Senate Judiciary Committee Chairman Chuck Grassley (R-IA) and Ranking Member Patrick Leahy (D-VT), joined by Senators John Cornyn (R-TX) and Chuck Schumer (D-NY), introduced the bipartisan Protecting American Talent and Entrepreneurship Act ("PATENT Act") on April 29, 2015. The third major patent reform bill introduced this year, the 55-page PATENT Act is the first reform bill to garner bipartisan support.
The PATENT Act's main purpose is to curb the abusive patent litigation practices that plague small businesses. According to Senator Grassley, these "frivolous lawsuits cost [small businesses] millions of dollars and force them to settle despite having a strong defense. The meaningful reforms in our bipartisan bill are needed to ensure that the innovation and entrepreneurship our patent system was designed to protect isn't undermined."
During the recent Senate Judiciary Committee hearing on the bill, several witnesses supported the bill but also urged reform to inter partes review ("IPR") and post-grant review ("PGR") proceedings to make it more difficult to invalidate patents. However, other witnesses representing the telecommunications industry opposed those changes and stressed the value of IPR and PGR proceedings for ensuring fair challenges to invalid patents.In response to these comments, Senator Grassley explained that he is "committed to looking at these concerns, determining whether they are valid or not, and working with colleagues to see what can be done to improve the process." Thus, while support exists for the bill in its current form, amendments are possible as the legislation moves forward.
The section below discusses the likely implications of four key provisions of the PATENT Act designed to discourage abusive patent litigation.
Key Provisions of the Patent Act
Heightened Pleading Standards. Unlike the Innovation Act (H.R. 9) and the STRONG Patents Act (S. 637) introduced earlier this year, the PATENT Act introduces heightened pleading standards for all civil actions in which a party alleges infringement (in a complaint, counterclaim, or cross-claim), except in Hatch-Waxman and biosimilar litigation under 35 U.S.C. § 271(e)(2).
The bill eliminates Form 18, "Complaint for Patent Infringement," from the Federal Rules of Civil Procedure (generally requiring identification of the asserted patent and a general description of the accused product) and requires a party alleging infringement to include the following specific information in its pleadings, if known: (i) each patent and claim allegedly infringed; (ii) the accused process, machine, manufacture, or composition of matter (the accused instrumentality); (iii) the name or model number of each accused instrumentality; (iv) description of the elements of each allegedly infringed claim, as well as how the accused instrumentality infringes each element; and, (v) in cases of indirect infringement, a description of the acts that are alleged to contribute to or induce infringement. The bill allows claimants to file pleadings without this required information if such information is not "accessible," as long as a party provides general descriptions of the required information and states why the information is not accessible.
The bill, if enacted, would impose heightened pleading requirements for all patent owners trying to enforce their patent rights, not just nonpracticing entities. The pleading rules introduced by the bill go beyond the requirements defined by the U.S. Supreme Court in Bell Atlantic v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009). These heightened requirements thus might be inconsistent with the Supreme Court's general approach that patent law should conform to the same general rules controlling other types of federal civil litigation. Some of the proposed changes are also already contemplated by the Committee on Rules of Practice and Procedure of the Judicial Conference in its recently published proposed amendments to the Federal Rules of Civil Procedure, which contains specific proposed changes for patent litigation procedures. Additionally, many district courts that handle the majority of patent cases have adopted local rules that require filing of patent infringement contentions early in the litigation, along with disclosure of the theories of liability upon which the parties intend to rely. Thus, the pleading provisions of the bill, if enacted, might have less practical effect than intended.
Attorneys' Fees. The bill also attempts to codify the "sense of Congress" that in patent cases, nonprevailing parties should pay reasonable attorneys' fees if their litigation position or conduct is not "objectively reasonable."Upon motion by the prevailing party, if the court finds that the conduct or position of the nonprevailing party was not objectively reasonable, the court shall award reasonable attorneys' fees to the prevailing party—with an exception for special circumstances that would make an award unjust.Additionally, the bill requires each plaintiff to identify interested parties in the litigation, certify to the court that it has sufficient funds to satisfy any award of reasonable attorneys' fees, and demonstrate that its primary business is not the assertion and enforcement of patents or resulting licensing. A plaintiff filing such a certification must first notify the interested parties, who may be held accountable for the fee award unless they renounce their interest. The bill permits courts to exempt institutions of higher education and nonprofit technology transfer organizations (and others, in the interest of justice) from being charged with the fee award.
These fee-shifting provisions might have consequences that extend beyond just preventing abusive patent litigation. For example, the Supreme Court recently lowered the threshold for awarding attorneys' fees, announcing that (i) the statutory "exceptional case" determination should be based on "the substantive strength of the party's litigating position" or "the unreasonable manner in which the case was litigated" (rather than requiring the case to be subjectively baseless and brought in subjective bad faith), and (ii) district courts should determine in their discretion whether a case is exceptional under a preponderance of the evidence standard (rather than requiring clear and convincing evidence). The bill would alter this standard by requiring courts to conduct an "objectively reasonable" inquiry in every patent case. These provisions might have a chilling effect on patent litigation, deterring patent owners from bringing legitimate suits and deterring counsel who might have contingency fee arrangements with their clients. Thus, in its current form, the bill might have unintended consequences for patent enforcement across the board, not just for nonpracticing entities.
Discovery in Patent Litigation. The bill tackles the issue of disproportionate discovery burden in patent disputes by requiring a court to stay discovery pending resolution of motions to dismiss, transfer venue, and sever accused infringers. However, courts have discretion to allow limited discovery necessary to resolve these motions or a motion for a preliminary injunction, or if it finds that additional discovery is necessary to preserve evidence or prevent prejudice. Notably, parties can consent to be excluded from these discovery limitations.
The bill also requires the Judicial Conference of the United States to develop rules regarding the extent to which each party is entitled to receive "core" or "non-core" documentary evidence, as well as the extent of and limitations to discovery of electronic communications. Thus, instead of introducing changes to reduce the burdens of document production that often plague defendants, the bill directs the Judicial Conference to address the issue.
IPR and PGR Proceedings. The bill introduces minimal changes to IPR and PGR proceedings. For example, restrictions barring PGR petitioners from later asserting in a civil action that a claim is invalid on any ground that the petitioner "reasonably could have raised" during a PGR are eliminated. However, unlike the Innovation Act (H.R. 9) introduced earlier this year, the Senate bill does not change the standards for claim construction in IPR and PGR proceedings from the "broadest reasonable interpretation" to the narrower "customary meaning" standard that is applied by district courts. Further, the bill does not impose the clear and convincing evidentiary standard or the presumptions of validity for granted patents on petitioners in IPR and PGR proceedings.