Current patent reform efforts in Congress center around two pieces of legislation. One, pending in the House of Representatives is sponsored by Rep. Bob Goodlatte (R-VA) (H.R. 9, known as the “Innovation Act”). The other is pending in the Senate and is sponsored by Sen. Chris Coons (D-DE) (S.632, the Support Technology and Research for Our Nation’s Growth or “STRONG Patent Act”). Each calls for reform above and beyond that brought by the last major patent reform effort, the America Invents Act, which passed not quite five years ago. And each attempts to address concerns about so-called patent assertion entities or patent trolls.
Many of the provisions in the bills are widely known and have been even more widely debated. Fee shifting provisions, heightened pleadings requirements, ownership transparency, and demand letter reform are all areas that have gotten much attention and discussion. But there are four other areas of the proposed reform that are less well known, but perhaps of equal or greater importance.
- Ending fee diversion (STRONG Patent Act only)
All of the money needed to operate the U.S. Patent and Trademark Office comes from the fees the Office charges patent and trademark applicants (and others interacting with the Office). These fees are collected by the Office and are then turned over to Congress, which then allocates them back to the Office, as needed. But not all of the fees collected by the Office are allocated back to the Office by Congress. Estimates vary, but it is thought that, since 1999, over $1 billion of Office fee revenue has been withheldfrom the Office and directed by Congress to other government programs and operations. Without the diverted fee income, the Office makes due, but with fewer examiners, less technology, and other improvements that would otherwise have been available to hasten, streamline, and improve patent and trademark examination.
The Senate’s STRONG Patent Act includes provisions to end this fee diversion. Were it to pass, this change would greatly impact the Office and the services it offers. The Office would be free to hire more examiners and to keep the more skilled examiners it already employs. The Office could potentially invest in additional technology to allow for even more efficient patent and trademark examinations — leading to faster, better examinations for all applicants.
While not as glitzy other provisions, allowing the Patent and Trademark Office to keep all of its fee income would likely have a larger effect on far more people than the other proposed changes. But ending fee diversion has been discussed — and dropped — before. Only the Senate’s STRONG Patent Act calls for it this time — and the Democrats’ STRONG Act is the less likely of the two pending bills to pass. Still, with the provision on the table, this remains a possible positive outcome.
- PGR reform (Both STRONG Patent Act and Innovation Act)
The America Invents Act expanded the administrative review possibilities offered by the Office for reviewing issued U.S. patents. That expansion has led to an explosion in post-grant review and inter partes review filings. It is thus not unexpected that the latest round of patent reform would include some tweaks to these post-grant review proceedings.
First, both the STRONG Patent Act and the Innovation Act call for changing the claim construction standard applied by the Office in reviewing patent claims in all post-grant review and inter partes review proceedings. The change would alter the standard used in claim construction from the “broadest reasonable construction” standard to a standard that construes a patent claim “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.” This would undoubtedly result in the Office having to review more file histories and consider more evidence about the understanding of one of ordinary skill in the art, and would likely result in narrower constructions of patent claims — leading to more patent claims surviving these reviews.
Second, the STRONG Patent Act changes the burden of proof in the Office’s administrative reviews by incorporating a presumption of validity. Under the STRONG Act’s provisions, those seeking review would no longer succeed simply by showing the unpatentability of a claim by the preponderance of the evidence. Instead, because of a presumption of validity that would accompany the issued claims during review, those seeking reviews would need to show the unpatentability of the claims by the higher “clear and convincing” standard applied by the Courts. This too is likely to lead to an increase in the number of patent claims surviving these reviews.
Third, the Innovation Act also calls for changing the estoppel provisions applicable to post-grant reviews. Currently, anyone who brings a post-grant review is barred from raising, in a later civil action, any issues that they raised or could have raised in connection with the post-grant review. The Innovation Act changes would remove the underlined language and apply estoppel only to those issues actually raised in the post-grant review proceeding. This provision may impact the availability of stays in federal litigation.
With the passage of the AIA, courts recognized the efficiency of allowing the Office to review its patents and decide issues of invalidity for the court. The estoppel provisions allowed the courts to delegate the invalidity question to the Office, as any and all issues that could have been raised were going to be estopped anyway. But if a party may raise only some issues in a review and remain free to raise other issues in court, there is little incentive for courts to stay litigation. This may drastically lower the appeal of administrative reviews as a whole — which the AIA tried so hard to encourage.
- Customer suit exception (Innovation Act only)
A common tactic of patent assertion entities is to sue customers and purchasers of allegedly infringing technology, instead of the manufacturers or sellers of that technology. Using this strategy, patent assertion entities can collect numerous settlement payments (albeit smaller than could possibly be obtained from a large manufacturer) and avoid having to defend their patents from attacks brought by sophisticated manufacturers. In response, courts will stay suits filed earlier against customers in favor of later-filed suits filed against (or by) manufacturers of the accused products. But this so-called customer-suit exception is not uniformly applied. Accordingly, the Innovation Act seeks to implement this policy as law.
One concern with this change, however, is the broad way the law defines “customer.” Conceivably, the law could be used by large companies to stay suits when the large companies assemble accused products made from components even where the components are purchased from small manufacturers. This could shift the burden of litigation from large savvy companies to small, resource-limited companies. More troubling, the law could leave patent holders with no infringer at all to pursue where infringing manufacturers are located outside the U.S. or lack the assets to answer for infringement.
- Big Pharma opt out (Innovation Act only)
Many of the proposed changes found in the Innovation Act are inapplicable to cases brought by pharmaceutical companies. Under the Innovation Act, such cases would typically not need to comply with the proposed heightened pleading standard, patent ownership disclosure requirements, nor the customer suit exception provisions.
While this is likely of little import in the short term — as the patent troll cases targeted by the litigation rarely if ever involve pharmaceutical components — it does raise the question of whether Congress intends to create two patent systems: one for pharmaceutical companies and one for everyone else.