Patent Reform Series: Part 2 of 3 “The STRONG Patent Act”

By Dennis Collins

Continuing into part two of this series on patent reform, another attempt hit the floor of the Senate March 3rd of 2015. The Support Technology and Research for Our Nation’s Growth (STRONG) Patents Act, (S. 632) was introduced and is still pending before the Senate Judiciary Committee. Presented by Senator Christopher Coons (D-DE), this act, according to certain critics, is much weaker than the House bill known as the Innovation Act (H.R. 9) and some critics feel it will not create as substantial of a change, in other words, it does not go far enough. These critics claim the Act fails to address the “patent troll problem” which is the ultimate goal of most seeking patent reform. The STRONG Act itself proposes to deal exclusively with “patent trolls,” but beyond that, there are no provisions to tackle directly a lot of the hot button issues that are dealt with by some some of the other patent reform bills, such as the Innovation Act discussed in Part 1 of this series.

The most powerful provision of the STRONG Act is the empowerment given to the Federal Trade Commission (FTC). The FTC’s expanded power would target firms that abuse startup companies with incessant demand letters claiming patent infringement. These companies claim the rights to patents and send letters to businesses, including small ones, demanding payment for licenses or threaten to file suit for the infringement of their patents. The provision attempts to tackle rogue and opaque letters that have been sent in bad faith. Bad faith is when the company sends the demand letters knowing that they are intentionally fraudulent or just for nuisance purposes to induce a quick settlement. These targeted firms of the Act, who unlawfully send misleading demand letters to startups claiming that their patents were being used without permission and demand payment for the patents or threaten litigation. These parties are commonly known as “patent trolls.” The FTC will be able to target those patent trolls found acting in bad faith are punishable with up to $5 million in fines. The court has the discretion to treble any of the damages if it has any evidence of a party willfully infringing in bad faith.

One of the more significant provisions included in the STRONG Patent Act is the reform of the proceedings before the Patent Trial and Appeal Board (PTAB). The act addresses inter partes review and post-grant review. Post-grant review is used by parties to challenge the validity of a patent that has recently been approved by the USPTO. Inter partes review is a procedure used by the PTAB that allows a party to challenge another party for the legitimacy of their patent until a period of 9 months has passed since the USPTO registration. Both types of review are available for challenges to patent validity instead of going through Federal District Courts which may be drawn out and more expensive, and to reduce the number of issues being litigated by the Courts. Any patents being challenged will be presumed to already be valid.

In order to reform these two types of reviews, the PTAB would be required to increase the standard of evidence when proving if a patent is valid or not. The PTAB currently applies a standard known as the “broadest reasonable interpretation” that sets a lower bar for the reviewing examiner in determining the validity of the patent. The new standard is a higher one of “clear and convincing evidence” which is currently applied by the Federal Court. The higher standard level requires that the evidence presented by the challenging party to be highly and substantially more probable than not that the patent claims are not lawful. All ex parte reexaminations by a party in the case must be filed within one year after the requester is served with the original complaint alleging infringement. This will be beneficial to both parties, because the chance of a review of the decision by the court is both helpful and decisive.

One of the more positively received provisions is the push for an expansion in micro-entity status. Having a micro-entity status lowers the fees for inventors and small companies. In order to qualify for micro-entity status the applicant needs to have:

  • Filed four or less US patent applications;
  • An income for the past year of less than $150,000, or less than three times the current gross median income; OR
  • The rights in the application are licensed to only that micro-entity.

The expanded micro-entity status would be given to certified universities as well as their related tax exempt patent commercialization entities. Those micro-entities would receive a 75% reduction in USPTO fees.

Another provision of the STRONG Act enforces the blocking of any anonymous demand letters. The parent entity filing the demand letters must identify itself before an official suit can be filed. This is due to the large amount of demand letters from shell companies served on businesses. The purpose of a shell company is to hide the identity and possibly the assets of the company/entity and its directors that is/are ultimately seeking the lawsuit. By hiding behind the veneer of the corporation seeking to extract money from small fledgling companies, the larger corporations can keep their public appearance in a positive spotlight. If the plaintiff can prove that its suit is founded on good faith or can prove a track record of good faith, the suit will be determined to not be deceitful, and therefore will allow for trial proceedings to continue. Nonetheless, if there is any proof of abusive demand letters done in bad faith by the plaintiff, the District Courts are free to award increased damages to the prevailing party.

The STRONG Act will also give the USPTO the ability to access and spend fees it collects without regard to any fiscal year budgets or limitations. This, allegedly, will give the USPTO more flexibility and enforcement against duplicitous patent claims, because of the increased budget. All patent and trademark fees would be credited to the revolving fund in the Treasury, known as the USPTO Innovation Promotion Fund. The Director of the USPTO can use these fees collected from the current year and past years until they are ultimately depleted.

In conclusion, the STRONG Patent Act could have a large and sweeping effect, but doesn’t go far enough according to critics who seek more robust patent reform. Many believe that due to the political atmosphere of the current Senate, this bill has little chance of being enacted when compared to its counterpart of the PATENT Act because of how narrowly the bill is tailored. The concern over the perceived abuses of the US Patent System is a major driving force behind the push for reform in the system. Any attempt at actual patent reform should make patent owners wary about the potential effects of any enacted law on the current patent environment. Next up: the PATENT Act, the 3rd and final part of this series.

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