Rep. Goodlatte Introduces "Innovation Act" to Combat Patent Trolls

Goodlatte, BobAfter releasing two "discussion drafts," Rep. Bob Goodlatte (R-VA) (at right), the Chairman of the House Committee on the Judiciary, finally introduced a bill in the House on October 23, 2013, with the non-descript title of "Innovation Act."  Rep. Goodlatte had released his first discussion draft on May 23, 2013, and a substantially revised draft dated September 6, 2013.  Many of the provisions of the second draft were met with skepticism in the patent community, and unfortunately, the currently introduced bill differs only on minor respects.  At the time of release of the second discussion draft, we highlighted some of the major provisions (see "Rep. Goodlatte Introduces Second 'Discussion Draft' of Legislation Aimed at Curbing 'Abusive Patent Litigation'").  In an effort to minimize repetition, we will point out some of the changes that were made to the bill in the intervening month, and we highlight some of the issues or concerns that the bill presents.

We will also only focus on the section dealing with patent infringement actions here, considering the motivation behind the present bill was to combat the perceived "patent troll" problem.  Rep. Goodlatte explained when he release the first discussion draft:  "This bill helps to address the issues that businesses of all sizes and industries face from patent troll-type behavior and aims to correct the current asymmetries surrounding abusive patent litigation."  Of course, as whenever the derogative term is invoked, this bill does not attempt to define what a "patent troll" is.  As such, the bill does not adequately differentiate between practicing and non-practicing entities.  In other words, the bill is not narrowly tailored to address the problem that it was introduced to solve.  Therefore, even if the goal is to take down the trolls, this bill could have the unintended consequence of taking down the entire patent system with it.

One of the most significant problems with the present bill is the move from "notice" pleading to initiate a patent infringement lawsuit towards something that much more resembles the detail required by infringement contentions not normally required until much later in the litigation.  Therefore, the type of information that the bill will require any party asserting a patent (whether in the complaint, counter-claim, or cross-claim) to plead includes an identification of each patent and each claim allegedly infringed, an explanation as to where each element of each claim is found in each "accused instrumentality," whether each element is infringed literally or under the doctrine of equivalents, and how the terms of each claim correspond to the functionality of the accused instrument.  It is unclear with this level of detail whether claim charts will be required to satisfy this pleading requirement.  The pleadings will also require a description of the direct infringement, the acts of any alleged indirect infringement, and the right of the party to assert the patent, a list of complaints already filed which identify the same patent, and whether the patent is subject to any licensing terms or pricing commitments.  Of course, a similar requirement is not imposed on an alleged infringer pleading invalidity of the patent, which may by understandable considering the time constraints involved in answering a complaint.  However, this is not true when a potential infringer brings a declaratory judgment action including a count of invalidity, but the bill does not address this situation.

One of the problems with such heightened pleading standard is that accused infringers might be able to successfully challenge a patent infringement lawsuit on the sufficiency of the pleadings without ever having to address the merits of the case.  Even though the bill provides what type of information must be included in the complaint, it does not specify the level of detail required.  It is also unclear what the penalty will be for patent holder failing such a sufficiency challenge.  Parties normally have the right to amend the complaint once without seeking leave of the Court, but will the courts freely grant leave if more than one complaint is needed?  More importantly, if the patent holder's infringement contentions are modified during discovery, will an amended complaint need to be filed?  Will information contained in the complaint lead to any estoppel issues down the road?  And, if the alleged infringer challenges the sufficiency of the Complaint, can the patent holder seek limited discovery for the purposes satisfying the pleading requirements?  Unfortunately, none of these issues are addressed by the bill.

On the bright-side, one of the changes included in the bill since the second discussion draft is that it now includes a provision for situations in which the information is not readily accessible to a party.  However, to invoke this provision, the patent holder will still need to include in the pleadings why the undisclosed information was not available and the efforts undertaken to access this information.  Of course, as with the issues raised above, it is unclear what the standard will be to determine if information is, in fact, unavailable, and what that standard will be to determine whether research efforts were satisfactory.  The newly introduced bill also includes a provision for filing such a complaint under seal if it contains confidential information.

Another controversial provision of the bill relates to significant proposed changes to 35 U.S.C. § 285.  This section currently provides for the possibility of awarding attorney's fees to the prevailing party in "exceptional circumstances."  However, the newly introduced bill flips the default, so instead of attorney's fees being a possibility in certain cases, the bill requires courts to award reasonable fees to the prevailing party unless they "find that the position of the nonprevailing party or parties was substantially justified or that special circumstances make an award unjust."  It is clear that the purpose of this provision is to provide the courts with the ability to "punish" non-practicing entities that are considered to assert their patents abusively.  However, this provision will likely to have the consequence of stifling legitimate patent infringement lawsuits, regardless of whether the patent holder is a practicing entity or not.  If the goal is to enable the courts to curb patent abuse, 35 U.S.C. § 285 as it currently stands can be amended to remove the "exceptional circumstances" requirement, as many commenters have suggested and as introduced in other bills currently pending in Congress.

Rep. Goodlatte and others were motivated to introduce this bill to curb the perceived patent assertion abuses that have been so frequently reported in the mainstream media (usually without much factually support for the proposition).  Instead, the bill that was introduced is not narrowly tailored, but rather is a blunt instrument that will impact all patent infringement actions (outside of Hatch-Waxman actions brought pursuant to 35 U.S.C. § 271(e)(2)).  It is important to note, however, that this bill has yet to be discussed by the Committee on the Judiciary, so the chance of it passing the House in its current state, much less passing the Senate, is highly unlikely.  We will, of course, continue to follow and report on the progress of this bill, as well any comparable bills that are introduced in either the House or the Senate.