While the Supreme Court considers clarifying the patentability of certain inventions and the standard for fee-shifting in patent cases, Congress is debating proposals intended to curb abusive patent litigation. Additionally, President Obama, through executive action and rulemaking at the USPTO, has enacted several reforms to a similar end. Many states have also explored their options to combat what they feel are abusive patent litigation practices.

Though the America Invents Act of 2011 is still in its infancy, commentators expect additional patent reform enactments in 2014. Unlike the AIA, which focused largely on patent prosecution reform at the USPTO, current proposals are aimed at changing the rules of patent assertion and litigation. Such continued reform has been spurred by concerns about perceived abusive patent litigation by certain non-practicing entities, so-called “patent trolls,” companies whose business model revolves around asserting patents and collecting licensing fees, rather than selling products or services.

While some of these efforts ultimately are likely to fail, it is also likely that some sort of change will come in 2014 or soon thereafter. Practitioners should be aware of the proposals currently on the table in order to effectively advise their clients and help them plan for what lies ahead.

Proposals in Congress

Innovation Act, H.R. 3309

The Innovation Act, the most aggressive “anti-troll” reform bill seen to date, sailed through the House of Representatives by a vote of 325 to 91 in December 2013. The Innovation Act would change patent litigation drastically on several fronts.

First, the bill heightens the pleading requirements for infringement actions. The law would require plaintiffs to identify specific patent claims infringed by the defendant and which of the defendant’s products are targeted. Second, the Innovation Act limits discovery before claim construction to information that is necessary to interpret the patent claims. Coupled with the heightened pleading requirement, these two provisions could significantly shift costs to the plaintiff to earlier in the litigation and stave off certain discovery costs for defendants until later in the litigation process. The bill also enacts a “loser pays” rule  for attorneys’ fees, unless the losing party shows its actions were “substantially justified.”

Other less drastic, but nonetheless significant reforms in the Innovation Act include provisions:

(i) allowing end users sued for infringement to stay litigation pending the outcome of a suit against an upstream manufacturer; (ii) requiring patent owners to make any patent assignments public information; and (iii) requiring plaintiffs to disclose the “ultimate parent entity” and anyone with “financial interest” in the outcome of litigation.

The Innovation Act is currently under consideration in the Senate.

Patent Transparency and Improvement Act, S. 1721

The U.S. Senate is also considering a less aggressive bill, the Patent Transparency and Improvement Act. Like the Innovation Act, the Patent Transparency and Improvement Act requires disclosure of patent assignments and disclosure of those with financial interest in litigation. It also includes a similar provision for allowing end users to seek stays pending manufacturer litigation.

The three most significant pieces of the Innovation Act, however (heightened pleading, limited discovery before claim construction, and fee shifting), are not included in this more limited bill. There are some indications that many in the Senate view this bill as a more reasonable approach than the Innovation Act.

Also notable is that the Patent Transparency and Improvement Act authorizes the FTC to regulate demand letters sent by patentees prior to litigation. Under the bill, a demand letter could not falsely threaten litigation and must have a reasonable basis in fact or law. Anyone sending a demand letter that “intentionally misleads” a reasonable recipient could face an FTC investigation.

Other Bills

Congress may also pursue a piecemeal approach, and there are a number of bills under consideration in the Senate to enact discrete reforms. For example, the Patent Abuse Reduction Act contains the three major provisions of the Innovation Act (heightened pleading, limited discovery before claim construction, and fee shifting). Another bill, known as the Transparency in Assertion of Patents Act, enables the FTC to regulate demand letters as described above.

The Patent Quality Improvement Act would expand a relatively new program at the USPTO that allows  for challenges to certain business method patents. The proposal would expand the challenges to all business method patents, which some have characterized as particularly susceptible to abusive patent litigation.

The Patent Litigation Integrity Act specifically targets “patent trolls” by employing fee shifting (like that described above for the Innovation Act) and requiring Plaintiffs that do not manufacture products (with certain exceptions, such as universities) to, at the judge’s discretion, post a bond at the outset of the case to cover the defendant’s fees and other expenses.

Executive Actions

While the President’s ability to enact reforms without Congress is limited, he does have authority over the USPTO, which can take some action in curbing abusive litigation. Recently, the President highlighted several executive actions in various stages of implementation directed to that end.

First, the USPTO is implementing a program to increase patent examiner training and especially to increase examiner scrutiny of “functional claiming.” Some have characterized this technique of drafting patent claims as problematic because it can result in overly broad or vague claims. The USPTO has launched a new website with resources for patent litigation defendants and will increase efforts to crowd-source prior art searches during examination through the Presidential Innovation Fellows program. While Congressional action is needed to require more effective disclosure of patent assignments, the USPTO has published a draft rule to require such disclosure during prosecution and when maintenance fees are paid at regular intervals.

State Efforts

While patent law is under the purview of the federal courts generally, state attorneys general and legislatures have begun to take action against patent trolls. Recently, 42 state attorneys general signed a letter asking for federal courts to confirm and clarify  state  authority  over  plaintiffs  who  send unreasonable demand letters and to recognize state courts’ personal jurisdiction over those who send demand letters into a state.

Vermont’s legislature has criminalized alleging infringement in bad faith and making baseless licensing demands. Similar bills are quickly working their way through the Oregon and Kentucky legislatures, and many other states are considering the same.

Conclusion

By the end of 2014, the patent litigation landscape may look drastically different. Given the wide support for reform targeting the most abusive patent litigation practices, it is likely some reforms will pass into law. Patent practitioners and their clients, particularly those in the software and electronics industries, should monitor these developments.

Thomas Randall