Patent Reform for the Holidays?

Now that Congress has kicked the budgetary can down the road for another 3 months they may actually squeeze in some lawmaking before the end of 2013. Given the public image problems created by the shutdown of the last few weeks, lawmakers will be eager to find an issue to address via legislation; especially an issue with bipartisan support that will not be too hotly debated— You see where this is going.

Given the the entrenched positions on both sides of the immigration debate (a stated priority of the White House), patent reform remains the lowest hanging fruit. For this reason it seems likely that the next act of political theater will be to sell patent reform as key to America’s competitive future. As a reminder, here are the issues to shape the debate in the week’s ahead:

1. Real Party in Interest: Several introduced bills note that it is often difficult to ascertain the true owner of a patent. It is explained that shell companies are created to assert the patent while the true owners remain hidden from the public and that the shell gains insight into the licensing practices of their targets. This insight is then passed from the shell to a real-party-in-interest that may be targeting the same defendant in another law suit. The proposed legislation/executive action would require a stricter identification of ownership at the USPTO to thwart such practices. Impact on Abusive Litigation Practices: Insignificant most trolls don’t care much about this control. Likelihood of Becoming Law: High few will strongly oppose/lobby against this one. Although large innovators will bear the burden of such a control. The PTO has already been instructed by executive action to address this issue.

2. Covered Business Methods: Schumer Bill and complimentary House bill propose making this “transitional” program permanent and clarifying that a covered patent need not be related to a financial service. Bill also proposes clarification that covered patents may impact enterprise systems (i.e., e-commerce) Impact on Abusive Litigation Practices: High With enhanced provisions for staying costlier litigation, and limited estoppel, expansion would greatly aid patent challengers. Likelihood of Becoming Law: High Identical bills already in both Senate and House on same points. The Business Software Alliance, and others, oppose the expansion of CBM.

3. Loser Pays: The Shield Act of 2013 and other bills propose to impose sanctions on frivolous litigation by forcing a losing plaintiff (that goes through trial and exhausts appeals) to pay the legal fees of their opponent. As Judge Rader recently pointed out, courts already have this power and don’t exercise it. Impact on Abusive Litigation Practices: Moderate Small to medium size companies do not have the resources to fight through to appeal. Likelihood of Becoming Law: Low – Other, less extreme options seem far more likely, as noted next.

4. Heightened Pleading Standard for Patent Cases: Patent trolls notoriously abuse the pleading form practice of patent litigation to withhold important information from their adversary for as long as possible, such as infringed claims, accused products, etc. Several proposals would get away from such “notice pleading” and require specific products be accused, claims identified, etc. Impact on Abusive Litigation Practices: Moderate Trolls will just work around it by filing 100 page complaints against smaller companies knowing full well most will settle. Likelihood of Becoming Law: Moderate/Low Also hurts legitimate high-tech industries that may need discovery for detailed assertions.

5. Stricter Requirements for Software Related Patents: Computer related inventions are often claimed functionally, which leads to a claim scope that is not enabled by most patents (i.e., every known process for implementing the function). The USPTO is already training examiners to reject such claims as lacking written description, and forcing applicants into means-plus-function claiming where possible. Impact on Abusive Litigation Practices: Moderate/Low The current inventory of patents will keep the troll machine going for another decade at least. Likelihood of Becoming Law/USPTO Practice: High USPTO is already working on this issue as a result of the executive action issued.

6. Modification to PGR Estoppel Provision: CBM estoppel only applies to issues actually raised in the proceeding. PGR on the other hand applies to anything raised, or “reasonably could have been raised.” Since it is possible to file a PGR for any statutory ground of invalidity, the concern is that an unsuccessful PGR will destroy all invalidity defenses in a later litigation. It has been argued that this stricter estoppel was an scriveners error in the statute. The proposal is to adopt the CBM standard for estoppel. Impact on Abusive Litigation Practices: Low Practically speaking PGR, due to its 9 month window, is of little value in abusive litigation scenarios. Likelihood of Becoming Law: Moderate/Low – Bio/Pharma Lobby doesn’t want generics using PGR to challenge valued drug continuations on 101/112 grounds. On the other hand, most major bar associations are supporting this change.

7. Modification of USPTO Claim Construction: It is proposed that the USPTO apply the same claim construction and, more importantly, presumption of validity as applied in the district courts in IPR, PGR and CBM proceedings. Impact on Abusive Litigation Practices: Helps Trolls Likelihood of Becoming Law: Low Application of presumption of validity to USPTO post grant proceedings is a non-starter. Expect this concept to morph into a provision requiring the USPTO to apply Philips v. AWH for all post grant proceedings (including reexamination and reissue), but not a presumption of validity.