Patent Reform Series: Part 3 of 3 “The PATENT Act”

By Dennis Collins

This is the third and final installation in the three part series on patent reform. On June 4th, 2014, the Senate Judiciary Committee voted and approved the PATENT Act. Senator Charles Grassley (R-Iowa), introduced the Protecting American Talent and Entrepreneurship Act of 2015 (PATENT), S. 1137, and it is expected to move forward in the Senate with bipartisan support. This Act is the Senate’s specific response to the Innovation Act that was introduced into the House by Congressman Bob Goodlatte. While many institutions are happy to see some changes made to the patent environment, many detractors believe that it is best to move forward cautiously. The Act does not go as far as the Innovation Act with some of its provisions, but it is a solid move in the direction for patent reform.

The PATENT Act includes a provision for demand letters sent to parties and their required specificity before they can be delivered to the alleged infringing party. The current patent environment has allowed essentially vague and anonymous letters to be delivered to parties for alleged patent infringement, and leaving those parties oblivious. This has caused uproar among parties receiving the demand letters. Unlike in the past, demand letters will need more information that clarifies what exactly is being sought. The demand letters will require:

  • The identification of the patent being infringed;
  • The claim for alleged infringement;
  • Each product or process believed to be infringing; AND
  • An explanation of that infringement.

Failing to meet any of the requirements, gives the letter recipient an extension of 30 more days to respond to the complaint.

The party sending the demand letter must also provide notice to the party with the potential right to seek a stay, and the letter must identify each person with the right to enforce that patent. A stay is when the judge issues an order that stops all judicial proceeding. This is used to protect the targeting of end users of a product that has a patent. An end user could be a small business, like a coffee shop that has purchased a Wi-Fi router from an electronics store, and is now faced with the threat of federal court litigation. The stay can be sought by that coffee shop if the manufacturer of the router is also involved in federal court litigation over the same patent.

Patent trolls have been blamed for demand letters that were sent in bad faith. These letters include those sent out threatening litigation when there is a track record of false threats to file suit by those sending the letters. The letters are sent out as a calculation to extract settlements from the recipients to avoid the expense of litigation with no reasonable expectation of having meritorious cases. Any letters sent that lack an objectively reasonable can be found to be abusive. A letter sent that may mislead the recipient because they fail to identify the person seeking to enforce the patent, identify the patent, or identify the product or process that they violate are abusive.

Patent trolls, the crux for the call for patent reform, have in the past sent out abusive demand letters to alleged patent infringers. These parties were not aware which patents are being infringed, even after receiving the demand letters, forcing them to devote resources and hire an attorney, etc. This creates a problem within the system, because not answering the complaint can be held to be evidence of willful infringement by that party. Demand letters that are abusive, such as an overwhelming amount of letters, or ones that are deceptive in nature can lead to a significant fine by the Federal Trade Commission (FTC).

The PATENT Act does not have the normal default rule of “loser-pays,” otherwise known as “fee shifting,” when the patent is determined either valid or invalid. Other patent reform acts introduced in Congress have the prevailing party automatically receiving an award of fees. However, under the PATENT Act, the party that prevails bears the burden to demonstrate that it is entitled to attorneys’ fees from the opposing party. The Act requires the shifting of attorney’s fees if the prevailing party can show the losing party’s position during litigation was objectively unreasonable. The Act seeks to balance the rights of the patent holder and to deter any abuses in patent litigation following closely with the Supreme Court’s decision in the Octane Fitness, LLC v. Icon Health & Fitness, Inc. 134 S. Ct. 1749 (2014). The rule also extends to those parties seeking to unilaterally withdraw from a case on the eve of the trial. The Act does not allow the joining of any parties later in a suit in order to help fund the awarded attorneys’ fees.

The Act requires that the patent holders disclose to the court and the adverse parties, any and all interested parties within 14 days of the suit being filed. The interested parties can include parent entities, sublicensed entities, and those with a financial interest in the patent itself. The financial interest of a party is defined by if they received earnings or have more than 20% control in the patent. In order to better track for patent trolls, the disclosure requires a listing of all complaints made by the patentee and its affiliates from the three years since before the suit was filed.

Bob Krause, a candidate in Iowa for the US Senate race in 2016, has recently come out against the PATENT Act and warns of its unintended consequences. Krause, in a possible political move, has argued that the Act itself will destroy small businesses, startup companies, and patent owners who try to fight to protect their patents. Krause is not the only naysayer against the PATENT Act however. Contingencies on both sides of the aisle, have argued against not only the PATENT Act, but the Innovation Act and STRONG Act as well.

As a result of the misunderstanding of the complexity of the patent environment, and the glut of both accurate and inaccurate information available, there have been some speed bumps in Congress. Most recently, the well-received Innovation Act has received push back and a coalition of Congressmen known as the “Anti-Innovation Coalition” has been able push the consensus vote from the House floor for the summer. The earliest the bill will be considered is September of this year. Congressman Thomas Massie (R-KY) has led the charge in the Anti-Innovation Coalition. Massie, a patent holder himself, he has had personal experience with patent trolls. Wary to enact any laws which could potentially damage patent holders, the coalition believes that all the provisions in the Innovation Act that seek to target patent trolls will also hurt genuine inventors.

The ultimate goal is to make the life of patent holders easier and to avoid unnecessary litigation. However, there is no clear path to the correct answer for improvement. The general wide spread feeling, nonetheless, is that reform should be brought in to sweep out certain NPE’s who are taking advantage of the system. The only problem is determining which of the three Acts or some other legislation going through Congress will have the greatest impact without undermining the current patent system.

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