Patent Litigation Reform -- Will the Outcome of the Mid-Term Elections Matter, and Is Reform Still Necessary?

By Andrew Williams --

Unless you have been hiding under a rock, you are probably aware that mid-term elections are next Tuesday.  And the issue on every voter's mind is obviously patent litigation reform.  In all seriousness, even though the subject of patent reform has not been raised in most races, the concern about so-called patent trolls has not gone away.  Along with those concerns, there are a sufficient number of interest groups that will likely push a patent-reform agenda.  Therefore, the question exists whether the outcome of the elections will have an impact on whether any such legislation will pass next year.

At first blush, it appears that patent litigation reform is a bipartisan issue.  Without a doubt, the Innovation Act passed by an overwhelming majority in the House of Representatives (325-91).  This feat is not possible unless a significant number of politicians from both parties voted in favor of the bill.  Nevertheless, it was clear that the opposition to such reform came disproportionately from the Democrats.  For example, 64 Democrats voted against the Innovation Act, while only 27 Republicans joined them from across the aisle.  The lop-sided opposition was clearer when observing the actions of the Committee on the Judiciary.  Two of the most vocal committee members against the legislation were Rep. Conyers (D-MI) and Rep. Watt (D-NC).  Moreover, the bill was approved by the committee by a vote of 33-5, with three Democrats, Rep. Scott (D-VA), Rep. Jackson Lee (D-TX), and Rep. Johnson (D-GA), joining their two colleagues in opposition.  This seemed counter-intuitive, considering patent reform has been on the President's agenda from some time now, and the Republicans are normally considered to be pro-patent.

With that in mind, it is unlikely that next week's election will impact what the House of Representatives does.  The conventional wisdom is that the Republicans will maintain control.  Therefore, unless the party leadership has had a change of heart, it would be surprising not to see the Innovation Act reintroduced and passed.

However, this is not necessarily the case in the Senate.  Even though Sen. Leahy (D-VT), current chair of the Judiciary Committee, co-sponsored the bill, he eventually took it off the committee's agenda because of an apparent lack of support behind the bill.  Similar to the House, there was bipartisan support for patent reform, with several different pieces of legislation introduced by members of both parties.  In fact, Sen. Schumer (D-NY) had been one of the harshest critics of the current patent system, and one of the most vocal proponents of litigation reform (see "Stopping Bad Patents -- Senator Schumer Takes on the 'Patent Trolls'").  Nevertheless, it was the Democrats that again voiced opposition to the bill.  Sen. Durbin (D-IL) and Sen. Feinstein (D-CA) both expressed concerns about the bill, in part because of letters and information they received from such organizations as universities, the biotech community, and venture capital groups (see "Senate Judiciary Committee Tables Patent Reform, Again").  This is not surprising considering how important these industries are in Illinois and California.  The mid-term elections should not change this dynamic -- Sen. Feinstein is not currently up for reelection, and Sen. Durbin is currently the frontrunner in his race.

Where the midterm elections could change the outcome in the Senate is with a change in the majority party.  While it is too soon to tell, many experts think that the Republicans will take back control of the Senate.  If that is true, any potential roadblocks to the passage of the bill might be removed.  The Washington rumor-mill suggested at the time Sen. Leahy removed the legislation from the agenda that the call came from Harry Reid.  He allegedly told Sen. Leahy that even if the bill passed out of committee, it would not reach the floor of the Senate (see "Patent Reform Legislation Off The Table -- For Now").  Therefore, if this was true, a change in leadership should allow the Senate bill clear passage to a vote of the body-at-large.

The outcome in the Senate, however, may signal more problems in the House when the Innovation Act is reintroduced.  Last year, the bill moved from introduction to passage in only a few short months -- much faster than anyone outside of the government anticipated.  As a result, the organizations that eventually opposed the legislation in the Senate may have been caught "napping."  This certainly will not happen a second time.  It is unclear if this opposition will have any impact, but there might be more of a balanced debate in House the second time around.

Is Patent Litigation Reform Still Necessary?

The overarching question, however, is whether patent reform is still necessary.  The impetus behind the legislation in the first place was to deter so-called patent trolls and to "stop bad patents."  However, intervening events may have decreased the need to accomplish these goals.  One of the complaints about the current system is that non-practicing entities had very little disincentive in bringing allegations of patent infringement.  Part of this stems from the fact that it was very difficult to get a district court to deem a case "exceptional," and consequently shift the attorney's fees to the non-prevailing party.  The Supreme Court altered this dynamic when it clarified what constituted an exceptional case under 35 U.S.C. § 285 in the Octane Fitness case.  Instead of the Federal Circuit's two-part objective and subjective test, an exceptional case is now "simply one that stands out from others with respect to the substantive strength of a party's litigating position."  As a result, the floodgates have been opened with regard to fee-shifting motions, with a corresponding increase in the number of such motions being granted.

A corresponding shift has been seen with regard to the perceived "bad" patent situation.  Critics often lay blame for the problem on allegedly vague patents plaguing the system.  The Supreme Court also spoke to this situation, clarifying and most-likely tightening the standard for definiteness in the Nautilus case.  Also, the Court further eroded the subject matter eligible for patent protection in the Alice case.  Correspondingly, district courts have been more confident in invalidating patents on § 101 grounds, sometimes even at the pleadings stage.  Moreover, the Patent Office has demonstrated its willingness to cancel issued claims in the PTAB post-issuance proceedings of IPRs and CBMs, ushered in by the America Invents Act.

It is not surprising, therefore, that studies have found a decrease in patent litigation since the end of the Supreme Court's last term.  The IAM magazine blog just posted that two separate organizations released studies showing a drop in patent litigation activity in the third quarter of 2014, anywhere from 23% to 40%.  It suggested this decrease was caused by less activity from non-practicing entities.  In fact, the same blog interviewed Mark Lemley earlier this month, and quoted him as saying that "the case for Congressional patent reform is far weaker than it was a year ago."  If this is true, even if we see Congress tackle patent reform again, it is possible that the emphasis will shift.  Instead of changing the fee-shifting statute to a default rule in favor of the prevailing party, perhaps Congress will focus more on pre-litigation activity, such as demand letter reform.  If such provisions are crafted narrowly enough to avoid First Amendment concerns, while at the same time retaining some teeth to make an impact, this may be the best hope to address the so-called troll problem while minimizing unintended consequences.  At least we can hope, as we get out the vote next week.

Comments

[Paul F. Morgan]

This, however, is overlooking the fact the the original and continuing lead political patent concern in the most recent year is the troll mass mailings of patent infringement threat letters to small businesses demanding license payments. With no intent to sue, or damages rationale for suit. There has already been extensive state legislation on that subject, and there is no reason why Congress would not still want to do so as long as the legislation is narrowly enough drawn.

[Jack Starr]

In my view, patents have and always have had a “dark side” – they impede wide-open, unrestrained capitalistic commerce; based on price, quality, and service. And the framers recognized that when they wrote “for a limited time”. Were I a member of Congress, before taking a knee-jerk position on a perceived problem, I would allow some time for Octane and Nautilus to work their way through. I’m concerned about the unintended consequences of some well-intentioned law. I could create many jobs were I free of any patent restrictions. Some jurisdictions have working requirements. Do we want one in the US?

[Simon Elliott]

The position on patent reform can be explained a lot by the relevant industries in the different states. The biggest $ in NYC is Wall Street, and business method patents are a challenge/headache to Wall Street and hence Sen. Schumer's opposition to "patent trolls." Illinois has a more manufacturing, pharma etc. California has biotech and silicon valley.