Archive for November, 2013

Innovation Act Approved by Committee; New Troll Bill Introduced in Senate

November 21, 2013

Congress continues its work to pass legislation aimed at reducing abuse from patent trolls.

Earlier this week, House Judiciary Committee Chairman Bob Goodlatte (R-VA) had introduced a Manager’s Amendment to the Innovation Act, H.R. 3309.  The Amendment eliminated provisions in the original bill that had nothing to do with patent trolls, such as the provision expanding and making permanent the PTO Business Method review proceedings.

Yesterday, the Committee held a markup session where the majority turned back numerous proposed Democratic amendments aimed at softening many of the bill’s provisions related to discovery, fee shifting, and other provisions.  There were objections that the bill is ostensibly aimed at patent trolls, but its provisions apply to all patent infringement plaintiffs.

The only amendment of any substance that was approved by the Committee was intended to somewhat soften the fee shifting provisions.  While the original bill called for automatic fee shifting unless the losing party’s conduct was “substantially justified,” the language was amended to “reasonably justified.”  Fee shifting could also be waived if it would cause economic hardship to the losing party.  The new provision is meant to apply only to egregious cases.

The Committee also lumped in provisions related to licensing demand letters, requiring them to contain more detailed information.

The amended bill was approved by the Committee in a 33-5 vote.  The bill will now move to the House floor for full debate and vote.

Patent Transparency and Improvements Act

Meanwhile, on the other side of the Capitol, Sens. Patrick Leahy (D-VT), Mike Lee (R-UT), and Sheldon Whitehouse (D-RI) introduced a bill in the Senate that is aimed a patent trolls, S. 1720.  This bill is aimed primarily at the most egregious actors and not at patent owners generally.  House Judiciary Committee members Reps. John Conyers (D-MI) and Mel Watt (D-NC) have expressed support for this bill instead of the House’s more extensive reform bill.

S. 1720 would authorize the Federal Trade Commission (FTC) to act against parties sending out patent demand letters that include include materially deceptive or fraudulent assertions.  Such letters would need to include sufficient details to permit a party to investigate and respond to the allegations, including the patent owner’s identity, patent being asserted, and reasons for the assertion.

The Senate bill also includes provisions to change claim interpretation of issued patents by the PTO.  Currently, the PTO uses the “broadest reasonable interpretation,” while courts review the patent specification and file history to determine the correct claim interpretation.  This provision would make the two standards the same and add to predictability in post-grant proceedings.

HT:  Patently-O.

The good news for patent owners is that a number of bills are now being proposed in Congress to address perceived problems with patent litigation and demand letters.  Perhaps this will spur analysis and debate of the competing bills rather than quick passage of a bill without sufficient review and consideration.

The actions of some patent assertion entities have certainly caused anguish among their targets and needs to be addressed.  Revamping the entire system, however, is not the answer as it will deter legitimate infringement allegations and further reduce the value of patents.

Legislative Update

November 18, 2013

IPWatchdog is reporting that Rep. Goodlatte (R-VA) is working to fast track the Innovation Act through the House of Representatives.  He reports that Rep. Goodlatte has scheduled a markup session on the bill for this week in spite of the fact that the bill was only introduced on October 23.

Several other members of the House Judiciary Committee, of which Rep. Goodlatte is the chair, have expressed concern about rushing the legislation through Congress.  Ranking Member John Conyers (D-MI) and former chairman James Sensenbrenner (R-WI) have asked for more time to study the bill.

Again, this bill seems to be on high speed through the Committee, which has not heard from any independent inventors or small businesses on how they will be affected by the bill.  The Biotechnology Industry Organization (BIO) and the University community have expressed concerns over the bill, particularly the fee shifting provisions.

Is the only way to get bills through Congress now to rush them through rather than to have sufficient debate of the issues?

House Passes Amendments to Rule 11

Rule 11 of the Federal Rules of Civil Procedure permits judges to sanction parties and lawyers for filing frivolous lawsuits and other pleadings during a lawsuit.  The Lawsuit Reduction Act of 2013 was passed by the House last week to undo 1993 amendments to the Rule that made sanctions within the discretion of the district court judge.

The new bill would require judges to sanction parties for violations of the rule and would remove the 21 day “safe harbor” provision that permitted parties to withdraw pleadings that did not contain sufficient basis in law or fact within 21 days of their initial filing.

Several consumers groups and the American Bar Association have opposed the changes to the rule arguing that it will increase legal maneuvering and make it more difficult for legitimate claims to proceed.  The ABA argues that there is no evidence of the need to remove judicial discretion.

The bill passed the House by a vote of 228-195 largely along party lines, with most Republicans supporting the bill and most Democrats opposed.  It is unclear whether or when the Senate will take up the bill.

Senate Hearing on Patent Trolls

November 12, 2013

Last week, the Senate Committee on Commerce, Science & Transportation conducted a hearing on patent troll demand letters.

The hearing was led by Sen. Claire McCaskill (D-MO) who called patent assertion entities “bottom feeders.”  These entities are “scam artists” who prey on the vulnerable, getting them to pay damages instead of facing the high costs and uncertainty of litigation.

Several of the witnesses, including Cisco Systems general Counsel Mark Chandler, Nebraska attorney general Jon Bruning (R), and BrandsMart USA executive vice president Lary Sinewitz gave testimony about particular instances where demand letters had been received that were clearly outrageous.  Yet, companies and individuals often pay to get rid of these allegations.

Jon Potter of the industry trade group Application Developers Alliance called these letters fraudulent.  He and several others called on Congress to require these letters include sufficient specificity to permit companies and individuals to respond to them in an appropriate manner.  They should include specific patent claims that are infringed and specific products that are alleged to be infringed.  The letters should include information on the real patent owners and real parties in interest.  Another proposal was for any company that sends out ten or more of such demand letters to companies that neither manufacture nor sell the accused product be required to deposit a copy of such demand letters in a government registry that can be reviewed by others to help determine an appropriate response.

Meanwhile, Professor Adam Mossoff of George Mason School of Law urged lawmakers to be cautious with new legislation.  There may be unintended consequences of harming legitimate patent owners whose patents are being infringed.  There are existing rules and procedures for handling bad patents and bad actors.

The PTO’s Authority to Overrule Court Decisions

November 7, 2013

The Federal Circuit has denied a petition for rehearing en banc on the question of whether the PTO has the authority to overrule district court and Federal Circuit decisions.  Fresenius USA, Inc. v. Baxter Int’l, Inc.

The saga of this case is entering its second decade.  Fresenius originally sued Baxter for a declaratory judgment that U.S. Patent No. 5,247,434 was invalid.  The district court held otherwise and the Federal Circuit affirmed that decision.

During the pendency of the litigation, the PTO reexamined the patent and found it to be invalid as obvious based on substantially the same prior art used in the litigation.  On appeal, the Federal Circuit relied on the differing burdens of proof between the two proceedings to affirm the PTO’s finding of invalidity.  Judge Newman wrote a vigorous dissent from the panel decision.

The Federal Circuit has now denied a petition to rehear the case en banc by a narrow vote of 6-4 (with Judges Chen and Hughes not participating in the decision).  Judge Dyk, joined by Judge Prost, wrote an opinion concurring in the denial to rehear the case.  His position seems to be that infringement damage awards can be erased upon a finding of invalidity, even years after final court decisions have been affirmed on appeal.

Judge O’Malley, joined by Chief Judge Rader and Judge Wallach, wrote a dissent where they argued that the invalidity determination by the PTO would preclude infringement damage awards going forward, but the finality of the earlier court decisions means that those damage awards cannot be erased by a PTO determination.  That is, the PTO is free to re-judge a patent’s invalidity, even over the same prior art reviewed by the courts, but the PTO is not permitted to overrule a final judicial determination of infringement and damages.

Finally, Judge Newman, who wrote a vigorous panel dissent, wrote another dissent on this issue.  She argued that the PTO is not permitted to overrule court decisions.  That is, she argued that once the courts have finally ruled on an issue such as invalidity over a particular piece of prior art, the PTO is not permitted to second guess the court and issue a different ruling.  Executive agencies are not permitted to overrule Article III court decisions.

This case creates a serious litigation mess.  Accused infringers are encouraged to seek multiple avenues of relief in the hope of winning at the PTO if things aren’t going well in litigation.  This decision seems to suggest that district courts should stay proceedings where there is a parallel PTO proceeding in the case.