Category Archives: Legislation

Big IP NEWS: Defend Trade Secrets Act 2016 (DTSA) Passes Congress – President to sign

EnrolledTitle_114Posted by Henry M. Sneath, Esq. – Chair of the Intellectual Property Practice Group at Pittsburgh, Pa. law firm Picadio Sneath Miller & Norton, P.C. (PSMN® and PSMNLaw®). Mr. Sneath is also an Adjunct Professor of Law at the Duquesne University School of Law teaching Trade Secret Law, Trademark Law and the Law of Unfair Competition. He may be contacted at hsneath@psmn.com or 412-288-4013. Website www.psmn.com or www.psmn.law

The US Congress has passed the landmark Defend Trade Secrets Act of 2016 (DTSA) and it is set for the President’s signature. It will soon be law. See Link to DTSA Legislation here: https://www.congress.gov/bill/114th-congress/senate-bill/1890/text    Trade Secret law has long been the province of the States, more or less exclusively, and except for criminal protections against trade secret theft and economic espionage, there has been no Federal civil law providing a federal damages remedy for such theft.  Amended will be Crimes and Criminal Procedures – Title 18, Chapter 90, Section 1836 and the key provision is as follows:

“(1) IN GENERAL.—An owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.”

Congress has now added a civil remedy provision to Federal protection of Trade Secrets wherein prior Federal law only provided criminal sanctions. This has been described as a major new development in Federal IP law and will provide federal jurisdiction for Trade Secret Misappropriation cases. The law will NOT preempt nor change State laws and therefore actions will be brought in both federal and state court jurisdictions. Most states (48) have adopted a form of the Uniform Trade Secrets Act (UTSA) and actions can still be brought under those state statutes, but those statutes vary to some degree. The DTSA is very similar to the UTSA based state court statutes, but there will be differences depending on the state jurisdiction from which cases are brought or removed. DTSA will apply to any acts of trade secret misappropriation that take place AFTER the act is signed into law (not retroactive). The Statute of Limitations will be 3 years according to the actual text linked above, but some commentators have stated that it is 5 years (we will need to check to get accurate information on the SOL and will follow up).

The DTSA contains an important and somewhat controversial “Civil Seizure” provision which renders it different from most state laws and which reads:

“(i) APPLICATION.—Based on an affidavit or verified complaint satisfying the requirements of this paragraph, the court may, upon ex parte application but only in extraordinary circumstances, issue an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.”

This provision is controversial because it can be ordered by a court ex-parte. By amendment, the words “but only in extraordinary circumstances” were added to attempt to mollify some critics of this provision. However, there are some strict limitations to the ex-parte injunctions and a couple of them are below:

“(ii) REQUIREMENTS FOR ISSUING ORDER.—The court may not grant an application under clause (i) unless the court finds that it clearly appears from specific facts that—

“(I) an order issued pursuant to Rule 65 of the Federal Rules of Civil Procedure or another form of equitable relief would be inadequate to achieve the purpose of this paragraph because the party to which the order would be issued would evade, avoid, or otherwise not comply with such an order;

“(II) an immediate and irreparable injury will occur if such seizure is not ordered.”

Such ex-parte injunctions must be very specific and the court must go to great lengths not to overreach or to punish through publicity an accused wrongdoer during the period of seizure. There are other typical requirements for injunctions like posting of security and careful management of the seized materials, and the accused wrongdoer has a right of action back against the claimant if the seizure turns out to be wrongful or excessive.

In an action for misappropriation, a court may order injunctive relief and may

“(B) award—

“(i) (I) damages for actual loss caused by the misappropriation of the trade secret; and

“(II) damages for any unjust enrichment caused by the misappropriation of the trade secret that is not addressed in computing damages for actual loss; or

“(ii) in lieu of damages measured by any other methods, the damages caused by the misappropriation measured by imposition of liability for a reasonable royalty for the misappropriator’s unauthorized disclosure or use of the trade secret;

“(C) if the trade secret is willfully and maliciously misappropriated, award exemplary damages in an amount not more than 2 times the amount of the damages awarded under subparagraph (B); and

“(D) if a claim of the misappropriation is made in bad faith, which may be established by circumstantial evidence, a motion to terminate an injunction is made or opposed in bad faith, or the trade secret was willfully and maliciously misappropriated, award reasonable attorney’s fees to the prevailing party.”

It is unclear as to how this bill will be enforced against foreign Trade Secret theft, or if there will even be jurisdiction under this act for such claims. We will follow up on that issue in future posts. See the Senate and House reports below which contain a substantial amount of background legislative history and commentary. Contact us for additional information. We will continue to study this new law and report to our readers.

Here is a link to the US Senate report on the bill: https://www.congress.gov/congressional-report/114th-congress/senate-report/220/1

Here is a link to the US House report on the bill: https://www.congress.gov/congressional-report/114th-congress/house-report/529/1

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Henry M. Sneath, Esquire – 412-288-4013 or hsneath@psmn.com

Follow me on Twitter @picadiosneath and on Google+: http://tinyurl.com/ktfwrah

 

 

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Pittsburgh Court Rules on Data Breach Class Claims – Denying Cause of Action

Posted By Henry M. Sneath, Chair of the Cybersecurity and Data Breach Prevention and Response Team at Pittsburgh, Pa. law firm Picadio Sneath Miller & Norton, P.C.  hsneath@psmn.com or 412-288-4013

537047_70437721A Pittsburgh, Pennsylvania Judge has ruled at the trial court level that there is no private cause of action for the alleged failure of a major hospital network to secure and protect PII and PHI. Denying Class claims, Judge Wettick has ruled that because the legislature has not created such a right, that only the Pennsylvania Attorney General has the right to bring a claim in this circumstance. See the Legal Intelligencer article here: http://tinyurl.com/nphostc  We will get more details on this case and pass them along with our analysis.

Cybersecurity (CISA) Bill Moves out of Congressional Committee

j0402514Posted By Henry M. Sneath, Chair of the Cybersecurity and Data Breach Response team at Pittsburgh, Pa. law firm Picadio Sneath Miller & Norton, P.C.  hsneath@psmn.com or 412-288-4013

Privacy concerns continue to dog the CISA (formerly CISPA) bill, but it easily passed out of the  Senate Intelligence Committee yesterday.  Pundits claim that the bill pits “big government – NSA, Homeland Security et al allegedly aided by Big Tech Companies” against privacy advocates who want less regulation of data and the internet. I’m not sure if it lines up that neatly however. See this short article with a summary of the committee process from Wired.Com.

Here is an advocacy website piece which supports defeat of he bill.

We will continue to monitor the path of the bill to see if it makes it to the Senate Floor for a vote. For the complete text of the bill, view it at this link.

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Henry M. Sneath on Google+ or see his PSMN ® bio.

Survey of Proposed Patent Lawsuit Reform Bills in Congress (Part 4)

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

Another patent reform bill is quickly working its way through Congress as we speak. The Innovation Act (HR 3309) passed the House by a vote of 325–91 and is pending in the Senate, which has said that it will fast track passage of it. Many of the provisions are similar to those found in the other proposed pieces of legislation that we discussed earlier (see parts 1, 2, and 3), and address some of the concerns I raised in these prior discussions. One of the more significant provisions of the Innovation Act is the fee-shifting provision, which proposes to amend 35 U.S.C. § 285.

US Capitol BuildingUnder current law, patent lawsuits follow the American system in which each side pays its own legal fees. The current § 285 modifies the American rule somewhat, providing that in exceptional cases the court may award attorney fees to the prevailing party. The Innovation Act scraps the American rule altogether and flips current § 285 by providing that the court must award reasonable attorney fees and expenses to the prevailing  in patent cases, “unless the court finds that the position of the non prevailing party or parties was substantially justified or that special circumstances make an award unjust.” (Proposed § 285(a)).

As an initial matter, this provision is supposed to deter parties from filing frivolous lawsuits, but it is not clear that it will accomplish this purpose. To be a prevailing party requires a judgment by the court, likely either on a motion for summary judgment or a trial verdict. Neither of these happen towards the beginning of litigation, so a defendant will have to still incur significant costs to get to the point at which it has a chance to recover its fees. Many defendants will likely not want to incur those costs, especially if the plaintiff appears to lack significant assets or has a plausible basis for its claims (even with the interest party expansion of proposed § 285(b)).

This provision may, in fact, create an incentive for patent trolls, especially in cases where they have a strong patent but the damages are not significant. By defaulting to a loser pays system, there is a greater likelihood that patent trolls will file additional lawsuits and defendants in these kinds of cases will be required to pay the troll’s litigation costs, even when a troll would have been unlikely to prove willful infringement.

Finally, there are real questions about what it means to be prevailing party and what the “substantially justified” standard means. For instance, what happens if a plaintiff prevails on one claim, but the jury find non-infringement on another? Are both parties prevailing parties? Or, if the plaintiff prevails on one patent, but the defendant invalidates the other asserted patent? What happens if a target of a demand letter files a declaratory judgment action and forces a patentee into a lawsuit that it never intended to file?

Also, when, exactly, does a non-prevailing party have to be substantially justified in its position? At that time it first asserts the position? At the end of the litigation? At any time? These are not trivial concerns. A defendant at the initial stages of a lawsuit often will assert non-infringement and invalidity defenses and counterclaims before having much time to analyze the claims or having the benefit of the  court’s claim constructions. Those positions may be only in their initial stages with modest support, but later blossom into very strong positions. Similarly, what appear to be strong positions can turn into weak ones once the court issues its claim construction. In which of these situations are the positions substantially justified?

Courts will undoubtedly struggle with interpreting these standards and deciding who, exactly, “deserves” to pay and who does not. Moreover, while these new rules are clearly targeted towards fighting patent trolls, they apply equally in all patent cases, including the traditional competitor vs. competitor lawsuits. By changing the rules, it will create additional pressures that are more likely to be borne by defendants, who have no control over whether they are sued, than by plaintiffs, who can have significant control over when they sue and which patents/claims they sue on.

The Innovation Act looks likely to pass the Senate and be signed into law by the President. It will be interesting to see if it accomplishes what it purports to set out to do.

Congress Considering Stronger Trade Secret Laws

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

shutterstock_65907358Congress is not limiting its intellectual property legislation to just patents. Senators Whitehorse and Graham announced yesterday that they are proposing new legislation to aid US companies in protecting their trade secrets via expanded criminal penalties. While just in a “discussion draft” stage, the proposed legislation  includes provisions that “cover[] foreign-sponsored trade secret theft, that victim companies can weigh in on how to protect trade secrets during criminal prosecutions, and to ensure that foreign hackers that victimize American companies can be held accountable.”

Among its provisions, the proposed legislation would:

  • expand coverage to prohibit government sponsored hacking
  • allow owners of the trade secrets more input in cases
  • clarify that the statute covers trade secret theft that is facilitated by means located in the US
  • clarify that “foreign instrumentalities” include companies that are substantially subsidized by foreign government entities
  • expand trade secrets to include negotiating strategies and positions
  • clarify that liability exists for any knowing conveyance of stolen trade secrets to foreign governments
  • make trade secret theft a RICO predicate act

The text of the discussion draft can be found here, along with a summary of the key provisions.

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

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

US Capitol BuildingIn 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:

  • 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)

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).

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

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

US Capitol BuildingIn 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 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 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.

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

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

US Capitol BuildingIn 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.