Survey of Proposed Patent Lawsuit Reform Bills in Congress (Part 1)

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C. (Robert Wagner on G+)

In a growing response to concerns about patent “trolls” and the tactics they use in litigation, the President and Congress are calling for changes in the patent laws to assist the targets of these patent assertion entities (PAEs). Currently, there are six bills pending in Congress that address, in some respect, these concerns. In this three-part series, we will look at the pending legislation and what changes are being proposed. (Parts two and three of our series are here and here.)

Pending Legislation:

• Patent Abuse Reduction Act of 2013 (S. 1013)
• Patent Litigation and Innovation Act of 2013 (H.R. 2639)
• Saving High-Tech Innovators from Egregious Legal Disputes Act of 2013 (H.R. 845—SHIELD Act)
• End Anonymous Patents Act (H.R. 2024)
• Patent Quality Improvement Act of 2013 (S. 866)
• Stopping the Offensive Use of Patents Act (H.R. 2766—STOP Act)

Patent Abuse Reduction Act of 2013 (S. 1013)

Sponsor: Senator Cornyn

Along with the Patent Litigation and Innovation Act of 2013 that will be discussed in the next installment, the Patent Abuse Reduction Act of 2013 is the most comprehensive and far-reaching of the currently proposed legislation. The bill would make four major changes to the patent laws that will affect all patent lawsuits, not just the “troll” variety.

First, the bill would require a patentee to plead substantially more information than is currently required in a complaint, including (1) identifying the patents that are allegedly infringed; (2) identifying the claims that are allegedly infringed; (3) identifying each allegedly infringing product, method, process, etc., including the specific name and model numbers; (4) identifying how each element of each claim is infringed; (5) identifying whether the infringement is literal or under the doctrine of equivalents; (6) for indirect infringement, identifying the acts and parties who directly infringed and the indirect infringer’s acts that give rise to liability; (7) identifying the basis of the patentee’s right to sue; (8) describing the principal business of the patentee; (9) listing each previously filed complaint relating to the asserted patents; (10) identifying whether the patent is subject to any licensing terms or pricing commitments; (11) identifying the owners, assignees, and exclusive licensees of the patents; (12) identifying anyone who has a legal right to enforce the patents; (13) identifying anyone with a direct financial interest in the lawsuit or its proceeds; and (14) describing the basis for that direct financial interest.

Given that the bare-bones nature of the current model Form 18 for patent lawsuits, the bill would also require that Form 18 be updated to include this information.

Second, the bill would require courts to join any interested parties on a defendant’s motion if the defendant shows that the plaintiff’s interest in the patent is limited “primarily to asserting any such patent claim in litigation.” The court may deny the motion if the interested party is not subject to service or would deprive the court of subject matter jurisdiction.

Third, the bill would substantially change the timing and scope of discovery, including shifting the costs for non-core discovery materials. If a court determines that claim construction is required, discovery is limited to only that necessary for construction until after the court issues its ruling. After that ruling, discovery is divided into two groups—core documentary evidence and additional discovery. Core documentary evidence is limited to documents that (1) relate to conception, reduction to practice, and application for the patent; (2) are sufficient to show the technical operation of the accused products or services; (3) relate to invalidating prior art; (4) relate to prior licensing of the patent; (5) are sufficient to show the revenues attributed to the invention; (6) are sufficient to show the organizational structure of each party; (7) relate to the defendant’s awareness of the patent or infringement before the lawsuit was filed; and (8) are sufficient to show any marking, lack of marking, or notice of infringement.

Notably, computer code and electronic communications (e-mail, text messages, etc.) are not core discovery, unless the court finds good cause to classify them as such. Additional discovery is the discovery of every other kind of evidence. Each party bears the burden of producing its own core discovery, as is currently the case. However, the burdens shift with respect to additional discovery. There, a requesting party is not entitled to the additional discovery unless it pays for it (including both actual costs and reasonable attorneys’ fees) or posts a bond in that amount.

Finally, the court is to award costs, expenses, and attorneys’ fees to the prevailing party, unless the non-prevailing party’s positions and conduct were objectively reasonable and substantially justified or exceptional circumstances make such an award unjust. If the non-prevailing party cannot pay these costs, the court can make them recoverable against any interested party.

The Consequences of This Proposed Legislation

While this bill is clearly directed at curbing abusive patent litigation, its effects will be felt in all patent lawsuits. Given the far-reaching impact of these proposed changes, all patent litigators should be aware of how patent litigation may change. In particular, there are many unanswered questions about this bill that could have significant consequences.

First, the amount of information required in a complaint is extraordinary, especially in comparison to what is required now. Some of this information may be very difficult for a plaintiff to know at the filing stage, even with substantial pre-filing due diligence. For instance, it may be difficult to determine all of defendant’s allegedly infringing products beforehand. Indeed, discovery often reveals additional products that infringe. What are the consequences if a plaintiff later discovers infringing products? How can they be added to the lawsuit? Interestingly, there is no equivalent requirement for defendants to plead this level of detail with respect to their non-infringement or invalidity positions.

Second, how will these pleading changes affect declaratory judgment lawsuits? Normally, an infringement counterclaim must be raised in an answer as a mandatory counterclaim. These pleading requirements apply for counterclaims, as well as the initial complaint. What happens if a patentee is sued based on a licensing demand and does not have this information? Or does not have this information for all of the accused infringer’s products? Patentees would have to be extremely careful before sending out cease-and-desist or licensing letters.

Third, given that core discovery specifically excludes e-mails, how will the parties obtain some of the core discovery that may only be in e-mail format? For instance, a defendant’s awareness of the patent or infringement may only be found internal e-mail communications. Core discovery also excludes computer code. Presumably, a court will find this code to be core discovery for computer software patents or inventions that use a computer, but that is not clear.

Fourth, the bill states that a party is not entitled to additional discovery until it first pays for it. How will those issues be addressed? What happens if there is a dispute over the reasonableness of the costs? Will courts have to micromanage litigation budgets and fees? What happens if a party cannot afford the discovery? Is it completely barred from obtaining it? Is this a due process concern?

Fifth, core discovery is defined as “core documentary evidence” and only includes documents relating to the topics described above. How are depositions and expert discovery treated? What about interrogatories? Are they “additional discovery” that must be paid for by the requesting party? If so, this is especially problematic with experts. Unlike document requests and interrogatories, a party has no control over what experts (or how many) the other side hires. The bill is silent on how to address these issues.

Sixth, this bill turns patent litigation into a loser pays proposition. In other words, it is the equivalent of a default finding of exceptional circumstances in our current system. The bill is silent as to what happens if a position that was reasonable becomes unreasonable in the middle of the litigation. For instance, an infringement or non-infringement position may become unreasonable after the court issues its claim construction. What happens then? If a plaintiff does not withdraw its suit or a defendant does not immediately settle, are they liable for all of the fees? Only those fees after the ruling? A defendant may not be able to extricate itself on reasonable terms at that point, especially if the plaintiff now knows it will be able to collect its attorneys’ fees.

Finally, while this payment requirement can be challenged, this change will create even more pressure on a defendant to settle a case, especially if it is likely to be costly. Plaintiffs can presumably take more precautions to make sure that their positions are reasonable and substantially justified before they choose to file suit. A defendant may not have that luxury.

Summary

There are clearly issues with patent litigation now, especially with respect to suits brought by “trolls.” It is not clear whether the Patent Abuse Reduction Act of 2013 will help or hurt more, however. It will be interesting to see the discussions surrounding this piece of legislation and whether it ever becomes law.