By Kevin E. Noonan --
Last week, Rep. Bob Goodlatte, Chairman of the House Judiciary Committee, released a 200-page Report on H.R. 9, "The innovation Act," introduced by Chairman Goodlatte with several co-sponsors earlier this year. The bill sets forth several "reforms" of U.S. patent law, primarily directed to addressing the "problem" of so-called "patent trolls."
The Report sets forth the language of the bill and a provision-by-provision explication of the bill in its entirety. Much of the majority's Report sets out the purported "new consensus" constituting "broad agreement" among "industry leaders from different sectors . . . on a common set of reforms that will address the most serious abuses currently afflicting the patent-enforcement system." The majority Report expresses the sentiment that "[e]very member of this Committee wishes to see the patent system fulfill its constitutional mandate to ''promote the progress of science and the useful arts.''' The Report also states that:
It is the goal of this Committee to ensure that American manufacturing, small businesses, and start-up companies are protected against patent-enforcement abuse, while also ensuring that the patent system continues to protect and encourage American ingenuity. The Innovation Act, which has earned the support of a broad coalition of America's most innovative companies, recalibrates the Nation's patent-enforcement mechanisms in a manner that strikes a balance between these overlapping and sometimes conflicting goals, and that ensures that the Nation's patent system continues to drive technological innovation and economic growth.
Most of the remainder of the majority section of the Report sets forth testimony, from this and the last Congress that illustrate this "new consensus." (Included in these sections of the majority Report are the views of USPTO Director Lee, who agrees with the expressed need for litigation reform but is much less supportive of the changes in PTO, especially PTAB, procedures.) For most provisions in the law (particularly the litigation-related provisions), the Report contains quotations from such hearing testimony supporting the changes encompassed by the bill. These include the provisions related to attorney's fees, heightened pleading standards, mandatory joinder, venue, patent ownership transparency, the customer-suit exception, and "recommendations to the Judicial Conference," including changes in discovery rules.
This pattern changes when the Report moves onto the provisions changing how intellectual property rights are discharged in bankruptcy and "corrections and improvements to the America Invents Act." Here, the Report discusses the historical and policy reasons for the changes that would be effected by enactment of the bill. An example of the former change is elimination of the "could-have-raised" estoppel provisions of the post-grant review provisions of the AIA. The Report cites statements from the AIA's legislative history that inclusion of this estoppel was a simple mistake that needed correction inter alia because of its negative effects on the effectiveness of the post-grant review provisions of the law. The Report set forth reasons for and against changing the claim construction standard before the PTAB in post-grant review and inter partes review proceedings, with the weight of these considerations favoring changing the broadest-reasonable-interpretation standard to the standard used by courts as set forth in Phillips v. AWH Corp. These changes do not extend to covered business method reviews, however, the Report noting that recent Supreme Court cases (including Bilski v. Kappos and Alice Corp. v. CLS Bank Corp.) make the validity of these claims sufficiently questionable that "the Committee finds it unnecessary to burden the Board with applying the district courts' claim-construction approach to define the precise metes and bounds of the unpatentable subject matter claimed in such patents."
The Report also castigates the Federal Circuit from departing from settled law (traced to Thomson-Houston Elec. Co. v. Ohio Brass Co.) in support of its codification of obviousness-type double patenting. The bill proposes changes in 35 U.S.C. § 121 (to eliminate the provisions related to OTDP) in favor of election provisions as part of revised § 102(e)(2). These new § 102 provisions would prevent the abuses (litigation by different patentees over claims that are not patentably distinct) that are the only justification for the continued vitality of the OTDP doctrine in view of the changes in patent term effected by the GATT/TRIPS agreement.
The Report also addresses the policy concerns behind the provisions of the bill that abrogate the Supreme Court's Gunn v. Minton decision and once again bring patent malpractice cases under the Federal Circuit's "arising under" jurisdiction.
The Report sets forth the history of the hearings and witnesses before the committee, and the roll call votes on the bill itself (which passed by a vote of 24-8) and three proposed but defeated amendments. Director Lee's statement on the bill is also included.
The minority portion of the Report was signed by nine Democratic members of the committee, including Ranking Member Rep. John Conyers, Jr. and Reps. JACKSON LEE, JOHNSON, JR., DEUTCH, BASS, CICILLINE, and PETERS. The minority Report sets forth several reasons against the bill. Under the heading "The Innovation Act Limits The Rights Of All Patent Holders, Not Just So–Called ''Patent Trolls,'' And Presents Other Policy Concerns," the minority Report sets out the following negative consequences of certain provisions of the bill:
• Impose burdensome pleading requirements for plaintiffs that exceed what is required in other civil cases and which demand details plaintiffs may not know before conducting discovery (Section 3(a));
• Discourage, through a presumptive fee shifting standard, small businesses and individual inventors from bringing meritorious lawsuits because the risk of having to pay the other sides court costs may outweigh the benefits of winning (Section 3(b));
• Deter investments by venture capitalists in entrepreneurs, start-ups, and individual inventors through harsh joinder rules that may make the investors liable for paying attorneys' fees (Section 3(c));
• Limit discovery for plaintiffs that will lead to costly litigation and case delays (Section 3(d)); and
• Improperly shield some of the most culpable infringers through an over-broad stay of litigation for end users of infringing products (Section 5).
The minority Report then discusses in depth the grounds these Representatives have for concluding that the heightened pleadings requirements will prevent meritorious lawsuits by "legitimate inventors"; that the fee-shifting provisions favor parties with "deep pockets" and can similarly prevent meritorious claims from inventors to be brought; that the joinder provisions can be expected to chill investment in individual inventors and entrepreneurs; that the discovery provisions are better left to the courts to develop and as written invite abuse; and that the customer stay provisions could "deprive legitimate patent owners of meaningful relief." This section also characterizes the change in the post-grant review estoppel provisions as being "controversial" and not just a "scrivenor's error" that needs more robust consideration and debate before being enacted.
The minority Report also contends that the bill will be ineffective in achieving its purported goals, in a section having the heading "The Innovation Act Does Not Effectively Address The Deceptive Use Of Demand Letters, Stop Abuse Of Post-Grant Proceedings At The USPTO, or Improve Patent Examination Quality At The USPTO." This section addresses the particular problem of "extortionate use of demand letters," the "abuse" of post-grant proceedings (including use of inter partes review by certain hedge funds) and the problems in patent quality caused by fee diversion of USPTO user fees.
The final section of the minority Report, entitled "Recent Developments Make Many Of The Provisions In The Innovation Act Unnecessary," sets out the changing landscape of patent law since the bill was first proposed These include that:
• Courts are Already Awarding Fees at a Much Higher Rate
• Patent Case Filings Have Decreased Significantly Over the Last Year
• Pleading Standards are Already Set to Increase Due to the Elimination of Form 18
• District Courts Have Developed Local Case Management Rules
• The USPTO Has Begun an Enhanced Patent Quality Initiative
(This section also contends, perhaps somewhat gratuitously, that "H.R. 9 Is More Objectionable than the Senate's PATENT Act.")
The minority Report concludes (urging their colleagues to "reject this flawed measure"):
Congress must respond to the problems of abusive patent litigation in the courts and the gaming of the patent process at the USPTO, and we are willing to work with any and all stakeholders and interested parties to develop a fair process to find common sense solutions. That is why we supported amendments at the Committee markup to make reasonable improvements that would protect patent rights, while still curtailing abusive patent litigation and exploitation of the patent process. We must take a targeted approach that includes deterring further abuses of IPR proceedings and ending fee diversion from the USPTO to ensure adequate hiring, proper training of examiners, and sustained patent quality. And, serious patent reform legislation must stop the extortionate use of deceptive demand letters. Unfortunately, we cannot support H.R. 9 because it includes changes that go well beyond the problems of so-called ''patent trolls;'' it creates an imbalance in the patent system tilted against individual inventors and small businesses; and it will have a chilling effect on innovation.
While many have considered eventual passage of H.R. 9 to be a near certainty, the bill did not come to the House floor for a vote before the August recess. As mentioned in the minority Report there is a competing (and different) bill in the Senate and that bill has not been passed out of committee. Thus, the fate of H.R. 9, and patent "reform" generally, is much less certain in this Congress that it appeared in January when Rep. Goodlatte introduced the bill.