Here We Go Again: The Next Round of Legislative Patent Law Reform

Once upon a time, there lived three billy goat brothers named Gruff who decided to cross a bridge to reach an area of lush grass to eat.  Underneath the bridge lived an evil troll who ate all those who tried to cross the bridge. 

As the First Billy Goat Gruff stepped onto the bridge, the troll yelled, "How dare you cross my bridge!  I shall eat you up!"

"Please wait, for a bigger goat is on its way," said the First Billy Goat Gruff.  The greedy troll decided to save his energy for a larger prize and let him go.

The Second Billy Goat Gruff told the troll the same thing and also was allowed to cross the bridge.

Upon seeing the Third Billy Goat Gruff, the troll pounced on him.  But the Third Billy Goat Gruff was so big that he knocked the troll down with his huge horns and killed him.

What does this have to do with patent law reform?  Congress is trying to play the part of the Third Billy Goat Gruff against so-called patent trolls.[1]

Last month, Representative Bob Goodlatte (R-VA), Chair of the House Committee on the Judiciary, released a second version of his discussion draft proposing changes to U.S. patent law ("Goodlatte Draft").[2]  On October 23, 2013, the Congressman introduced a patent bill entitled the "Innovation Act" ("Bill") with only minor differences compared to the Goodlatte Draft.[3]  The Bill is predominantly targeted at curbing abusive patent litigation through substantial changes to patent infringement litigation procedures, thereby attempting to reign-in some of the litigation abuses seen by many as the hallmark of patent trolls.   

Whether these changes are best made by Congress, the judiciary, or patent owners and practitioners themselves remains to be seen.  In fact, much has been said about whether Congress even has the authority to make such changes.[4]  Regardless, there is blood in the water, and it is important for patent owners and practitioners to understand the wave of change that could be coming and how it might affect legitimate patent owners' rights to assert their patents and protect their intellectual property.  This advisory provides a brief overview of the Bill's proposed changes.

Pleading Requirements

The first step in bringing a patent infringement lawsuit, or any lawsuit for that matter, is filing a complaint.  In order to know what information a patent infringement complaint must include, plaintiffs can make use of Form 18 contained in the Federal Rules of Civil Procedure.[5]  Unfortunately for many defendants, Form 18 is rather bare of requirements that facts be included.  A plaintiff need only give:

• A statement of jurisdiction of the court to hear the matter;
• Notice as to the patent being asserted;
• A statement that the defendant is infringing by making, selling, and/or using a device embodying the patent;
• A statement that the patent owner gave the defendant notice of the infringement; and,
• A demand for damages and/or injunctive relief. 

That's it.  Five sentences and you (or a patent troll) can be in court.

The fact that a plaintiff alleging patent infringement need only give such basic information is unusual given recent precedent from the United States Supreme Court.  Starting in 2007, the Court in Bell Atlantic Corp. v. Twombly[6] and, two years later, in Ashcroft v. Iqbal,[7] dramatically altered pleading standards in federal courts to require more particularized factual assertions in a plaintiff's complaint.  However, the United States Court of Appeals for the Federal Circuit has ruled that patent infringement cases are not subject to the new heightened pleading requirements, holding that the use of Form 18 is sufficient and preempts both Twombly and Iqbal.[8]  Accordingly, plaintiffs rarely disclose, for example, which claims of the patent are being asserted; how the allegedly infringing device may be infringing on that claim; or, in some cases, even which of defendant's devices or instrumentalities plaintiff believes infringes on its patent! 

As a result, patent infringement defendants frequently bemoan the fact that the complaint lodged against them does not contain enough information to let them know what they are accused of doing wrong.  The changes proposed by the Bill would attempt to address this concern by requiring more factual information to be included in a complaint and thereby bringing patent infringement pleading more in line with the standards set forth in Twombly and Iqbal. 

For example, in addition to requiring notice of the allegedly infringed claims, the Bill requires plaintiffs to develop and include a claim chart showing "where each element of each claim . . . is found within the accused instrumentality"; indicate whether each element is infringed literally or under the doctrine of equivalents; and describe, "with detailed specificity, how the terms in each claim . . . correspond to the functionality of the accused instrumentality."  This is substantially more information than required by Form 18, and it would benefit patent infringement defendants who would otherwise find themselves being sued on vague patents with ambiguous claims.

However, it remains to be seen whether requiring such detail would be a good thing or a bad thing.  On the one hand, defendants would have a much clearer picture of what they are accused of doing wrong.  The Bill also would force a plaintiff to take a hard look at the patent and the alleged infringing instrumentality and decide, before filing suit, whether the defendant is actually infringing.  As it stands now, some entities take advantage of the relaxed pleading requirements and allege patent infringement when, in fact, the potential for infringement liability is tenuous at best.

On the other hand, such a requirement could make enforcing a legitimate patent owner's rights impractical.  Without a complaint, there is no lawsuit.  And without a lawsuit, there is no discovery.  Often times, it is the discovery process that gives plaintiffs the information they need to create the detailed claim charts that the Bill seeks to require prior to suit.  While it is true that the Bill does contain a caveat that its enhanced pleading requirements will not be applied if "the information is not reasonably accessible,"determining what is "reasonably accessible" could create a whole separate set of (expensive) issues.

Attorneys' Fees

Today, U.S. patent law vests judges with authority, albeit limited, to police what they see as abusive patent litigation behavior by awarding attorneys' fees and costs to the prevailing party in "exceptional cases."[9]  Thus, the general rule is that each party (the plaintiff who chose to bring the suit and the defendant forced to defend it) pays its own attorneys' fees and costs, regardless of the outcome.  The Bill would reverse this rule.  Instead of attorneys' fee awards being the exception, attorneys' fee awards would become the norm.  Courts would be instructed that they "shall award" reasonable attorneys' fees and costs incurred by the prevailing party.  Only in the event that "the court finds that the position of the nonprevailing party . . . was substantially justified or that special circumstances make an award unjust" would attorneys' fees and costs not be awarded.  Simply put, the Bill creates a presumption of an attorneys' fee award to the prevailing party. 

Moreover, in the event that the nonprevailing party cannot pay, the prevailing party may look past the folks across the courtroom aisle to interested third parties when "the party alleging infringement has no substantial interest in the patent or patents at issue other than asserting such patent claim in litigation."  In other words, the risk of incurring attorneys' fees cannot be avoided by selling a patent to a patent holding company (i.e., patent troll) so it can do the dirty work for the seller.

Making the payment of attorneys' fees to the prevailing party the norm rather than the exception would certainly have an effect on patent litigation.  But, like the Bill's enhanced pleading requirements, whether the effect would be positive or negative remains to be seen.  Certainly, presumptive attorneys' fee awards to the prevailing party would dissuade some patent trolls from bringing suit in the first place, particularly when the alleged infringement is based on one of those vague complaints mentioned above.  The plaintiff's risk of bringing suit and not prevailing, resulting in payment of the defendant's legal fees and costs in addition to their own, would be a substantial deterrent to an "iffy" claim indeed.

On the other hand, the risk could dissuade some smaller patent owners (i.e., individual inventors or small companies with limited resources) from rightfully enforcing their patent rights.  Such small‑entity or micro‑entity patent owners may avoid filing a worthy suit for fear they might lose and the court will, after both sides have accrued substantial legal fees, decide that the action was not "substantially justified."  In such cases, does the potential good (i.e., dissuading abusive litigation from patent trolls) outweigh the impact of inhibiting the little guys from rolling the dice on what could very well be meritorious claims?

Discovery

In any litigation, discovery is generally one of the most costly components.  In patent infringement litigation, the need for expansive discovery on a myriad of issues (i.e., infringing product specifications, revenues from infringing sales, correspondence within a company showing willful infringement, etc.) can make discovery costs exceptionally burdensome.  With the potential for pre-trial costs to soar, not to mention the expenses associated with what could ultimately be a lengthy trial, many smaller defendants make the business decision to simply settle rather than fight.  This difficult choice is frequently exploited by patent trolls who threaten suit knowing the odds of winning are slim simply in order to extort the "nuisance value" of a claim from defendants.[10]  In other words, the lesser of two evils is simply paying off the patent trolls with a settlement rather than spending a greater amount of money to prove that there has been no infringement.   

In an effort to reduce discovery costs and alleviate at least part of this concern, the Bill would limit discovery prior to claim construction.  In a patent infringement case, claim construction is often pivotal because, once the court construes the claims, there is often little else to fight about.  Accordingly, the Bill would preclude discovery unrelated to claim construction prior to a claim construction decision unless the court determines that failure to allow additional discovery would "affect the rights of a party with respect to the patent."  By limiting initial discovery only to claim construction rather than the plethora of other issues that may or may not arise after a favorable outcome of the claim construction hearing for the plaintiff, discovery costs would be reduced dramatically.  Therefore, smaller defendants would have a much greater incentive to prove their non-infringement rather than simply paying potentially unworthy plaintiffs to go away.

As with the rest of the proposed changes described above, the impact of this provision of the Bill remains to be seen.  Exactly how a court would interpret its discretion to allow additional discovery where the "rights of a party" could be affected is difficult to predict.  Just as with the case of attorneys' fees, the courts have always had the ability to limit discovery in this way, but were not required to do so, and seldom did.  If the Bill is enacted, the presumption will be to limit discovery rather than leaving parties loose to bombard opponents with burdensome discovery requests.  Such an encroachment into the traditional role of the judiciary has some commentators (including Judge O'Malley of the Federal Circuit) upset, going so far as to call it a violation of the constitutional separation of powers.[11]

Patent Ownership Disclosures

Another concern that the Bill seeks to address is the practice in patent infringement cases of hiding the true parties-in-interest.  In some cases, the true parties-in-interest stay hidden safely in the wings while the patent troll buys the patent and asserts it against the alleged infringer.  This practice allows such hidden parties to avoid the unpleasant risk of counterclaims from the alleged infringer.

Under the Bill, plaintiffs would be required to disclose to the U.S. Patent & Trademark Office ("USPTO"), the court, and every adverse party:

• The assignor of the patents at issue;
• Any person or entity with a right to sublicense or enforce the patent;
• Any person or entity that the plaintiff knows to have a financial interest in the patent or the plaintiff; and,
• The ultimate parent entity of any assignee or any entity identified in the preceding two classifications. 

Plaintiffs also would be under a duty to update these disclosures within 90 days after any change.  Failure to do so could result in, among other things, paying the discovery costs incurred by a defendant in unearthing such interested parties.

The Bill also includes two new provisions that did not appear in the Goodlatte Draft.  The first provision relates to situations in which the required information for disclosure is not readily accessible and provides that a party covered by these disclosure requirements must state what is not disclosed, why it is not disclosed, and the efforts that were undertaken to access the undisclosed information.  The second provision allows for confidential information to be filed under seal if a party shows good cause.

By forcing such parties‑in‑interest onto the stage, this provision would likely reduce the overall number of patent suits – particularly from plaintiffs concerned with counterclaims that could potentially shut down their business.  However, this provision also could have a chilling effect on legitimate patent holders' decisions to assign or license rights to third parties. 

Stay For Customer Suits

Patent trolls are often accused of targeting an array of end-users of allegedly infringing products rather than going after a lone product manufacturer.  Why?  Presumably, patent trolls equate a greater number of defendants with a greater number of potential settlements.  The Bill addresses this issue by providing for a stay of an infringement action against a retailer, customer, or other end-user of an infringing product when a similar suit has been initiated against the manufacturer.  Thus, an end-user may petition the court for a stay of the proceedings against it until the suit against the manufacturer is resolved. 

Initially, this seems like an attractive deal for the end-user.  The catch, however, is that the end-user must agree to be bound by the decision in the manufacturer's case to the extent that there are issues in common.  So, by accepting the stay, the end-user effectively loses its day in court – at least for some potential issues.  Furthermore, this version of the Bill does not allow manufacturers to intervene in a suit between the potential troll and the end-user.  Thus, patent trolls can sidestep this provision rather easily by simply not suing the manufacturer (at least until after it's finished with the end-users). 

It's Been Two And A Half Years – Must Be Time To Fix The AIA

The Bill also is geared toward correcting several perceived issues in the recently enacted America Invents Act.[12]  One such correction would narrow the estoppel effect of post‑grant reviews to only those issues actually raised.  Significantly, the current law prevents parties from subsequently raising any issue that "reasonably could have [been] raised" during the review.  The Bill would make post-grant review less of an alternative to challenging patent validity and more of a parallel path. 

Additionally, the Bill would require the Patent Trial and Appeal Board ("PTAB") to construe claims using a standard similar to that used by federal district courts.  Specifically, the proposed standard would be the "ordinary and customary meaning of such claim as understood by one of ordinary skill in the art and the prosecution history pertaining to the patent."  As it stands now, the PTAB uses a "broadest reasonable construction" standard, regardless of whether a court has construed, or will construe, the claim using its narrower language.  Supporters hope this change will bring consistency to the claim construction process during appeals. 

The Bill also would eliminate the so‑called "civil action" option used by some patent applicants after their patent application is ultimately denied by the USPTO.  Currently, unsuccessful applicants may file a federal lawsuit requesting that the federal district court order the USPTO to issue their patent.  Such suits allow for substantial presentation of evidence and give no deference to previous findings of fact by the USPTO.  Under the Bill, this legal avenue would be eliminated, leaving unsuccessful applicants with no other option other than to appeal to the Federal Circuit (which, in the authors' opinion, is a more logical step following an adverse decision by the PTAB).

Finally, the Bill also proposes:

• A codification scheme for obviousness-type double patenting (previously relegated only to case law);
• An expansion to the scope of covered business method reviews;
• A shrinking of patent term adjustment (eliminating adjustment following the filing of a Request for Continued Examination); and,
• An attempt to undo the court decision in the case of Gunn v. Minton[13] by declaring all patent claim construction a "substantial federal issue" such that state courts will effectively be removed from the claim construction business entirely (e.g., when claim construction becomes an issue during state-law-based license disputes).

Conclusion

The ultimate effect the proposed changes of the Bill could have on the patent system as a whole would be far reaching indeed.  Past experience suggests that sweeping changes to the law often bring collateral damage commonly referred to as the "Immutable Law of Unintended Consequences."  To that end, some say Congress should keep out of the judiciary's hair, not only because it will be unconstitutional, but because weakening the judiciary in this way could render judges "unable to stand up to transgressions when called upon to address them."[14]  Conversely, others say it is exactly what is needed in order to keep predatory patent trolls at bay.[15] 

Either way, the Bill contains only proposed changes.  Remember that the most recent patent reform legislation was ten years in the making and went through many iterations.[16]  In the meantime, stay tuned to this issue because, for better or for worse, change is coming.

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© 2018 Ward and Smith, P.A.

This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.

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