U.S. Patent Legislation: The STRONGER Patents Act of 2017

by Hogan Lovells

Hogan Lovells

In June, three democratic senators (Chris Coons from Delaware, Dick Durbin from Illinois, and Mazie Hirono from Hawaii) and one republican senator (Tom Cotton from Arkansas) introduced the “STRONGER Patents Act of 2017.” One of the motivations for the bill appears to be that the U.S. Chamber of Commerce recently ranked the U.S. patent system 10th in the world.  Previously, the U.S. was always ranked first (albeit in the same report, the United States’ overall Intellectual Property system is still ranked first).  According to Senator Coons’ website, the bill would “enact balanced reforms to restore the U.S. patent system to the world’s gold standard.”  To achieve this, the bill seeks to alter the Inter Partes Review and Post Grant Review procedures put in place six years ago by the America Invents Act, and to reverse, or at least mitigate, several recent Supreme Court decisions.

Limits on IPR and PGR procedures: Claims can only be challenged once, and only by those facing a lawsuit

In what would be a significant reduction of the current scope of IPR and PGR practice, the bill proposes that a patent claim can only be challenged via an IPR or PGR once. Specifically, the proposed legislation states that “the Director shall not authorize an inter partes review [or a PGR] to be instituted on a claim challenged in a petition if the Director has previously instituted an inter partes review or post-grant review with respect to that claim.’’

The bill would also restrict IPRs and PGRs to any entity (or related entity) that has been sued for infringement or threatened with a lawsuit. Currently, anyone can request an IPR or PGR, regardless of whether it has been sued or threatened with a lawsuit.

Permanent injunctions become closer to the norm in patent litigation

In eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006), the Supreme Court explained that a plaintiff seeking a permanent injunction must “demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law are inadequate to compensate for that injury; (3) that considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.”

Under the proposed legislation, once infringement of a not invalid or unenforceable patent is found, a district court would presume that the first two elements of this test are met. A defendant would still be able to argue that it has overcome this presumption, or that the other two eBay factors do not support an injunction.  Still, if this provision was enacted into law, it would go a long way toward making permanent injunctions the norm in patent litigation, and this would likely shift negotiation power in favor of patent holders during licensing and settlement discussions.

Limited interlocutory appeals to the Federal Circuit

One issue that has been percolating through the Federal Circuit and the Supreme Court is the ability of a patent owner to appeal the PTO’s decision to institute an IPR or a PGR. The STRONGER Patent Act wades into this area by allowing for a limited “interlocutory appeal” to the Federal Circuit of the PTO’s institution decision.  Specifically, an interlocutory appeal would be allowed on “any basis except for the determination made under section 314(a)(1).”  Section 314(a)(1) includes the main decision before the PTO regarding institution: whether there is “a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition.”

The bill outlines factors the Federal Circuit “may” consider when deciding whether to accept an appeal, including whether the institution decision: (1) “appears to be in error and mere institution presents a risk of immediate, irreparable injury to the patent owner;” (2) “presents an unsettled and fundamental issue of law, important both to the specific proceeding and generally, that is likely to evade end-of-the-proceeding review; or” (3) “is manifestly erroneous.” Finally, the underlying IPR would not be automatically stayed during the pendency of any interlocutory appeal.

Providing patent owners a way out of IPRs

Under the proposed legislation, after the PTO has instituted an IPR, a patent owner has the option to move to cancel the IPR and replace it with an “expedited IPR reexamination.” The patent owner would be required “to show good cause for why an expedited IPR reexamination would further the goals of the patent system.”  This would include consideration of “substantial . . . investments in research directly related to the claimed invention . . . secondary indicia of non-obviousness, such as commercial success, long-felt but unsolved needs, or failures of persons skilled in the art to develop the claimed invention . . . or changes in case law governing relevant substantive patentability requirements since the patent was issued.” If the motion is granted, the patent owner would cancel the challenged claims and submit substitute claims to a patent examiner.  The examiner would have 18 months to examine the claims, and the patent owner would be able to appeal rejection of the substitute claims to the PTAB, and then to the Federal Circuit.

For many patent owners, this would be an appealing alternative to an IPR or PGR. It is much slower, and it provides the patent owner with ample opportunity to amend its claims through the process.  Of course, patent owners would need to cancel the challenged claims once the IPR is instituted, which could be a significant drawback for parties actively asserting these claims, in part because claims for past damages may be waived.

A number of other changes

The STRONGER Patents Act would end PTO fee diversion; harmonize the claim construction standard used at the PTAB with that used in district courts (contrary to a recent Supreme Court decision); implement procedures for substituting and amending claims during an IPR (which would slow IPRs); designate certain uses of patent demand letters as unfair trade practices subject to prosecution by the FTC; require certain district courts participating in the patent pilot program to develop expedited procedures for patent infringement suits against small business or individuals; and expand the scope of induced infringement by removing the requirement that a defendant know of the asserted patent (contrary to another recent Supreme Court case).

Outlook: A long way to go

While the bill suggests many significant changes to the U.S. patent system, it must travel a long way to be enacted into law. If the 115th Congress has the appetite for patent legislation, The STRONGER Patents Act represents – a mostly pro-patent owner – first stake in the sand.

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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