Intellectual Property Bulletin - Spring 2013: Surprising Appetite in Washington for New Federal IP Legislation

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On March 16, 2013, the most significant provisions of the America Invents Act (AIA) came into force. The AIA was seen as the most extensive alteration to U.S. patent law in half a century, and was hotly debated over nearly a decade. The changes under the AIA were in some ways fundamental to our patent law, moving us from a system in which the first to invent deserves a patent to the system used in the rest of the world in which the winner of a patent is the first inventor to file a patent application. Particularly in view of the other issues commanding the attention of Congress, commentators suggested that IP issues were not likely to rise to prominence again anytime soon. Those commentators were wrong.

It appears that the stage is set for further major revisions to U.S. patent law in the coming year. In addition, there is a serious call in Congress for a major overhaul to copyright law. There is even a strong push, both from Congress and the Obama administration, to enact a new federal trade secrets act allowing a civil private right of action (currently addressed almost exclusively by state law). These proposals are not just minor technical amendments to a current statutory scheme. They represent instead an interest in fundamentally rebalancing the quid pro quo on which each of these IP protections is based.

The proposal for patent reform is perhaps the most surprising given the recency of the AIA’s enactment. A number of separate patent reform attempts were started during the Spring of 2013.

A proposal by House Judiciary Committee Chair Bob Goodlatte and Senate Judiciary Committee Chair Patrick Leahy was circulated in late May, primarily to address abusive tactics often associated with “patent trolls.” The proposal, styled as a House bill, was quite detailed, coming in at 38 pages. One section provides incentives to settle litigation lawsuits through an award of attorney fees and costs to a prevailing party that offered to settle the case before trial. Another requires transparency in identifying all parties that have a financial interest in a patent; nonpracticing entities often seek to obfuscate ownership for various reasons. Other provisions relate to ownership (including parent companies) and licensing history of patents, again to increase transparency as to the parties who may already have benefits relating to the patents. The draft includes a protection for customer end users as well via a stay requirement, where a patent relates to a product and the patent owner chooses to sue a user of the product rather than its manufacturer. Related provisions call for various studies and public education efforts. One is a study of “asymmetries in discovery burdens and costs,” with an obvious view toward limiting the cost of litigation for infringement defendants; another looks to analyze patent transactions, quality, and examination. A provision calls for enhanced education for small businesses regarding patent exposure. There are also some “improvements and technical corrections” to the AIA, at least some of which may be significant changes; for instance, the manner in which patent claims are to be construed in the new PTO procedures (i.e., post-grant and inter partes reviews).

Senator John Cornyn of Texas provided a previous proposal along somewhat similar lines, called the Patent Abuse Reduction Act. The approach taken in Senator Cornyn’s bill includes a heightened pleading requirement, with a claim-by-claim identification of each “accused instrumentality” (method, system process, etc.), detailing where each element of each asserted claim is found within the accused instrumentality. Like the Goodlatte/Leahy proposal, there is also a requirement to identify licenses pertaining to asserted patents and ownership interests in the patents. This proposal also includes settlement, joinder, and discovery provisions, again intended to limit defendants’ exposure in addressing infringement claims. A previous proposal called the SHIELD Act (fully, the “Saving High-Tech Innovators from Egregious Legal Disputes Act”), introduced in February by Representatives Peter DeFazio and Jason Chaffetz, would have had “loser pays” provisions only for nonpracticing entities.

Representative Ted Deutch of Florida sponsored another bill, also in May, called the “End Anonymous Patents Act” that is solely intended to increase transparency as to patent ownership. Senator Charles Schumer’s proposed bill, again introduced in May, seeks to expand the reach of the additional level of review for “covered business method patents” that he secured as part of the AIA. Under that program, the level of review available for most patents for the first nine months after they are granted is expanded for certain types of patents to last for their entire lifetimes. In early June, Representative Steven Chabot of Ohio introduced legislation, HR 2236, to expand the definition of a “microentity” under patent law to increase the number of startup companies that could qualify for drastically reduced PTO fees.

For context, these various proposed bills emanated from Congress before the Obama administration’s very public push on June 4 to address abuses by “Patent Assertion Entities” (expressly equated in the administration’s report with the typically pejorative term “patent trolls”). The 17-page report, entitled “Patent Assertion and U.S. Innovation,” proposes a host of reforms, ranging from heightened PTO examination standards to reducing the “disparity of litigation costs between patent owners and technology users.” The report also suggests looking for ways to increase the “adaptability of the innovation system to challenges posed by new technologies and new business methods.” The proposed bills have come at about the same time that action at the state level is increasing. Attorneys general in several states have been studying abusive tactics by trolls, and Vermont’s attorney general filed a consumer fraud lawsuit in May against one patent holder for its widespread enforcement activity. At nearly the same time, Vermont enacted legislation expressly aimed at addressing “bad faith patent assertions.”

On the copyright side, activity has been somewhat more consolidated, but no less intense. House Judiciary Committee Chair Goodlatte, before turning his attention to the patent bill discussed above, stated that he will be holding hearings on whether new copyright legislation is called for. Many have advocated for such legislative reform, in view of various advances in technology, as well as the seemingly cumbersome process of addressing unauthorized music sharing and video streaming by individuals through conventional federal court litigation. The Digital Millennium Copyright Act (DMCA) appeared in 1998 based on studies done several years before that, well before many of the technologies now in widespread use for distribution and delivery of copyrighted works were invented. Congress has already begun work in this direction; a House subcommittee scheduled a hearing on HR 1123 on June 6, 2013, regarding amendments to the DMCA to permit consumers to unlock cell phones without approval from their cellular carriers (such attempts might otherwise obviate technical protection measures in violation of the DMCA). There is no publicly disclosed general agenda available for this round of copyright reform, but the range of issues is vast; for instance: the legality of online radio and television technologies; reducing the duration of the copyright term and the amounts available as “statutory damages;” and, creating a small claims court to resolve, for instance, infringement complaints brought by individuals against unauthorized use of their materials online (or perhaps those brought by music companies and movie studios against individuals).

Given the developments in case law and business practices over the past decade, it is widely expected that any such reform efforts in Congress will be met with intense lobbying efforts from both the entertainment industry and the technology sector. Just as the AIA was nearly a decade in the making, the next revision to our copyright law may likewise take many years to engineer. There are numerous signs, however, that Congress intends to start this process.

The trade secret has traditionally been the poor cousin of the constitutionally supported patent and copyright. Although federal trade secret legislation has been in place for some time, both via the Economic Espionage Act and the Computer Fraud and Abuse Act, there has been no federal counterpart to the Uniform Trade Secrets Act, the model law around which most states have formulated their trade secrets statutes. Some significant disadvantages stem from trade secrecy being protected primarily by state law. For instance, it is difficult for the United States to negotiate minimum trade secrecy standards in treaties with other countries when there is no corresponding federal law. It is also sometimes quite difficult, as a practical matter, to bring certain trade secret misappropriation lawsuits against foreign entities under state law, as some service, discovery, and other procedures are difficult if not impossible to employ in the various state court systems.

Last summer, Senators Herb Kohl, Chris Coons, and Sheldon Whitehouse introduced the Protecting American Trade Secrets and Innovations Act (PATSIA, S.3389). This proposed legislation would have added a private right of action under federal law for trade secret misappropriation under certain circumstances. Although PATSIA died with the close of the 112th Congress, it appears poised to reappear fairly soon.

Both Congress and the Obama administration have been closely watching trade secrecy cases involving foreign entities, most notably those bearing some connection with China. In February, the office of the IP Enforcement Coordinator (IPEC) issued a detailed report entitled, “Administration Strategy on Mitigating the Theft of U.S. Trade Secrets.” One of the primary recommendations of the IPEC report was improved domestic legislation. Two pieces of legislation from 2012 were highlighted as steps in the right direction. The Theft of Trade Secrets Clarification Act, S. 3642, closed a loophole in the Economic Espionage Act by expanding its scope to cover not only products, but also services and related activities. The Foreign and Economic Espionage Penalty Enhancement Act of 2012, H.R. 6029/S. 678, increased criminal penalties for economic espionage.

In addition to the report, IPEC opened a comment period in March and April 2013 seeking input on “existing laws related to the enforcement of trade secrets to determine if legislative changes are needed to enhance enforcement.” 78 Fed. Reg. 16875 (March 19, 2013). The comments that IPEC received referred extensively to PATSIA and the need to consider addition of a federal civil cause of action for trade secret appropriation. Numerous reasons were given for supporting such a statute. Some commentators noted that those suffering from such misappropriation were in the best position to bring actions against it. Others observed that the federal government has brought relatively few criminal actions, and only in selected areas, so the criminal provisions have proven insufficient – particularly in cases where foreign actors are involved.

The tone of the IPEC Report was reinforced by the U.S. Trade Representative’s most recent Special 301 Report, issued in early May. The Special 301 Report emphasized the importance of enforcing trade secret rights, and devoted a separate section just to this topic, noting, “This year’s Special 301 Report reflects increased emphasis on the need to protect trade secrets.” The IPEC Report’s call to improve domestic legislation was repeated in the Special 301 Report.

This is not the first time that a federal civil trade secrets provision has been suggested. Several academic and other writers have proposed such legislation for decades. However, it is only recently that the federal government has seriously addressed addition of a private civil cause of action for trade secret misappropriation, similar to that available for patents and copyrights.

IP issues are often overwhelmed by more pressing issues in Congress. It may be that none of these initiatives gets very far in the near term. However, the fact that Congress and the Obama administration are both actively seeking legislative solutions in ongoing patent, copyright, and trade secrecy areas is remarkable. We will be following the developments closely and reporting on them in future issues of the intellectual property bulletin.

Topics:  America Invents Act, DMCA, IPEC, Patent Reform, Patent Trolls, Patents, Trade Secrets, Uniform Trade Secrets Acts

Published In: Civil Procedure Updates, Communications & Media Updates, Elections & Politics Updates, Intellectual Property Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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