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Survey of Proposed Patent Lawsuit Reform Bills in Congress (Part 3)

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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 the final part of this series, we are looking at the four remaining pieces of legislation, which are all more narrow in focus, and what changes are being proposed in them. (Parts one and two of our series are here and here.)

Pending Legislation:

Saving High-Tech Innovators from Egregious Legal Disputes Act of 2013 (H.R. 845)

The SHIELD Act is designed to shift the costs of litigation to certain kinds of patentees that lose patent infringement lawsuits. Specifically, patentees that (1) are not the original inventor or assignee of the patent, (2) have not made a “substantial investment” to exploit the patent through production or sale of item covered by the patent, or (3) are not a university or a university’s technology transfer organization will be required to pay the full costs and attorneys’ fees of the prevailing party that asserted invalidity or non-infringement, unless the court finds that exceptional circumstances exist.

A party asserting invalidity or non-infringement may move the court for a judgment that the patentee does not fall within one of these three classifications. If the motion is made before initial disclosures are due, the court must stay discovery, except for that necessary to resolve this motion. If the motion is made after the initial disclosures, the court may wait until after entry of final judgment to decide the motion.

There are a couple of interesting points about this proposed litigation. First, there is no good faith or reasonable basis exception explicitly contained in the determination of whether to award fees. Thus, unless courts consider a good-faith basis for filing the suit to be an “exceptional circumstance,” entities that do not fall within one of the three categories must pay a defendant’s costs and fees regardless of the reasonableness of the lawsuit.

Second, the bill does not indicate what happens with mixed verdicts. If a patentee prevails on all but one claim, is a defendant entitled to collect all of its costs and fees, or only some pro-rated amount?

Third, how would this bill affect declaratory judgment actions? The language is not written in terms of plaintiff or defendant, but in terms of the “party asserting invalidity or noninfringement.” If a company receives a cease-and-desist letter from an entity that does not fall within one of the three categories and files a declaratory judgment action, is the patentee subject to this rule? Presumably, it would be, which means that these kinds of patentees would have to be extremely careful when sending licensing or cease-and-desist letters.

End Anonymous Patents Act (H.R. 2024)

This act is fairly straightforward. It simply requires that a patent owner file a disclosure with the USPTO of the real party in interest of any patent when (1) the patent issues, (2) a maintenance fee is paid, and (3) within 90 days of any transfer of ownership. If a patent owner does not, it cannot collect any damages in a patent infringement lawsuit until it cures its failure to do so.

Patent Quality Improvement Act of 2013 (S. 866) and Stopping the Offensive Use of Patents Act (H.R. 2766)

These two acts are basically mirror images of one another, except one was introduced in the Senate and one in the House. Both remove the sunset provision in 35 U.S.C. § 321 note, subsection (a)(3), which provides for a streamlined post-grant review of financial business method patents, and makes the program permanent. The acts would also expand the scope of review from financial business method patents to all types of business method patents.

The STOP Act also requires the USPTO to work with and support intellectual property law associations with pro bono programs “to assist financially under-resourced re-sellers, users, implementers, distributors, or customers of an allegedly infringing product or process.”

Conclusions and Final Thoughts

All six pieces of legislation target the patent “troll” problem, but do so in different ways. None of these approaches seem to be the silver bullet to solve this problem, however. In fact, some of them are likely to cause significant issues in the traditional patent litigation context. Also, there are many questions and ambiguities about how these laws would be applied. It will be interesting to see if any of these proposal garner  enough support to become law (and whether any changes are made to do so).

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