

The bill addresses two broad areas of the law:  patent litigation and “prosecution,” that is some aspects of how the Patent Office has implemented certain provisions of the AIA.  The bill is set out in ten sections:

Sec. 1. Short title; table of contents.
Sec. 2. Definitions.
Sec. 3. Patent infringement actions.
Sec. 4. Transparency of patent ownership.
Sec. 5. Customer-suit exception.
Sec. 6. Procedures and practices to implement recommendations of the Judicial Conference.
Sec. 7. Small business education, outreach, and information access.
Sec. 8. Studies on patent transactions, quality, and examination.
Sec. 9. Improvements and technical corrections to the Leahy-Smith America Invents Act.
Sec. 10. Effective date.

Five of these sections are substantive, and the bill also contains mandates for several “studies” on the patent system (similar to the “study” on second opinion genetic diagnostic testing in the AIA that still has not seen the light of day, almost three years after it was due).

The patent litigation provisions once again focus on the “burden” on (presumably) innocent infringers imposed by being named as a defendant in an infringement suit.  These include heightened pleadings requirements set forth in Sec. 3(A)(1)(a), including that in any infringement action the plaintiff must identify:

”(1) An identification of each patent allegedly infringed.
”(2) An identification of each claim of each patent identified under paragraph (1) that is allegedly infringed.
‘(3) For each claim identified under paragraph (2), an identification of each accused process, machine, manufacture, or composition of matter (referred to in this section as an ‘accused instrumentality’) alleged to infringe the claim.
”(4) For each accused instrumentality identified under paragraph (3), an identification with particularity, if known, of—
    ”(A) the name or model number of each accused instrumentality; or
    ”(B) if there is no name or model number, a description of each accused instrumentality.
”(5) For each accused instrumentality identified under paragraph (3), a clear and concise statement of—
    ”(A) where each element of each claim identified under paragraph (2) is found within the accused instrumentality; and
    ”(B) with detailed specificity, how each limitation of each claim identified under paragraph (2) is met by the accused instrumentality.
”(6) For each claim of indirect infringement, a description of the acts of the alleged indirect infringer that contribute to or are inducing the direct infringement.
”(7) A description of the authority of the party alleging infringement to assert each patent identified under paragraph (1) and of the grounds for the court’s jurisdiction.
”(8) A clear and concise description of the principal business, if any, of the party alleging infringement.
”(9) A list of each complaint filed, of which the party alleging infringement has knowledge, that asserts or asserted any of the patents identified under paragraph (1).
”(10) For each patent identified under paragraph (1), whether a standard-setting body has specifically declared such patent to be essential, potentially essential, or having potential to become essential to that standard-setting body, and whether the United States Government or a foreign government has imposed specific licensing requirements with respect to such patent.

It will be appreciated that some or much of the facts necessary to fulfill these requirements may not be available prior to discovery, and for at least some of these instances the bill provides (in Sec. 3(A)(1)(b)) that a plaintiff can describe the information generally, with an explanation of why more specific information could not be adduced (“was not readily accessible”) despite efforts to do so (wherein the substance of these efforts must also be plead).  Complaints containing confidential information can be filed under seal upon motion, which if denied entitle the party to “seek to file” an amended complaint (Sec. 3(A)(1)(c)).  And, as in the last version of the Innovation Act, ANDA litigation brought under 35 U.S.C. § 271(e)(2) are not subject to these requirements.

Another litigation-specific part of the bill (Sec. 3(b)(1)(a) et seq.), and the section that was responsible for Sen. Harry Reid (D-NV) refusing to bring the bill to the Senate floor, involves fee-shifting against a “non-prevailing party” “unless the court finds that the position and conduct of the nonprevailing party or parties were reasonably justified in law and fact or that special circumstances (such as severe economic hardship to a named inventor) make an award unjust.”  While couched in seemingly innocuous language, Sen. Reid appreciated (purportedly spurred on by the trial lawyers lobby) that these provisions constitute a sea change in the presumptions under U.S. law (this section begins with the phrase “The court shall award [such fees and “other expenses”]. . . ) that parties bear their own costs unless there is evidence that one party acted fraudulently or recklessly in bringing or defending against a lawsuit.  In addition, the bill contains indemnification provisions that may make one co-plaintiff (or, more rarely, co-defendant) liable for such an award in the event that one or more of the parties cannot satisfy the award (Sec. 3(b)(1)(b)).  The bill also discourages a patentee from offering a covenant not to sue as a means to settle infringement litigation, making such an offer an admission that the patentee is the “non-prevailing party” and thus a risk for an award of fees and costs to the accused infringer (Sec. 3(b)(1)(c)).

Curiously, this section of the bill also contains a provision that Sec. 273 of the Code be amended by striking sections (f) and (g); while this is seemingly not related to the other provisions, it does materially affect the effects of this section on the assertion of the “prior user rights” defense:

(a) In General.— A person shall be entitled to a defense under section 282 (b) with respect to subject matter consisting of a process, or consisting of a machine, manufacture, or composition of matter used in a manufacturing or other commercial process, that would otherwise infringe a claimed invention being asserted against the person if—
    (1) such person, acting in good faith, commercially used the subject matter in the United States, either in connection with an internal commercial use or an actual arm’s length sale or other arm’s length commercial transfer of a useful end result of such commercial use; and
    (2) such commercial use occurred at least 1 year before the earlier of either—
        (A) the effective filing date of the claimed invention; or
        (B) the date on which the claimed invention was disclosed to the public in a manner that qualified for the exception from prior art under section 102 (b).

* * *

(f) Unreasonable Assertion of Defense.— If the defense under this section is pleaded by a person who is found to infringe the patent and who subsequently fails to demonstrate a reasonable basis for asserting the defense, the court shall find the case exceptional for the purpose of awarding attorney fees under section 285.
(g) Invalidity.— A patent shall not be deemed to be invalid under section 102 or 103 solely because a defense is raised or established under this section.

(in other words, “unreasonable” assertion of the defense is no longer a per se violation that would invoke the “special case” provisions of the statute, and a patent could be deemed invalid under Sec. 102 or Sec. 103 of the statute “solely” because the defense had been plead).

These provisions are immediately effective upon enactment and apply to any complaint filed “on or after the first day of the 6-month period ending on that effective date.”

This section also contains provisions (Sec. 3(c)) for retroactive joinder, in cases where the non-prevailing party cannot satisfy the fees and expenses award, that would permit a prevailing party to join “an interested party” upon a showing that the non-prevailing party “has no substantial interest in the subject matter at issue other than asserting such patent claim in litigation”; these provisions are clearly directed at patent aggregation entities and other non-practicing entities, although it might be difficult to make the required showing against some NPEs (like universities, for example).  Such joinder has an actual notice requirement and a “get out of jail free” provision, wherein the party to be joined can escape liability by “renounce[ing], in writing and with notice to the court and the parties to the action, any ownership, right, or direct financial interest (as described in paragraph (4)) that the interested party has in the patent or patents at issue.”  “Interested parties” are defined in this section of the statute to include assignees, licensees with the right to enforce the patent in suit, or anyone else having a direct financial interest in the patent, but not counsel “if the sole basis for the financial interest of the attorney or law firm in the patent or patents at issue arises from the attorney or law firm’s receipt of compensation reasonably related to the provision of the legal representation” (which, while good news does enable a party to argue that the compensation is not reasonable and thus that there is sufficient “financial interest” to justify a court imposing liability on counsel).

The limits on discovery (Sec. 3(d) et seq.) contained in H.R. 3309 are also contained in this bill, including limitations until after the court has performed claim construction (with provisions for a court to exercise discretion regarding expanding the scope of discovery if necessary for claim construction and under “special circumstances”); this section also exempts from the discovery limitations discovery directed to a motion for a preliminary injunction to avoid “competitive harm” (Sec. 3(d)(1)(b)(4)) or if at least one plaintiff and one defendant stipulate that they wish to be exempt from these limitations.

The next portion of Section 3 sets forth a “sense of the Congress” that “it is an abuse of the patent system and against public policy for a party to send out purposely evasive demand letters to end users alleging patent infringement” (Sec. 3(e)).  Accordingly, the following part of Section 3 provides that willful infringement cannot be established merely by sending a demand letter, but must include the type of information required in the earlier portions of Section 3 for filing a complaint. (Sec. 3(f) et seq.)

Section 4 of the bill contains the requirements for “transparency” in patent ownership, wherein a plaintiff must disclose to all adverse parties, the court and the Patent and Trademark Office the assignee(s) of the patents in suit, any licensee empowered to sublicense or enforce the patents, any other entity having a “financial interest” in the patents, and the “ultimate parent entity” of any of the aforesaid parties; this provision seemingly is intended to prevent litigation by proxy, and also contains the exemption for ANDA litigation under 35 U.S.C. § 271(e)(2) found in Section 3 of the bill.  These requirements are on-going (Sec. 4(d)) and “failure to comply” will prevent a successor from recovering fees and expenses under 35 U.S.C. § 285 or increased damages under 35 U.S.C. §284.  These provisions are effective “upon the expiration of the 6-month period beginning on the date of the enactment.”

The bill also contains provisions (in Sec. 5) that permit an infringement action against a “covered customer” to be stayed in favor of an action against the manufacturer of the article sold to the customer upon motion consented to by both customer and manufacturer.

The remaining Sections of the bill will be discussed in a separate post.