United States: US Congress Proposes A Litany Of Solutions To Patent Troll Suits

Last Updated: June 7 2013
Article by Eric L. Sophir, Matthew P. Harper, Mark C. Nelson and Matthew P. Larson

Even after years of refining the laws that were eventually enacted as the America Invents Act in 2011, some members of Congress seek to curb litigation initiated by certain non-practicing entities ("NPE") and reduce the cost and burden of patent litigation by implementing a "loser-pays" model, expanding post-grant review procedures for challenging the validity of patents, requiring recordation of patent ownership rights, and heightening pleading requirements.

Shield Act

The Saving High-Tech Innovators from Egregious Legal Disputes Act ("Shield Act"), introduced by Rep. Peter A. DeFazio, D-Ore., on February 27, 2013 (H.R. 845), defines a non-practicing entity as a patent owner who did not have anything to do with the invention claimed in the patent and does not exploit it by making a product. The Shield Act requires an NPE to pay the litigation costs of defendants should its infringement suit be unsuccessful. The proposed legislation would allow an accused infringer to move for a determination that the patent owner is an NPE early in litigation. Under the bill, a company is deemed not to be an NPE if it is the original inventor or assignee of the patent, it is a university or technology transfer organization associated with a university, or it has made "substantial investment ... in the exploitation of the patent through production or sale of an item covered by the patent." The party asserting the patent would have 90 days to make such a showing, and the presiding judge would then have 120 days to rule on the motion. A company found to be an NPE would be required to post a bond to cover the full costs of litigation, which the accused infringer can recover if it prevails in the litigation.

Unlike similar previously proposed legislation, the new bill would apply to all patents, not just those claiming computer hardware and software.

Patent Quality Improvement Act

The Patent Quality Improvement Act, introduced by Sen. Charles E. Schumer, D-NY, on May 6, 2013 (S. 866), aims to expand US Patent and Trademark Office (USPTO) procedures for challenging the validity of patents. Under current law, patents can be challenged at the USPTO under a post-grant review if those patents claim "a method or corresponding apparatus for performing data processing or other operations used in the practice, administration or management of a financial product or service." The current law has a sunset provision calling for the program to expire in 2020. This bill would remove the sunset provision and expand the scope of the post-grant review by replacing the words "financial product or service" and with "an enterprise, product or service."

End Anonymous Patents Act

The End Anonymous Patents Act, introduced by Rep. Ted Deutch, D-Fla., on May 16, 2013 (H.R. 2024), seeks to make the ownership of patents a matter of public record. Current procedures can make it difficult to determine the actual owner of a patent, so this bill would require ownership information about patents to be recorded with the USPTO when applying for a patent, paying maintenance fees, or transferring ownership. Failure to comply with these requirements would limit potential monetary damages to the period of time beginning with the date on which the requirement is met.

Patent Abuse Reduction Act

The Patent Abuse Reduction Act, introduced by Sen. John Cornyn, R-Texas, on May 22, 2013 (S. 1013), provides defendants in patent lawsuits with more information about the plaintiff and its allegations against them. The bill would further require the losing party to bear court costs and some expenses. The bill heightens pleading requirements in patent infringement actions, requiring that the complaint include: identification of each product or feature alleged to infringe the patent, including name or model number; an explanation of how the asserted claim corresponds with the accused function "with detailed specificity;" a description of the plaintiff's principal business and right to assert the patent; and a list of every other suit in which the patent has been asserted. The model patent infringement complaint form under the Federal Rules of Civil Procedure currently only requires minimal information, such as a statement that the plaintiff owns the patent and the defendant infringes.

The bill would also require a party requesting discovery in a patent action to cover the cost of all discovery beyond "core documentary evidence," which would be limited to documents that relate to the conception of the patent, potentially invalidating prior art, and several other issues. Under the proposed language of the bill, "core evidence" would not include computer code or electronic communications, such as email, absent a finding of good cause to treat it as such. Further, parties would be precluded from conducting discovery on anything beyond core evidence unless the requesting party pays the other party based on the anticipated costs of the discovery. The bill would also mandate that the prevailing party in patent litigation always be awarded reasonable costs and expenses, including attorneys' fees, unless "the position and conduct of the non-prevailing party were objectively reasonable" or "exceptional circumstances make such an award unjust."

Comprehensive Proposal

House Judiciary Committee Chairman Bob Goodlatte, R-Va., and Sen. Patrick Leahy, D-Vt., offered a comprehensive proposal on May 23, 2013 (Discussion Draft) that includes features from nearly all of the other bills discussed above. The proposed bill imposes stricter pleading requirements on patent complaints, limits discovery in patent cases, and allows manufacturers of allegedly infringing products to intervene when their customers are sued. It has not been formally introduced in Congress, though Leahy said he plans to introduce separate legislation soon.

Adopting ideas introduced by other recent proposed legislation, this discussion draft would restrict available discovery in patent litigation to "core documentary evidence" and require parties seeking additional discovery to bear the associated cost. The legislation would also heighten pleading requirements, mandating that patent infringement complaints specifically identify the alleged infringing products as well as the plaintiff's infringement theories. The legislation also requires patent applicants to disclose to the USPTO information about the true owner of the patent. The draft includes numerous other provisions, including creating a process to incentivize settlements in patent cases, requiring the USPTO to conduct outreach to help small businesses accused of infringement, and amending the post-grant procedures created by the America Invents Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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