Round Two of U.S. Patent Reform Progresses as House Passes Goodlatte Innovation Act

On December 5, 2013, the U.S. House of Representatives passed H.R. 3309, the “Innovation Act” originally introduced by Congressman Goodlatte (R-VA). The bill passed by a vote of 325-91, with four amendments to the bill as introduced. Chairman Leahy has introduced similar legislation in the Senate, but significant differences remain to be resolved. Nevertheless the fact that Congress was able to agree on H.R.3309 suggests that 2014 may bring another round of significant U.S. patent reform.

The Innovation Act

The primary focus of the Innovation Act is to curb “abusive patent litigation.” The House Judiciary Report summarizes the goals as follows:

It is the goal of this Committee to ensure that American manufacturing, small businesses, and start ups are protected against patent-enforcement abuse, while also ensuring that the patent system continue 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 ensures that the Nation’s patent system continues to drive technological innovation and economic growth.

Key provisions of the Innovation Act are outlined below. More detail is provided in this Legal News Alert.

Sec. 3. Patent Infringement Actions

• Heightened initial pleading requirements
• Fee Shifting
• Requirements to join parties with an interest in the patent
• Limitations on discovery

Sec. 4. Transparency of Patent Ownership

• Requires plaintiffs to inform the parties, the court, and the USPTO of the identity of parties with rights in the patent

Sec. 5. Customer-Suit Exception

• Allows a manufacturer (or supplier) to intervene in a suit against his customers, and provides for stays as to the customer.

Sec. 6. Procedures and Practices to Implement and Recommendations to the Judicial Conference

• Requires the Judicial Conference to promulgate rules and procedures on discovery
• Provides procedures to ensure initial disclosure and early case management conference practices
• Eliminates Form 18 (patent infringement complaint)
• Provides for protection of IP licenses in bankruptcy

 Sec. 7. Small Business Education, Outreach, and Information Access

• Requires the USPTO to provide educational resources and outreach programs for small businesses facing abusive patent litigation practices.
• Requires the USPTO to develop a website that includes patent ownership (real party in interest; ultimate parent entity) information.

 Sec. 8. Studies on Patent Transactions, Quality, and Examination

Requires the following studies:

• Study on secondary market oversight for patent transactions to promote transparency and ethical business practices.
• Study on patents owned by the U.S. government.
• Study on patent quality and access to the best information during examination.

 Sec. 9. Improvements and Technical Corrections to the Leahy-Smith America Invents Act

• Narrows Post-Grant Review estoppel to issues that the petitioner actually “raised”
• Eliminates the “broadest reasonable interpretation” standard for claim construction in Inter Partes Review and Post Grant Review proceedings
• Creates statutory double-patenting provisions for patents subject to the first-inventor-to-file laws.
• Limits Covered Business Method patent review to patents subject to the first-to-invent laws and repeals the sunset; adopts the USPTO’s interpretation of “financial product or service” from SAP v. Versata, CBM2012-00001; and expands the scope of prior art that may be considered to include prior art under 35 U.S.C. §§ 102(d) and (e).
• Codifies the Patent Term Adjustment decision in Exelixis II (adopting the USPTO’s interpretation of 35 USC 154(b)(1)(B))

 Innovation Act Amendments

The four amendments that were approved are outlined below:

• Goodlatte Manager’s Amendment: allows parties to opt-out of the pre-Markman discovery prohibition
• Rohrabacher Amendment: preserves 35 USC § 145
• Polis Amendment: requires demand letters to identify the “ultimate parent entity of the claimant” in order for letter to serve as evidence of willful infringement
• Jackson amendment: requires study of impact of bill on individuals and small businesses

The Leahy Patent Transparency and Improvements Act

The parallel legislation pending in the Senate was introduced by Chairman Leahy of the Senate Judiciary Committee on November 18, 2013. However, the “Patent Transparency and Improvements Act of 2013” (S.1720) differs in several significant ways from the House bill.  Key differences are outlined below. More detail is provided in this Legal News Alert.

• No heightened pleading standard for patent complaints
• No fees-shifting
• No required joinder of “interested parties”
• No limitations on discovery
• No amendments to the Patent Term Adjustment statute
• Federal Trade Commission policing of demand letters
• Duty to disclose the assignee’s “ultimate parent entity” during prosecution and throughout the life of a patent

Finding Middle Ground

Although the House Judiciary Report states that the Innovation Act reflects “the emergence of a new consensus” drawn from “industry leaders from different sectors” who “have reached broad agreement on a common set of reforms,” the differences between H.R. 3309 and S. 1720 reveal that further compromise may be required before any of these changes become law. Still, there does appear to be momentum to keep this round of patent reform moving forward.