By Kevin E. Noonan --
The Senate Judiciary Committee passed the Protecting American Talent and Entrepreneurship Act (S. 1137, otherwise known as the PATENT Act) yesterday on a vote of 12-4, with Senators Grassley (R-IA), Hatch (R-UT), Sessions (R-AL), Graham (R-SC), Cornyn (R-TX), Lee (R-UT), Flake (R-AZ), Perdue (R-GA), Tillis (R-NC), Leahy (D-VT), Feinstein (D-CA), Schumer (D-NY), Whitehouse (D-RI), Klobuchar (D-MN), Franken (D-MN), and Blumenthal (D-CT) voting Aye and Senators Cruz (R-TX), Vitter (R-LA), Durbin (D-IL), and Coons (D-DE) voting Nay.
This bill is the counterpart of Representative Goodlatte's "Innovation Act" (H.R. 9) (see "Rep. Goodlatte Introduces His Patent Reform Bill (Again)" and "Rep. Goodlatte Introduces His Patent Reform Bill (Again) -- Part II") but is not identical and the differences (if the bill passes both Houses of Congress) will be subject to a conference to be ironed out. Senator Grassley introduced a Managers Amendment that serves as the reference for all amendments and can be found here.
The Committee passed several amendments introduced by members and rejected others, including the following:
• Grassley ALB15850 (unavailable on committee website)
• Feinstein ALB15869 (unavailable on committee website)
• Cornyn ALB15853 (defining the entities falling within the scope of the university exception to provisions entitling prevailing parties to attorneys fees, and striking the extension of the Office's fee-setting authority from seven years to fourteen years)
• Durbin OLL15550 (extending the exemption for attorneys' fees where the non-prevailing party is a university or non-profit technology transfer organization to include their licensees, provided that the licensee's primary business is not the assertion and enforcement of patents or the licensing resulting therefrom)
• Coons OLL15547 (striking pages 2-10 of the bill, including Sections 3-6)
• Vitter OLL15548 (extending the exemption for ANDA cases to include cases where "the party is a small business concern, independent inventor, or nonprofit organization described in section 41(h)(1)")
• Coons OLL15542 (extending the exemption for heightened pleadings to include cases where the plaintiff patentee certifies having a good faith basis that permitting infringement "would result in the loss of at least 20 full-time manufacturing or research jobs.")
• Coons OLL 15543 (extending the exemption from the discovery limits set forth in the bill to include ANDA cases and any action where the patentee plaintiff certifies to having a good faith basis for believing it had "created at least 20 direct, full-time manufacturing or research-related jobs during the preceding 3-year period")
Senator Coons also withdrew his proposed amendments OLL15551 (which would have imposed different burdens on the petitioner in both inter partes review and post-grant review for invalidating a previously granted claim (clear and convincing evidence) and newly proposed claims (preponderance)) and OLL15552 (which would have imposed a standing requirement for a petitioner in both inter partes review and post-grant review).
For now, subject to these amendments the bill contains the following sections (set forth in parallel with the sections of the Goodlatte bill for comparison):
PATENT Act (S. 1137)
Innovation Act (H.R. 9)
Sec. 1. Short title; table of contents.
Sec. 4. Customer-suit exception.
Sec. 5. Discovery limits.
Sec. 7. Fees and other expenses.
Sec. 16. Effective date.
Sec. 17. Severability.
Sec. 1. Short title; table of contents.
Sec. 2. Definitions.
Sec. 3. Patent infringement actions.
Sec. 4. Transparency of patent ownership.
Sec. 5. Customer-suit exception.
Sec. 6. Procedures and practices to implement recommendations of the Judicial Conference.
Sec. 7. Small business education, outreach, and information access.
Sec. 8. Studies on patent transactions, quality, and examination.
Sec. 9. Improvements and technical corrections to the Leahy-Smith America Invents Act.
Sec. 10. Effective date.
Compared with the bill submitted earlier this year, this version contains provisions directed to inter partes review and the estoppel effects thereof that bring it more in line with the Goodlatte bill. This version also eliminates many of specific effective dates for various provisions in favor of a uniform effective date provision set forth in Section 16 of the bill.
The PATENT Act has as its first substantive provisions changes in pleadings requirements in patent cases, directing the Supreme Court to eliminate Form 18 (Complaint for Patent Infringement) from the Appendix to the Federal Rules of Civil Procedure (§ 3(a)). The bill (§ 3(b)) then amends 35 U.S.C. § 281 by adding new § 281A to require a plaintiff in a patent infringement case to:
1. Identify each patent allegedly infringed;
2. Identify each claim in each patent alleged to be infringed;
3. Identify the accused process, machine, manufacture or composition of matter (termed the "accused instrumentality" in the Act) that is alleged to infringe;
4. Identify for each accused instrumentality either the make or model number of a representative accused infringing embodiment or provide a description thereof;
5. Identify for each of the accused instrumentalities which claims are infringed and the elements thereof that are infringing;
6. (for indirect infringement) identify the acts that would contribute to or induce literal infringement.
(§ 281A(a)). Amended § 281A(b) provides that a complaint that does not comply with these provisions can be subject to a motion to dismiss unless a party "states a plausible claim for relief sufficient under the Federal Rules of Civil Procedure" under conditions where the required information is not accessible (§ 281A(c)) (provided that the party performs a Rule 11-compliant investigation). Section 281A(d) confirms that these heightened pleadings requirements "shall not be construed to affect a party's leave to amend [its] pleadings" and that should any such information be confidential the pleadings can be filed under seal on motion to the court (§ 281A(e)). Finally, proceedings under § 271(e) (i.e., ANDA cases under the Hatch-Waxman Act) are exempt from these pleadings requirements (§ 281A(f)).
The bill also provides for another amendment to § 281, § 281B, that requires "early disclosure" of financial and ownership interests in each asserted patent; these disclosures are required within 14 days of serving or filing a complaint. In addition, this portion of the bill imposes a requirement that for each asserted patent the plaintiff provide a list of "each complaint, counterclaim, or cross-claim filed by the patentee or an affiliate thereof in the United States during the 3-year period preceding the date of the filing of the action" (or any other action involving each patent), with the bill specifying what must be disclosed (including the caption, the civil action number, and the court where the complaint was filed or transferred) (§ 281B(b)). Also required is a statement regarding whether any of the asserted patents have been "subject to an assurance made by the party to a standards development organization to license others" (reflecting the interests of the high-tech constituency that has funded these bills). All this information must be provided to the Patent and Trademark Office within one month of when the disclosures are made to the defendant in the civil action (§ 281B(d)). Finally, these disclosures are also subject to confidentiality provisions, the bill expressly defining an individual's home address as being confidential (§ 281B(e)). As with other amendments to § 281 these provisions do not apply in ANDA litigation.
Section 4 of the bill is directed to customer suits (wherein customers of an accused infringer are threatened with legal action) by introducing a "customer stay" (amended 35 U.S.C. § 299A) wherein a "covered customer" can move for a stay which the court "shall grant" provided that there is in the action or a separate action an allegation of infringement against the "covered manufacturer" relating to the same subject matter, and the covered customer agrees to be bound by the judgment of the court in that action against the covered manufacturer and gives up her right to be giving a "full and fair opportunity to separately litigation" on any issue where the requirements of issue preclusion are satisfied. Such a motion must be filed no later than 90 days after service of the first pleading or the date on which the first scheduling order in the case is entered (§ 299A(b)). The stay requires agreement by the covered manufacturer when the manufacturer has been made a party on motion by the customer (§ 299A(c)) and the stay will be lifted in cases of unreasonable prejudice (against the patentee) or action against the manufacturer will not resolve the issues against the covered customer (§ 299A(d)). The customer is protected from the manufacturer filing a nonsuit or otherwise settling its case against the patentee by waiver of the estoppel effect if the covered customer can show unreasonable prejudice or manifest injustice (§ 299A(e)).
Section 5 concerns limits on discovery, amending § 299 by creating new § 299B which stays discovery upon motion to dismiss, motion to transfer venue or motion to sever accused infringers (§ 299B(1)), the court retaining the authority to grant limited discovery related to such motions. These provisions also do not apply in ANDA cases.
This version of the bill also contains directives to the Judicial Conference for "Rules and procedures to be considered (Sec. 6(a)(1) and (2)) with regard to the extent to which "core documentary evidence" must be supplied and who bears the cost, and similar questions relating to "noncore documentary evidence" (Sec. 6(a)(2)(A)); electronic evidence (communications) (Sec. 6(a)(2)(B)) and "additional" discovery (Sec. 6(a)(2)(C)), the latter of which requests being limited to reasonable costs, including attorneys' fees, associated with such production (with the provisions that the party seeking such discovery be required to post a bond for the cost thereof (unless the parties agree otherwise). (Section 6 leaves it to the Judicial Conference to define terns such as "core" and "noncore" documentary evidence.) These matters are contemplated to be the subject of the initial Rule 26(f) conference. All of these actions are to be undertaken "using existing resources, indicating an unwillingness for Congress to provide additional funds for these activities.
Section 7 contains provisions demonstrating the "sense of the Congress" that attorneys' fees and costs should be paid to a prevailing party when the non-prevailing party's litigation actions are not "objectively reasonable" (making it clear that hindsight reconsideration of the non-prevailing party's actions will be one basis for such determinations). The bill seeks to "strike a balance" between patent holders' rights and abuses of those rights, analogizing (somewhat disingenuously) to the provisions of 28 U.S.C. § 1447 (provisions involving fee-shifting in cases where it is found that a state court action was improperly removed to Federal court, situations that can be expected to occur much less frequently and involve much lower fees and costs that patent litigation). These provisions are involve amending 35 U.S.C. § 285 as follows:
(a) Award.—In connection with a civil action in which any party asserts a claim for relief arising under any Act of Congress relating to patents, upon motion by a prevailing party, the court shall determine whether the position of the non-prevailing party was objectively reasonable in law and fact, and whether the conduct of the non-prevailing party was objectively reasonable. If the court finds that the position of the non-prevailing party was not objectively reasonable in law or fact or that the conduct of the non-prevailing party was not objectively reasonable, the court shall award reasonable attorney fees to the prevailing party unless special circumstances, such as undue economic hardship to a named inventor or an institution of higher education (as defined in section 101(a) of the Higher Education Act of 1965 (20 U.S.C. 1001(a))),would make an award unjust. The prevailing party shall bear the burden of demonstrating that the prevailing party is entitled to an award.
(b) Covenant Not To Sue.—A party to a civil action who asserts a claim for relief arising under any Act of Congress relating to patents against another party, and who subsequently unilaterally (i) seeks dismissal of the action without consent of the other party and (ii) extends to such other party a covenant not to sue for infringement with respect to the patent or patents at issue, may be the subject of a motion for attorney fees under subsection (a) as if it were a non-prevailing party, unless the party asserting such claim would have been entitled, at the time that such covenant was extended, to dismiss voluntarily the action without a court order under rule 41 of the Federal Rules of Civil Procedure, or the interests of justice require otherwise.
Note that these provisions permit (but do not require) the court to exempt sole inventors and institutions of higher education from attorneys' fees and costs sanctions, and put the burden on the prevailing party to show she is entitled to the award. This Section of the bill also contains the "anti-troll" provisions wherein a defendant can certify that upon a good faith belief the patent plaintiff is in the "primary business [of] assert[ing] and enforce[ing] patents [or patent licenses]" (Sec. 7(c)). Such a certification triggers a requirement that the alleged troll has "sufficient funds available" to satisfy an attorneys' fees award or that it is not a troll (these are on-going obligations throughout the action). The party making the certification that the patent plaintiff is a troll is under an affirmative obligation to give actual notice to all "interested parties" sufficient that jurisdiction of the court will attach and permit recovery of any such award. Universities and other "institutions of higher learning" as well as non-profit technology transfer organizations can exempt itself (presumably upon receiving notice from the defendant) by certifying its status as a university or institution of higher learning or a non-profit technology transfer organization (Sec. 7(c)(1)(F)). Once again, ANDA litigation is exempt from these provisions, except insofar as such litigation falls within the scope of the "exceptional case" standard set forth under current law.
The remaining Sections of the bill will be discussed in a separate post. How its sponsors see the provisions of the bill can be found here.