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Survey of Proposed Patent Lawsuit Reform Bills in Congress (Part 2)

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

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 series, we are looking at the pending legislation and what changes are being proposed. (Parts one and three of our series are here and here.)

PENDING LEGISLATION:

Patent Litigation and Innovation Act of 2013 (H.R. 2639)

Sponsors: Representatives Jeffries and Farenthold

The Patent Litigation and Innovation Act of 2013 (“PLIA”) is in many ways very similar to the Patent Abuse Reduction Act of 2013 (“PARA”) we discussed in the first part of this series, although there are some notable differences. These two bills are the most comprehensive and far-reaching of the currently proposed legislation. The bill would make five major changes to the patent laws that will affect all patent lawsuits, not just the “troll” variety.

First, like the PARA, the PLIA 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) identifying the owners, assignees, and exclusive licensees of the patents; and (10) identifying anyone who has a legal right to enforce the patents.

Unlike the PARA, the PLIA does not require that the patentee identify any previously-filed complaints involving the patents, whether the patent is subject to any licensing or pricing commitments, or the identity of anyone who has a financial interest in the patent (and the basis for that 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, like the PARA, the PLIA 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 PLIA provides a mechanism for staying any actions against “secondary parties,” who are defined to be those whose alleged infringement is based on the use, distribution, resale, or consumption of a product or process by a primary party. Primary parties are those who manufacture or supply the product or process that allegedly infringes. If the primary and secondary parties agree, they can move the court, which then must stay the action against the secondary parties. The secondary party will then be treated as a non-party for purposes of discovery, hearings, and trials. However, the secondary party will be bound by any judgment against the primary party relating to common issues between the two.

Fourth, the PLIA creates a number of automatic stays of discovery. The court must stay discovery while ruling on any motion to dismiss, motion to transfer, or claim construction, although there are provisions for lifting the stay in extraordinary circumstances. The court can also allow whatever discovery is necessary to decide these issues.

Finally, the PLIA provides that the court must include specific findings in its final adjudication regarding the parties’ and attorneys’ compliance with Rule 11(b) and may impose sanctions for any violations.

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 that, 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 some interesting consequences.

First, as with the PARA, the amount of information required in a complaint is extraordinary, especially in comparison to what is required now under the notice pleading standard of the federal rules. The same concerns discussed in the article on the PARA apply equally to the PLIA. As a practical matter, it is difficult to see what the purpose behind these changes is, especially in jurisdictions that have local patent rules that require this type of disclosure early in the process. Most plaintiffs, whether of the “troll” variety or not, have put together detailed infringement charts as part of their due diligence. While pleading this information will be time consuming, it should not be particularly difficult. In addition, what is the recourse if a plaintiff is “wrong”? A court should not be resolving questions of fact on a motion to dismiss. On the other hand, requiring this kind of information, whether in the pleadings or early in the litigation, is extremely helpful for defendants to understand the scope of the lawsuit and what products and claims are actually at issue and should help streamline the litigation. Whether it should be required in the complaint or as part of early disclosures is another matter.

Second, the provisions regarding staying the action against secondary parties are potentially very helpful in reducing the distractions caused by this kind of litigation tactic. It will be interesting to see how secondary parties react and whether they are willing to be bound to whatever judgments are entered against the primary party. In theory, a primary party should have a far greater interest in defending the lawsuit and the greater knowledge to do so.

Third, the stay of discovery while the court is construing claims could be helpful, but it also could prove problematic. For instance, sometimes it is difficult to know exactly what claims could be at issue until a defendant provides the details of how its product works or what the steps in its process are. Certain elements or steps may be unknowable without access to source code or knowledge of the precise process used. And, this cuts both ways. Sometimes, a patentee may believe that additional claims are infringed after learning more about the defendant’s products, but it could also be the reverse, where discovery reveals that certain claims that it believed were infringed are not infringed. In addition, a patentee may not appreciate that a particular claim term needs to be construed until it sees how the accused products work and the positions that the defendant is taking. Courts are unlikely to be thrilled at the prospect of having to engage in the claim construction process multiple times or having to construe claim terms that later turn out to be irrelevant once additional discovery is done.

Finally, it is unclear how useful the requirement that courts make specific findings regarding Rule 11(b) compliance will actually be. Presumably, if one of the parties or the court felt that another party’s behavior was inappropriate, they would have raised that issue anyway. Further, it is unlikely that a court will have sufficient evidence to make any findings of inappropriate behavior in those cases that settle early, even if the case actually had little merit.

Summary

There are clearly issues with patent litigation now, especially with respect to suits brought by “trolls.” While not as drastic as the PARA, it is not clear how helpful the PLIA will actually be in addressing some of the abuses that currently exist. It will also be interesting to see the discussions surrounding this piece of legislation and whether it ever becomes law.

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