©2014. Published in Landslide, Vol. 6, No. 3, January/February 2014, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.
In previous issues of Landslide® magazine, including the November/December 2013 issue, this column has described previous efforts in Congress to address problems in the justice system seen to arise from the conduct of parties first identified as “patent trolls,” later as “nonpracticing entities” or “NPEs,” and most recently as “patent assertion entities” or “PAEs.”
During the troll-labeled phase of this evolving trilogy, the preferred legislative mechanism was a focus on the identity of the offender, rather than its conduct; a patent owner who did not practice the invention was to be subject to legal sanctions or suffer diminished legal rights or remedies, simply by reason of not practicing the invention. This legal technique is similar to the criminal law concept of a “status offense,” such as when a juvenile is brought within the reach of the law for conduct that would not be cognizable if performed by an adult. As the term “nonpracticing entity” suggests, this conceptual approach did not change when the terminology evolved from troll to NPE.
As an examination of the bills introduced in the current Congress reveals, a movement away from the status offender approach to one that focuses on conduct is well underway, and probably nearing completion. Only one of the many bills introduced to date in the 113th Congress, H.R. 845 (popularly known as the “SHIELD Act”), utilizes that approach. Pursuant to H.R. 845, a patent owner that is not producing or selling an item covered by the patent and who unsuccessfully sues for infringement shall be ordered to pay the costs and attorney fees of the prevailing party. In what seems to be a status-based exception to the status offense, H.R. 845 categorically excludes institutions of higher learning from the sanctions called for in the Act.
Action in Congress now seems to be concentrated on H.R. 3309, House Judiciary Committee Chairman Bob Goodlatte’s bill, which does not employ the nonpracticing entity approach. Congressman DeFazio, the author of H.R. 845, now supports H.R. 3309 and has joined as a co-sponsor. We may indeed have seen the end to the NPE approach.
It is not surprising that H.R. 3309 has become the focus of attention. Its author is the chairman of the House committee that has jurisdiction over all patent legislation. His bill is by far the most comprehensive of all the current bills, and addresses in some form most of the wide range of issues addressed in the various other bills, as well as those listed by the White House in its agenda announced in June for improving incentives for future innovation in high-tech patents.
H.R. 3309: The “Innovation Act”
When Chairman Goodlatte introduced H.R. 3309 on October 22, he emphasized that the focus was now on identifying and addressing abusive litigation tactics, and commented that “we use ‘troll’ as an adjective, and not as a noun.” In a press release to accompany the bill, he declared:
Abusive patent litigation is a drag on our economy. Everyone from independent inventors, to start-ups, to mid and large sized businesses, face this constant threat. The tens of billions of dollars spent on settlements and litigation expenses associated with abusive patent suits represent truly wasted capital—wasted capital that could have been used to create new jobs, fund R&D, and create new innovations and technologies.
H.R. 3309 is designed to identify abusive litigation practices that are associated with patent trolls or patent assertion entities, and to address those practices in wide-ranging provisions that include, for the front end of the litigation process, statutory mandates for more detailed pleadings in patent infringement actions, and mandatory joinder of other interested parties when a defendant shows that the party alleging infringement “has no substantial interest in the patent or patents at issue other than asserting such patent claim in litigation.”
The bill also would limit discovery in cases involving a Markman ruling to issues relating to claims construction until such ruling is issued, and would direct the Judicial Conference to implement further requirements for and limitations on discovery, which are specified in the bill “to address the asymmetries in discovery burdens and costs” in patent cases. These “asymmetries” are seen to be present when a party asserting infringement is not practicing the patent or producing and marketing a product, and therefore faces a disproportionately reduced burden regarding discovery. Another major provision of the bill would amend § 285 of title 35 to mandate the award of attorney fees to a prevailing party in a patent suit. Section 285 currently provides discretion for district court judges to award attorney fees in “exceptional cases.”
H.R. 3309 would require that a plaintiff, upon filing a patent suit, must provide detailed, specified “real party in interest” information regarding ownership or interest in the patent to the court, adverse parties, and the USPTO. A plaintiff or subsequent owner of the patent in question must update this information with the USPTO for the life of the patent.
The bill calls for a mandatory stay of an infringement suit against a product customer in circumstances where the manufacturer of that product and the customer are both facing suit involving the same patent and the same product. The bill defines a “covered customer” to include anyone in the distribution chain.
H.R. 3309 contains a number of amendments to the provisions of the America Invents Act (AIA). These include an amendment to the estoppel provisions in the post-grant review (PGR) program to limit the estoppel effect in subsequent legal proceedings to issues that were actually raised in the PGR proceedings. The inclusion in the AIA of language extending estoppel to issues that the petitioner “reasonably could have raised” is widely believed to have been unintended, resulting from an error in drafting and processing the legislation.
Goodlatte’s bill would repeal § 145 of title 35, which provides an unsuccessful patent applicant the option to challenge the PTO denial in a district court action, as an alternative to appealing the denial to the Federal Circuit.
H.R. 3309 would amend the post-grant review and inter partes review provisions of the AIA to direct that, in each of these proceedings, the judicial standard for claims construction shall be applied. The PTO currently applies a “broadest reasonable interpretation” standard in these proceedings.
The bill would make permanent the transitional program for covered business method patents (CBMP) by repealing the sunset provision in the America Invents Act that terminates that program eight years after its initiation. The CBMP program allows a person sued for infringement of a business method patent used in providing a financial product or service to initiate a PGR proceeding in the USPTO to challenge the validity of the patent, with provision for a stay of the suit during the pendency of the administrative review. The bill also stipulates that in future CBMP proceedings, an earlier ruling of the Patent Trial and Appeal Board (PTAB) regarding the scope of coverage of the program must be followed. That PTAB ruling provides for challenge of a broad range of patents in CBMP proceedings, and it appears that the mandate to follow that ruling would apply to all future CBMP proceedings, both administrative and judicial.
The Road Ahead
When Goodlatte introduced H.R. 3309 on October 22, he announced that a hearing on the bill would be held on October 29, and that the Committee would take action to vote the bill out of Committee and to the full House “soon” thereafter. That hearing has been completed, and as we write in mid-November, he maintains his intention for early action on the bill, possibly before the end of November.
H.R. 3309 enjoys strong support but also faces growing opposition. Short of outright opposition, many stakeholders are concerned that the bill’s meritorious objectives may not be realized by the bill as currently structured, or that it may overachieve to the extent of producing results that damage patent rights more than they protect those interests. Both that strong support and the serious concerns were represented in the testimony of witnesses at the October 29 hearing.
Witnesses from two major corporations—Yahoo! and EMC—detailed the experiences of their respective companies in defending against patent infringement suits by PAEs. In the last five years, Yahoo! has experienced a tenfold increase in suits against it for patent infringement, at the same time that the substantive merit of the cases diminished. Similarly, since 2005, EMC has been sued by patent assertion entities more than 30 times, and has never been found to have infringed. Both Yahoo! and EMC expressed unqualified support for Goodlatte’s bill, and urged its enactment.
Testimony was also heard from David Kappos, who served as U.S. Under Secretary of Commerce for Intellectual Property and Director of the U.S. Patent and Trademark Office from 2009 until early 2013. Kappos served in this role during the later period of development of the AIA when, under his leadership, issues in conflict that had long seemed irreconcilable were resolved, and the six-year journey to enactment of the AIA crossed the finish line. In matters of policy formulation and administration of the U.S. patent system, no one’s views are more respected than those of David Kappos, including by lawmakers in Congress.
The views that he expressed at the October 29 hearing were supportive of the objectives of H.R. 3309, but that support was far from unqualified. His critique of the bill included identification of several major provisions of the bill as representing good policy, including those relating to fee-shifting, disclosure of real party in interest, joinder, and litigation procedures. However, as Kappos reviewed the individual components of the bill, in most every instance he counseled that further consideration and development was needed. Some provisions were seen to be in need of a more balanced approach, as in the heightened pleading requirements, which in Kappos’s view may make sense for defendants as well as for plaintiffs. Similarly, he suggested more flexibility in fee-shifting where a prevailing party may have engaged in tactics that unjustifiably drive up litigation costs. The fee-shifting provisions of H.R. 3309 travel a one-way street, and can be ordered against only a non-prevailing party.
A theme that cuts across the Kappos testimony on a number of provisions of H.R. 3309—including pleading, joinder, disclosure, discovery, and stays—is that the bill is overly prescriptive on matters best left to considerable judicial discretion. Kappos noted the opposition expressed by the Judicial Conference of the United States, the policy making body of the federal judiciary, to the litigation provisions of the bill, opposition that he found to be “well-taken.” As corrective action, Kappos suggested that “consideration should be given to reducing prescription to a minimum and tasking the judiciary with turning legislative guidance into court precedent.”
Other participants and stakeholders in the administration and management of patent-related litigation have weighed in with similar recommendations. Most important in this respect are the federal judges at both the trial and appellate levels who would have to apply and implement the many changes to procedure and management of patent litigation should H.R. 3309 be enacted.
In a November 6 letter to the House Judiciary Committee, the chairs of two rulemaking committees of the Judicial Conference expressed views of the federal judiciary on H.R. 3309, which included concerns that:
legislation that mandates the contents of the federal rules contravenes the longstanding Judicial Conference policy opposing direct amendment of the federal rules by legislation instead of through the deliberative process Congress established in the Rules Enabling Act, 28 U.S.C. §§ 2071–2077. . . . We worry that this kind of approach more often will undermine, rather than further, the development of sound rules and practices. Instead of mandating the outcome of the Rules Enabling Act process, Congress may wish to urge the Judicial Conference’s Rules Committees to study whether certain rules should be amended to address abusive patent litigation tactics and/or to implement the provisions of the Innovation Act.
Individual active and retired federal judges have expressed even stronger views and concerns. Federal Circuit Judge Kathleen O’Malley, in remarks to a September 17 meeting in Boston of the Intellectual Property Owners Association, expressed concern regarding proposals for direct congressional prescription of rules of procedure and case management for the federal courts in patent cases. In her view, these proposals have implications far beyond patent litigation, so far as to encroach upon independence of the judiciary as called for in the Constitution.
So, it seems time to remind everyone that the courts who handle patent litigation—the district courts and the Federal Circuit—are Article III courts. We do not just handle patent litigation. We handle all forms of litigation, including litigation that goes to the heart of our constitutional guarantees. When you tinker with the courts that handle patent litigation, you tinker with all Article III courts and with Article III itself.
Any encroachment upon the inherent authority of the courts to manage and control patent litigation could open the door to encroachment upon their authority to handle all litigation. When you ask Congress to dictate, not just the scope and contours of patent law, but the way courts exercise their authority over individual cases before them, you break down the distinctions between the branches of government.
Recent experience concerning the development and enactment of IP legislation teaches that serious disagreements between principle participants in the formulation and administration of these laws most often must be resolved before major changes are enacted. The changes in law and practice proposed in H.R. 3309 and related bills are clearly major changes. There are serious disagreements concerning the proper direction of the changes, and these disagreements are not limited to those typically voiced by competing IP community stakeholders based on where their stakes are held.
Here there appears to exist fundamental disagreement between the legislative branch and the judicial branch regarding the permissible and appropriate degree to which the former may stipulate the manner in which the latter carries out its responsibilities. Consultation and compromise are commonly essential components of a resolution of disagreements of this dimension. It remains to be seen if these principles will be brought to bear here, and if so, if they will succeed.