Patent Legislation to Watch

A little more than two years ago, the America Invents Act (“AIA”) was signed into law, bringing with it some of the most significant changes to U.S. patent law in over half a century.  Since then, public concern over patent litigation—especially the increasingly common lawsuits filed by non-practicing entities—has added momentum to additional patent reform initiatives. Both critics and proponents of these initiatives agree that the changes currently proposed would represent dramatic and significant changes to the patent landscape.

Patent Quality Improvement Act/Stopping the Offensive Use of Patents Act

In early May 2013, Senator Chuck Schumer (D-NY) introduced S.866, the Patent Quality Improvement Act (“PQIA”).  This draft legislation proposes to broaden the definition of a “covered business method” patent under the Transitional Program for Covered Business Method (“CBM”) Patents by opening up any e-commerce patent (even one without a financial services component) to a potential validity challenge through this Patent Trial and Appeal Board proceeding. The companion House bill, H.R. 2766 (“Stopping the Offensive Use of Patents (“STOP”) Act), was introduced in the House of Representatives.

In September, more than 100 major companies (including 3M, General Electric, IBM and Microsoft) drafted an open letter to the Senate and House Committees on the Judiciary criticizing the proposed expansion of the CBM program by the PQIA as potentially “creat[ing] uncertainty and risk that discourage investment in any number of fields where we should be trying to spur continued innovation.”

The PQIA has been referred to the Senate Subcommittee on Courts, Intellectual Property, and the Internet, while the STOP Act has been referred to the House Committee on the Judiciary.

Innovation Act

In October 2013, Representative Bob Goodlatte (R-VA) formally proposed the “Innovation Act,” H.R. 3309, to the House.  The bill includes major changes to district court litigation designed to crack down on so-called patent “trolls,” including heightened pleading requirements and significant limits on discovery.  Among other things, the Innovation Act would require all patent complaints to identify the ultimate parent entity of the patent owner to discourage plaintiffs from hiding behind shell companies.  All complaints would also be required to include more details about infringement allegations.  The bill would also limit discovery until after claim construction to prevent plaintiffs from using the cost of discovery to leverage settlements.

The bill further includes a “loser pays” provision, which would require plaintiffs who lose to pay their opponents’ legal costs in some circumstances, unless the losing party’s conduct is “reasonably justified.”  While the Patent Act currently allows a prevailing party to recover attorneys’ fees in cases of willful infringement, or frivolous or bad faith litigation behavior, that rarely happens.  This provision is designed to make it easier to recover fees.  The bill would also eliminate the AIA’s sunset period for CBMs, making this procedure a permanent fixture.

Critics of the bill argue that, although purportedly aimed at so-called patent “trolls,” the legislation would also make it more difficult, expensive and time-consuming for legitimate patentees to enforce their patent rights in district court.

The bill easily passed the House in December by a vote of 325 to 91, sending the legislation to the Senate, where the Judiciary Committee is now taking it up.  The Senate bill, S.1720, the Patent Transparency and Improvements Act, is being sponsored by Senator Patrick Leahy (D-VT).  A competing bill, introduced by Senator John Cornyn (R-TX), the Patent Abuse Reduction Act, S.1013, includes the controversial fee-shifting provisions of the Innovation Act.

At a hearing in December, several senators called for a wider examination of how the measures being proposed would impact patent law.  This examination could slow down Senate passage of any of these so-called anti-troll bills, which had been fast-tracked in the House.

Supreme Court Expected to Decide Significant Patent Cases

A number of cases on the Supreme Court’s docket are certain to impact patent practice in 2014. The Court is scheduled to decide issues related to patentable subject matter, willfulness and the burden of proof in a patent licensee’s declaratory judgment action.  The Court is also expected to consider issues relevant to joint infringement in another pending case.

The Federal Circuit has continued to struggle with a framework for analyzing patentable subject matter under 35 U.S.C. § 101, particularly in the field of computer software, since the Supreme Court’s 2010 decision in Bilski v. Kappos.  On December 6, 2013, the Supreme Court granted certiorari in Alice Corp. Pty. Ltd v. CLS Bank Intern. In Alice, the Court will determine whether claims to computer-implemented inventions constitute patent-eligible subject matter within the meaning of 35 U.S.C. § 101.  Alice involves patents that claim the performance of escrow on a computer.  The en banc Federal Circuit was torn on the standards for determining patentability.  Five separate opinions failed to command a majority.  The plurality opinion concluded that the claims did not cover patent-eligible subject matter because they merely recited the “abstract idea” of a “form of escrow.”  However, two judges would have found the system claims patentable as directed to machines with specific functions.  Three judges would have held all claims patentable.

In another case, the Federal Circuit’s two-part test for determining whether a case is “exceptional” under 35 U.S.C. § 285 will be challenged. Octane Fitness, LLC v. Icon Health and Fitness, Inc. asks whether the exceptional case standard makes it more difficult for accused infringers to recoup fees in such cases. Argument is currently scheduled for February 2014 and a decision is expected by end of June.

The Supreme Court recently heard argument in Medtronic Inc. v. Boston Scientific Corp.  In this case, the Court will decide whether a patent licensee in a declaratory judgment action has the burden to prove that its products do not infringe the patent, or whether the patentee must prove infringement.

Additionally, the solicitor general recently urged review in Limelight Networks, Inc. v. Akamai Techs., Inc.  That case is before the court on cross-petitions for certiorari from the Federal Circuit’s en banc decision which held that induced infringement under 35 U.S.C. § 271(b) requires that all steps of a claimed method be performed, but not necessarily by the same entity.

The America Invents Act and Post-Grant Review Procedures

The AIA introduced, among other things, new post-grant review procedures for challenging issued patents before the Patent Trial and Appeal Board (“PTAB”). The procedures include inter partes review (“IPR”), post-grant review (“PGR”) and the Transitional Program for CBM Patents.  Although IPRs and CBMs have enjoyed significant growth in their first year, no PGR petitions have yet been filed as they are only available for applications filed on or after March 16, 2013.  We expect to see the first PGR petitions filed with the PTAB in 2014.

In addition, although the PTAB issued only one final merits-based determination in an IPR and one final merits-based determination in a CBM in 2013, the PTAB will face statutory deadlines for final determinations in a large number of proceedings in the next several months.  These decisions should provide more in-depth information for practitioners considering the pros and cons of such proceedings.

Moreover, in the past, there were very few appeals taken from decisions of the PTAB to the Federal Circuit.  However, because more than 800 IPRs and CBMs have been filed, and a large number of the patents involved in such proceedings are also involved in co-pending litigation, we expect to see the number of Federal Circuit appeals from the PTAB significantly increase.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this informational piece (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Topics:  Covered Business Method Patents, Patent Reform, Patent Trial and Appeal Board, Patent Trolls, Patents, PQIA, STOP

Published In: Civil Procedure 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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