A second patent reform bill has been introduced in Congress.  On March 3, Senators Chris Coons (D-Del.), Dick Durbin (D-Ill.), and Mazie Hirono (D-Hawaii) introduced the STRONG Patents Act[1] to “narrowly target and deter abusive troll behavior while preserving the ability of legitimate patent holders to protect their innovations.”[2]  This bill, S. 632,[3] would alter the landscape of patent enforcement in three areas.  First, it would significantly change the PTAB proceedings of inter partes review and post-grant review in ways that favor patentees.  These changes include tightening the claim construction standard, raising the burden of proof to invalidate previously issued claims, easing the restrictions on amending claims, and narrowing the breadth of who has standing to petition for IPRs or post-grant reviews.  Second, the STRONG Patents Act (“the STRONG Act”) includes measures to curb abusive demand letter practices by empowering the FTC to target senders of such letters.  Third, the act proposes changes to patent litigation including a lower burden of proof for trebling damages, permitting a finding of indirect infringement of process claims by multiple actors, and eliminating Form 18, the sample complaint form in the Federal Rules of Civil Procedure.

Possible Changes to Post-Grant Practice

The current patent reform bill in the House, Congressman Goodlatte’s (R-Va) Innovation Act (H.R. 9), would affect these three areas as well, but in largely different ways.  With respect to inter partes review and post-grant review, the Innovation Act, like the STRONG Act, would replace the PTAB’s “broadest reasonable interpretation” standard for construing patent claims with the standard applied in district court, i.e., the ordinary and customary meaning as understood by one of ordinary skill in the art.  While this measure is the Innovation Act’s most significant change to post-grant practice,[4] the STRONG Act includes several others:  it raises the petitioner’s burden of proof for invalidity from a preponderance of the evidence to clear and convincing evidence; it makes amending challenged claims easier by requiring the court to permit a “reasonable” number of substitute claims; and it narrows the scope of who has standing to petition for IPR or post-grant review from anyone other than the patentee to only persons who would have grounds for a declaratory judgment action.

Usage of the post-grant procedures created under the AIA has ballooned since their launch in 2012, with IPR petitions alone numbering more than 1400.[5]  This trend is likely to continue since about 80% of such petitions result in at least one claim being invalidated, a result that is achieved far more cheaply than litigating in district court.  Given the advantage that the “broadest reasonable interpretation” affords petitioners, its demise under either bill would likely cause, to some degree, a decrease in the number of petitions filed.  Importantly, the STRONG Act goes much further than the Innovation Act in removing the advantages that make these AIA post-grant options so attractive to petitioners.  Along with the broadest reasonable interpretation standard for claim construction, the most advantageous aspect of IPR and post-grant review is the lower burden of proof for invalidity.   Eliminating these advantages would likely cause a precipitous decrease in the number of petitions.  And, in view of the provision that facilitates claim amendment, a process which could strengthen the patent, petitions would likely decrease further still in the wake of the STRONG Act.

Measures Against Abusive Demand Letters

Both the Innovation Act and the STRONG Act include measures to combat abusive demand letters, e.g., purposely evasive or inaccurate letters sent to downstream users that demand payment due to alleged patent infringement.  As with the post-grant measures, the demand letter provisions in the STRONG Act are more extensive than those in the Innovation Act.  The latter discourages abusive demand letters by making treble damages due to willful infringement available only where pre-suit notification of infringement included particular information, namely, the specific patent at issue, the accused instrumentality, the ultimate parent entity of the claimant, and an explanation “with particularity” as to how there is infringement of one or more claims.

In contrast, the STRONG Act addresses abusive demand letters by empowering the FTC to combat them as unfair trade practices under § 5 of the FTC Act.[6]  The bill defines numerous “bad faith” representations or omissions in demand letters as an unfair trade practice.  For example, unfair trade practices include a bad faith misrepresentation that the sender has the right to license the patent, that an infringement investigation has occurred, or that others have licensed the patent.  Similarly, it would be an unfair trade practice to omit in bad faith the identity of at least one patent and, to the extent reasonable, a description of how the patent claim is infringed by an accused instrumentality.  The STRONG Act also addresses demand letters at the state level.  Although it preempts state laws regarding patent demand letters, it empowers state attorney generals to bring civil actions under the FTC Act for violating the demand letter requirements described above.

These two bills address abusive demand letters very differently.  The provision in the Innovation Act discourages, rather than prohibits, abusive demand letters by removing the possibility of treble damages in litigation.  Although this approach may discourage some demand letter abusers, it may not adequately deter letter senders whose intent is not to sue but rather to settle with recipients who are intimidated by the letter or unable to afford litigation.

In contrast, the STRONG Act addresses abusive demand letters directly through FTC activity, an approach that seems more likely than the Innovation Act to chill abusive practices.  However, it is the FTC’s position that it already has the authority to bring unfair trade actions against demand letter abusers.[7]   Indeed, the FTC recently adjudicated such an action involving more than 9000 letters and 4800 small businesses.[8]  Nevertheless, the demand letter provisions in the STRONG Act would likely have a greater impact than those in the Innovation Act.  Formalizing the FTC’s authority could encourage it to take more such actions.  And where it lacks the resources to pursue smaller scale abuse, state attorney generals could step in.  Furthermore, the STRONG Act enables the FTC to use is civil penalty powers against demand letter abusers, a change that the FTC believes would deter some bad actors.[9]

Patent Litigation Provisions

In contrast to the post-grant practice and demand letter provisions described above, it is the Innovation Act that takes the more aggressive approach with respect to patent litigation.  The most prominent litigation aspects of this bill are higher pleading standards for asserting patent infringement, limitations on pre-Markman discovery, and fee-shifting in favor of the prevailing party.  The proposed changes to pleading patent infringement are far-reaching—a complaint would have to identify, among other things, each allegedly infringed patent, each infringed claim, and each accused instrumentality, and further explain how each element of the identified claims are found within the accused instrumentality; alternatively, the plaintiff could explain why such information is not “readily accessible.”  The discovery provisions of the Innovation Act are similarly sweeping:  with some exceptions,[10] pre-Markman discovery is limited to that which is needed for claim construction.  The bill would also fundamentally change fee awards by making them the norm except where the non-prevailing party’s position was reasonably justified in law and fact or a special circumstance applies such as severe economic hardship.  This measure is bolstered by a provision that permits joinder of parties with a direct interest in the patent (e.g., assignees) to help ensure the prevailing party can recover its fees.

The litigation provisions in the STRONG Act, on the other hand, are less bold than those in the Innovation Act.  It would lower the burden of proof for trebling damages from clear and convincing evidence to a preponderance of the evidence.  Where a process claim is asserted, it would permit a finding of indirect infringement even if the steps of the patented process are not practiced by a single entity.  And it would remove Form 18, the sample patent complaint, from the Federal Rules of Civil Procedure thereby mooting any conflict between the bare-bones requirements of Form 18 and the higher pleading requirements articulated by the Supreme Court in Twombly andIqbal.[11]

These two bills reflect very different perspectives on what is wrong with patent litigation today.  In requiring that complaints include what are essentially infringement contentions, and by restricting the progress of fact discovery before Markman, the Innovation Act reflects the view that abuses are so rampant in patent litigation that dramatic measures are needed to curtail them.  The STRONG Act, on the other hand, proposes changes to enhanced damages and indirect infringement which would not affect all patent cases and, where felt, would not affect cases to the same degree.  Instead, with its big changes to post-grant practice, this bill is motivated by the view that the real problem in patent law today is that patents are unduly weakened by AIA proceedings before the PTAB.

Notably, both bills include litigation measures that are arguably needless in view of other events.  The Innovation Act’s fee provision may be superfluous in view of the Supreme Court’s decisions in Octane Fitness and Highmark[12] which favor fee awards.  And the STRONG Act’s elimination of Form 18 is essentially moot because the Judicial Conference has already decided to so; barring Congressional intervention, its decision will take effect in December 2015.[13]           

Are These Bills Compatible?

The Innovation Act and STRONG Act reflect different views of what is wrong with patent law, and thus propose different reforms.  Even so, these bills address some of the same problems to a different extent, and certain aspects of them are complimentary.  With respect to post-grant proceedings, both bills would, for the most part, strengthen patents before the PTAB but to different degrees.  In regards to abusive demand letters, the bills propose different remedies, but these could be readily combined into a more comprehensive solution.

The biggest disparity between the bills pertain to litigation reform.  Unlike the Innovation Act, the STRONG Act does not limit fact discovery or establish fee-shifting, a particularly contentious subject.  And the bills differ on the important question of how a patent complaint must be pled.  Although the Innovation Act requires that complaints include much more than the Twombly/Iqbal standard which the STRONG Act tacitly endorses, it’s worth noting that the latter requires that demand letters include “a description, to the extent reasonable under the circumstances” of how an accused instrumentality infringes.  This is less than the element by element analysis that the Innovation Act would require but is consistent with the notion that patentees should have formulated a viable infringement theory before serving a complaint.

In sum, these competing bills offer a wide variety of changes reminiscent of the disparate bills in the last Congress. With one party now controlling both houses, however, a new patent statute is much more likely than before.