Goodlatte Patent Troll Bill Being Marked Up; Patent Lawyers Say Let AIA Work

NEW YORK – Anyone who depends on – and cares about – the American patent system needs to make some noise to their representatives in Congress and protest a potentially “awful” piece of legislation that has wide support, a popular patent judge said this week.

[Update: The #InnovationAct just passed the #HouseJudiciary Committee by a bipartisan vote of 33-5.]

“I’m for good patent reform engineered by litigators and people who understand how patent procurement works … but not by congressional staffers or lobbyists” who don’t understand the ins and outs of the patent process, Chief Judge Paul R. Michel [Ret.] of the US Court of Appeals for the Federal Circuit, told those attending an IP Summit at Fordham University Law School on 17 November.

The Fordham summit focused on the impact the post-America Invents Act (AIA) has had the US patent system and the burden of patent-assertion entities (PAEs), also known as non-practicing entities (NPEs) or “patent trolls.”

Michel, who oversaw hundreds of patent cases during his career, was referring to a bill introduced by US Rep. Bob Goodlatte, a Virginia Republican. HR 3309, the Innovation Act, aims to curb abusive patent litigation, particularly by PAEs. This bill builds on the AIA and, among other things:

• Aims to prevent individuals from taking advantage of gaps in the system to engage in litigation extortion;
• Includes heightened pleading standards and transparency provisions and requires more due diligence to be done before an infringement suit is filed;
• Includes a modernised version of the Patent Act’s Section 285 fee shifting that would require a court to award reasonable fees and expenses to a prevailing party in a patent suit, unless the court finds that the position of the non-prevailing party was substantially justified or that the award is somehow unjust.

But the Goodlatte bill, Michel argues, is not carefully designed enough to really be effective in filling the gaps left behind by the AIA.

“We have a growing problem in terms of the AIA doing what it’s supposed to do because of a lack of resources,” Michel said. “The AIA is one huge unfunded mandate and the Goodlatte bill is another huge, unfunded mandate.”

Goodlatte Bill Being Marked Up, Sans CBM Provision

Goodlatte on 17 November introduced a manager’s amendment [pdf] outlining changes to HR 3309. The legislation is being marked up and voted on in the House Judiciary Committee today. It could be on the House floor for a vote by December.

In the amendment, Goodlatte dropped one of the most controversial provisions, an expansion of the Transitional Program for Covered Business Method (CBM) patents, which could have increased the types of patents eligible for additional review at the US Patent and Trademark Office (USPTO).

Currently, a company being sued for infringement can ask the USPTO to review the patent again only if it is related to financial products. Goodlatte’s bill originally codified the USPTO’s current interpretation of – and court decisions related to – the law, which allowed for further review of software patents. Although that provision was eliminated, some lawmakers and stakeholders are still protesting the bill.

“We continue to oppose this legislation that would make sweeping and unnecessary changes to patent litigation and encroach on the independence of the federal judiciary,” said House Judiciary Committee Ranking Member John Conyers, a Michigan Democrat, and Rep. Melvin L. Watt, a North Carolina Democrat and Ranking Member of the Subcommittee on Courts, Intellectual Property, and the Internet. “While we support measured and balanced changes to respond to the most egregious practices involving patents, we do not believe that this legislation should become a vehicle to pass far ranging changes to the litigation system, such as limits on pleadings and discovery, and intrusive mandates on the court system.”

Conyers and Watts did, however, say that the Senate version of the bill offered this week by Senate Judiciary Committee Chairman Patrick Leahy, a Vermont Democrat, offers a “more balanced and targeted approach to the abusive tactics of some patent litigants.” Leahy and Sen. Mike Lee, a Utah Republican, introduced The Patent Transparency and Improvements Act of 2013, also on 17 November, which also has the support of the White House.

This Senate bill, S. 1720, requires the disclosure of ownership information of patents asserted, permits stays of patent infringement lawsuits against downstream customers, and would empower the Federal Trade Commission (FTC) to address the widespread sending of bad faith demand letters as an unfair or deceptive act. It also includes provisions on estoppel in post-grant proceedings and on claim construction in post-grant and inter partes proceedings.

“America’s patent system is the envy of the world, but unfortunately some bad actors are misusing the system to sue unsuspecting consumers or extort monetary settlements by making misleading demands,” Leahy said. “When small businesses in Vermont and across the country are threatened with lawsuits for offering wi-fi to their customers or using document scanners in their offices, we can all agree the system is not being used as intended. “

Foley & Lardner LLP pointed out several differences between the Senate and House versions. In the Senate bill, there is:

• No loser-pays fees-shifting (H.R. 3309 would award attorneys’ fees to the winning party as the default rule in patent cases.)
• No joinder of “interested parties” (H.R. 3309 would require joinder – when multiple infringer defendants join together – upon a defendant’s motion, of any (1) assignee of the patent, (2) person with a right to enforce or sublicense the patent, and (3) person having a financial interest in the patent, including the right to receive damages or licensing revenue.)
• No discovery limits (H.R. 3309 would limit most discovery until after a claim construction ruling.)
• FTC policing of demand letters, making the “widespread sending” of false or misleading demand letters punishable by the FTC. (H.R. 3309 has no FTC provision.)
• Duty to disclose assignee’s “ultimate parent entity” during prosecution and throughout life of patent. (H.R. 3309 requires this disclosure only after an infringement complaint is filed.)

The White House, which has also supported the Goodlatte bill, said the Leahy bill addressed many reforms the Obama administration set forth in June, when the White House Task Force on High-Tech Patent Issues released a package of legislative priorities and actions on IP.

Other lawmakers, as well as numerous industry groups, including well-resourced stakeholders and tech giants, support HR 3309, arguing that PAEs are a costly, time-sucking plague upon the patent system and inventors. Robert Sloss, former senior corporate counsel at Oracle, said at the Fordhman IP Summit that “virtually all” of the patent litigation brought against Oracle during his tenure at the company was from NPEs.

The Business Software Alliance noted that “important improvements have been made to the bill,” including striking a proposed expansion of the CBM. “With these changes, the bill will succeed in curbing abusive patent litigation while preserving critical incentives to innovate.”

The American Intellectual Property Law Association (AIPLA) added that it “looks forward to working with Chairman Leahy and his staff to find a formulation that ensures the legislation will properly balance the important interests of both patent owners and users of technology.”

Patent Attorneys: Let AIA Work

Despite industry’s general support for the Goodlatte bill, many of those actually waging the patent infringement war in the courtroom say the AIA has not been given the chance to work, and any further attempts by Congress to step in are premature.

“Why are we rushing into a whole new slew of legislation without giving the AIA a chance to see if it will solve some of the patent litigation abuses?” Lonnie Rosenwald, vice president and chief counsel of technology creation and commercialisation at Intellectual Ventures, a PAE, asked at the Fordham IP Summit.

“Our patent system’s really far too important to our economy to be held hostage against groups that are trying to inoculate themselves to certain litigation,” added Gerald Padian, partner at Tashjian & Padian, stressing the need to assess how AIA has worked before Congress acts further.

James Trueman, vice president of the patent-licensing Acacia Research Corporation, said it is a widespread opinion in his industry that Congress should not step in further on an issue that is better left to the courts – which can react more quickly to changes in patent law and practice – to wade through.

“Let’s get some sea legs on the AIA before we start to push the next wave of litigation because we don’t know what’s going to happen down the line,” Trueman said. “Legislation, in our opinion, is not the place for this to happen. This should happen in the courts … there’s cause and effect that’s going to happen with all of these things, and lawmakers can’t react fast enough to unintended consequences.”

He added: “Let the courts deal with it – they have the teeth.”