This morning, the House of Representatives passed the Innovation Act (also known as the Goodlatte bill) by a vote of 325-91. A number of amendments that would have gutted or watered down the bill were defeated.
Key provisions of the Innovation Act, as passed, include:
- Heightened pleading requirements: A complaint must identify the asserted claims and specify how they are infringed. The bill also removes Form 18 and calls for a new, more substantive form complaint to be created. Any retailer that has received a complaint and then puzzled over what they were accused of doing knows this is a positive step, even if it will not deter any suits from being filed.
- Fee shifting: Loser pays, if the claims brought against it were not reasonably justified under law. This is not a pure loser pays system. If the loser’s claims were brought in good faith and were reasonably justified in law and fact, fees will not be awarded. Loser pays benefits retailers, although even with a stronger potential to recover fees at the end of a case, going the distance in the face of defense cost settlements will be difficult to stomach for many retailers on tight legal budgets.
- Joinder for fee payment: Where fees are awarded against a troll and it is not able to pay them, the Court may join an interested party (presumably a parent entity or investor) to pay the fees. This provision is also positive for retailers because it helps to end, or at least reduce, the era of judgment-free trolls.
- Discovery in patent cases: At their discretion, courts may limit discovery to claim construction until the Court construes the claims. Of course, many courts already do this. So, it does not add much although it may cause more courts to go this route, which would be positive.
- Upfront ownership/interest disclosure: Along with its complaint, a plaintiff must disclose: the patent assignee, the parent entity of any assignee, any entity with a right to sublicense or enforce the patent, and any entity with a financial interest in the patent. There is also a duty to update this information throughout the case. Knowledge is power. So, this provision is good for retailers. And a disclosure of these entities may change the calculus on filing suit for some plaintiffs whose parent entities or investors do not want to be publicly disclosed.
- Customer-suit exception: A manufacturer may intervene in a suit against its customer(s). If the manufacturer intervenes; the manufacturer and the customer agree; and the customer agrees to be bound by any decisions as to the manufacturer, the customer suit gets stayed. This provision was hotly contested. It is better than the existing, discretionary customer-suit exception, but it does not go far enough to fully protect retailers.
- Potential discovery limitations: The Judicial Conference is directed to promulgate rules and procedures on core document discovery. Hopefully, this will help limit discovery and the related discovery costs. If that happens, it will be a win for retailers.
- Patent studies: The bill requires several studies: a study on secondary market oversight for patent transactions; a study on patent quality; a study considering a patent small claims court; a study on bad faith demand letters and their impacts; and a study on business method patent quality. Studying the problems with the patent system is positive for retailers because it creates additional exposure for the problems and continues the possibility of further, meaningful reforms.
- Post-grant and inter partes review claim construction: The PTO must construe the claims in post-grant and inter partes reviews, and the PTO will be bound by district court claim constructions to the extent that they exist. This is good news for retailers because using district court constructions will streamline the IPR and PGR processes, while also narrowing the PTO’s constructions.
Overall, assuming that the Senate can pass a similar bill, the House’s passage of the Innovation Act is a big step forward for retailers. Unfortunately, the customer-suit exception is still not strong enough to fully meet the needs of most retailers, and there are a lot of details that need to be fleshed out after the Innovation Act is passed and signed into law. But it is still a good step forward.