The Protecting American Talent and Entrepreneurship Act (the PATENT Act, S. 1137), introduced by Senator Chuck Grassley, represents Congress’ most recent attempt at patent reform.1 According to the drafters, the PATENT Act and its counterpart in the House, the Innovation Act, H.R. 9, purport to stop abusive patent litigation practices and prevent “bad actors” from undermining the patent system.2 Both bills contain provisions related to heightened pleading standards, fee shifting, discovery reforms, customer stays, abusive demand letters, and America Invents Act (“AIA”) reviews.3 Many of the changes are targeted at patent assertion entities (with the exclusion of universities) and entities filing frivolous claims.4 However, some of the most significant reforms in the PATENT Act—the changes to AIA reviews—favor patent owners.5
AIA Review Standards
Although not included in the original version of the PATENT Act, the amended bill passed by the Judiciary Committee includes provisions that would weaken AIA reviews.6 Senator Grassley explained that these new provisions were added to address the concerns of “abuse of the administrative proceedings” of AIA reviews.7 The PATENT Act would change the claim construction standard for AIA reviews from the “broadest reasonable interpretation” standard applied during prosecution before the US Patent and Trademark Office (USPTO) to the “ordinary and customary meaning” standard applied by district courts.8 The amended bill also has provisions that could cut either for or against patentees—it would also require AIA panels to consider prior claim constructions or validity determinations by a court, allow a patent owner to provide evidence in response to a petition for review, and give the Patent Trial and Appeal Board more discretion over whether to institute a review.9
The Innovation Act in the House contains similar AIA review reforms.10 These changes could make it more difficult to invalidate patents in AIA reviews and potentially reduce the number of AIA reviews filed. However, patent challengers choosing AIA reviews would still have access to the lower evidentiary standard and the lack of the presumption of validity as compared to district court invalidity challenges, neither of which would be changed by the bills.11
The PATENT Act also sets heightened pleading standards for patent cases.12 It requires that parties alleging infringement identify the patents and claims allegedly infringed, the accused products or methods, and how the accused product or method meets each element of the infringed claims.13 For indirect infringement, it requires a description of the acts of the alleged infringer that contribute to or induce direct infringement.14 In the event that any of the required information is unavailable, the party may provide a general description of the information along with a statement why it is not accessible.15 The Innovation Act has similar requirements.16
In an effort to reduce abusive and dilatory litigation practices, the PATENT Act provides for awards of attorneys’ fees in certain circumstances.17 The bill purports to account for the “sense of Congress that, in patent cases, reasonable attorney fees should be paid by a non-prevailing party whose litigation position or conduct is not objectively reasonable.”18 The burden would be on the prevailing party to show that the losing party’s litigation position or conduct was not “objectively reasonable.”19 Fees will not be awarded where the non-prevailing party is a university or there are special circumstances.20Additionally, the bill requires that plaintiffs, but not defendants, specify “interested parties” who may be held accountable for attorneys’ fees, unless the plaintiff can certify that it has sufficient funds to satisfy an award of fees, or that its primary business is not the assertion and enforcement of patents.21
The fee shifting provisions are the most significant difference between the Senate and the House’s version of the bill. Current Section 285 states that a court “in exceptional cases may award reasonable attorney fees” which the Supreme Court has interpreted as a case that “stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.”22 It is unclear how much the PATENT Act’s “objectively reasonable” standard would change the status quo. On the other hand, the House’s Innovation Act would make fee shifting the default, requiring that the non-prevailing party show why its conduct or position was “objectively reasonable” in order to avoid paying fees.23 The House’s bill could result in more attorney fee awards in patent cases, but it applies to both plaintiffs and defendants, depending on which party prevails.
The PATENT Act also has provisions aimed at customers brought into infringement suits based on products purchased from a manufacturer.24 The Act would require courts to stay infringement cases against a customer where there is a pending case against a manufacturer.25 This provision purports to protect consumers who are targeted for infringement simply because they purchased a product from a manufacturer.26 For example, this may allow a large manufacturer to step in and protect its customers from infringement actions by a plaintiff. The Innovation Act includes a similar customer stay provision, but would require manufacturers to consent to the stay, unlike the PATENT Act.27
Discovery Limitations & Other Reforms
The Senate bill also delays the bulk of discovery until after initial trial motions are resolved.28 This could make it more affordable to defend against unmeritorious claims by reserving the expensive discovery aspects of trial until after motions to dismiss are decided, reducing the up front costs of litigation. The PATENT Act includes a number of other, smaller reforms that its proponents assert are aimed at increasing transparency, deterring bad faith demand letters, and preventing abuse litigation practices.29
The Innovation Act stalled in the Senate in 2013.30 However, this year there appears to be growing bipartisan support for patent reform. After the amendments to add AIA review reform, the bill was overwhelmingly approved by the Senate Judiciary Committee 16 - 4.31 The bills before the House and the Senate are converging—the amendments to the PATENT Act added provisions similar to those in the Innovation Act.
It is possible that a bill resembling the Innovation Act or the PATENT Act could be passed this year. Parties should pay close attention to the bills as they develop, particularly to the fee shifting and AIA review provisions, which have the potential to shift the current strategic landscape of the patent system.