Joining a handful of Senators and Representatives who have recently announced proposals for patent reform, the White House yesterday released a Fact Sheet directed to a “White House Task Force on High-Tech Patent Issues.” The Fact Sheet details five executive actions and seven legislative recommendations directed to limiting non-practicing entity (NPE) activity and to improving the quality of patents, two areas that have been the subject of much discussion. Recently, statistics have revealed that the number of NPE patent lawsuits has for the first time surpassed the number of patent lawsuits by operating companies. The debate over patent quality has been going on for several decades, fueled by perceived deficiencies in awarding software patents and business method patents.
The White House announced five Executive Actions related to patent reform. First of all, it is important to note that an Executive Action is not an Executive Order, although you will often see reporters use the two interchangeably. An Executive Order can have the full force of law, particularly when in pursuance of Acts of Congress. By contrast, an Executive Action is considered to be more of a recommendation or suggestion to Congress. The five Executive Actions suggested are as follows:
- Real-Party-In-Interest – The White House states that the United States Patent and Trademark Office (USPTO) is initiating rulemaking to require patent applicants and owners to regularly update ownership information to the PTO. The White House is hoping to require a designation of the “ultimate parent entity” in control of the patent or application. Currently the USPTO records assignments and transfers of ownership. The current system already provides consequences for failure to record an ownership transfer in the USPTO (possible loss of rights to subsequent bona fide purchaser). However, the goal here is to find out who is really the ultimate owner of a patent or patent application. Currently many NPE’s have a matryoshka of entities owning a patent or group of patents. Ownership issues are heavily entwined with corporate and tax law, meaning there is no easy path for change here.
- Functional Claiming – The desire here is to improve patent quality by improving patent claim clarity. This will be accomplished by “targeted training” of patent examiners and perhaps the use of a glossary in patent specifications to assist examiners. Claim Construction of terms is already one of the most contested (and often dispositive) parts of patent litigation. Patent practitioners generally avoid clear definitions and glossaries of terms in specifications, so this is at odds with accepted practice.
- Empowering “Downstream Users” (i.e. defendants) – A typical litigation approach (and not just in patent law) is to target the customers or users of a patent product as defendants. The White House is suggesting more education and resource materials for a customer defendant who is facing demands from an NPE.
- Expanded Outreach – The White House is looking for more outreach and roundtables with patent stakeholders (inventors, assignees, practitioners) to further refine and update patent law. This is probably the best idea of the whole bunch, as measured, careful, and cooperative efforts led to the America Invents Act (AIA) which has been generally well received by stakeholders and provides meaningful reform without abridging patent rights.
- Exclusion Orders – The International Trade Commission (ITC) is a popular venue for the enforcement of patent rights to stop importing of infringing products. The ITC can issue an exclusion order preventing the importing of products that infringe the claims of one or more patents. However, the enforcement process can require a determination of whether an accused article falls under the order. The White House is suggesting a review of procedures and inter-agency coordination to improve enforcement activities.
The legislative recommendations dovetail with the actions described above, with some additional suggestions.
- Real Party-In-Interest – Would require any party sending a demand letter, among other acts, to file updated ownership information in the USPTO or District Court. It should be noted that there are already rules that require litigants to update the USPTO on the existence of the litigation as well as any orders at issue in the litigation.
- Attorney’s Fees – Would permit more discretion in awarding attorney’s fees of the prevailing party, particularly for “abusive filings”. The recently introduced “Shield Act” includes similar provisions.
- Expand CBM – Expand “Covered Business Method Patent” (CBM) transitional program to more types of patents (e.g. computer and software related patents). The CBM program provides for required stay of court actions when the USPTO CBM program is invoked. The USPTO program provides for faster and cheaper review of covered patents as an alternative to litigation. Many practitioners support this expansion.
- Consumers – This relates to defendants who are the end-users of an alleged infringing product. The White House would provide stays for the consumers in a lawsuit if there is a suit against the vendor of the product.
- Change ITC Injunction Standard – The White House would have the ITC apply the four factor eBay test for injunctions to match up with district court practice.
- Demand Letter Database – This would incentivize public filing of demand letters so that others can search them. Some of this information is already available via Annual Reports, SEC filings, as well as from companies that specialize in tracking the activities of NPE’s.
- ITC Judges – Provide flexibility in hiring qualified Administrative Law Judges. The White House was not specific about what that extra flexibility would be, whether budgetary or procedural.
Many of these actions and suggestions could be useful in improving the patent system. Patent reform that targets patent quality, expense, timeliness, and alternatives to litigation have been mostly well considered and well received. Patent reform directed in particular to NPE’s has often been misguided and fraught with unintended consequences. Some of the ideas in today’s Fact Sheet are worth consideration, but a measured and thoughtful approach is advised.