With high profile battles between electronics giants like Apple® and Samsung®, patent related stories have become common place in the American news cycle. And when President Obama mentioned patent reform in his latest State of the Union Address in January, many patent practitioners felt an uncomfortable pride in our industry. Patents are relevant, but is it for the wrong reason?

During the State of the Union Address, President Obama spoke exactly one sentence on Patent Reform:

"And let's pass a Patent Reform Bill that allows our businesses to stay focused on innovation, not costly, needless litigation."

Many Americans might not have noticed the reference and those that did, may not have understood it. Most practitioners immediately recognized this as a shot at "patent troll" litigation. "Trolls," also known as "non-practicing entities" (NPE), or more preferably, "patent assertion entities" (PAE), were the target of a June 2013 White House Report addressing the purported negative impact that PAE's have on domestic innovation and economic growth.1 The White House suggests that the American Invents Act (AIA) "went about half way to where we need to go"2 and demanded more be done.

In response to the President's call for action, members of Congress initiated more than half a dozen bills directed to additional patent reform.3 The chart below4 shows the proposed legislation at the time of this article along with which proposed reform provisions are included in each.

New legislations includes seven major proposed features:5 (i) heightened standard for complaint or demand letter; (ii) fee shifting; (iii) transparency of patent ownership; (iv) limiting or delaying discovery; (v) exceptions for customer suits; (vi) joinder of interested parties; (vii) and revisions to post grant review proceedings. One bill, the Goodlette bill includes versions all seven. The others cover only some, or in the case of then S.866 and S.1612, only one.

Generally, all the proposed reforms sound like a good idea:

  • Heightened pleading standards will reduce frivolous lawsuits from being filed or frivolous accusations of patent infringement from being made.
  • Fee shifting – making the loser pay the winners' fees – will deter plaintiff's firms from taking on questionable cases.
  • Transparency of ownership will let the public know who is really behind NPE suits and may make companies behind lawsuits think about their image.
  • Limiting discovery at the beginning of a case or before claim construction will shift some of the burdens of discovery in PAE lawsuits from the one with everything to lose to the one with nothing to lose.
  • Staying or prohibiting lawsuits against customers will keep patent battles where between the proper parties and reduce the leverage that PAE's often obtain from suing customers.
  • Going beyond transparency, some bills would require joinder of interested parties, which would disincentivize companies from backing PAE's.
  • Expanding the scope of CBM's beyond business methods and removing the sunset provision will make what appears to be a very effect tool for defendants more effective.

While there appears to be a strong demand for more reform, do any of these provisions go too far?

I think, probably.

Heightened pleading standards will benefit companies that can afford the extra work necessary while encouraging secrecy among practicing entities. This will make it even more difficult for the "little guy" to enforce his or her patents.

Fee shifting will surely be met with vigorous opposition from trial attorneys and for good reason. While discouraging bad law suits, it will also discourage good ones from deserving patentees that cannot otherwise afford to enforce their rights.

Transparency may be an administrative nightmare for large companies with any divisions.

Limiting discovery at the beginning of a case or before claim construction will force some patentees to make important decisions about their patents blind to the facts, which will unfairly advantage the defendant.

Staying or prohibiting lawsuits against customers unfairly limits the rights of patentee to enforce their rights as they see fit and could unfairly benefit larger companies.

And some have called the PTAB a "death panel." Expanding CBM's spells doom for thousands of patents that were obtained duly and honestly, and not cheaply.

On balance, the proposed patent reform legislation appears to be more thoughtful than a simple knee jerk reaction. However, all reform has unintended consequences. Clearly, there is a public desire to curb PAE litigation. It is my opinion, additional reform is needed, but should only be implemented if precautions are put in place to reduce negative effects on the poorly funded patentees.

Footnotes

1"Patent Assertion and U.S. Innovation," Executive Office of the President, June 2013.

2 Id. at 2.

3 States have also addressed the issue, with bills being passed in Vermont and Virginia, to name a few.

4 H.R. 2025, 113th Congress, First Session (2013); S. 1013, 113th Congress, First Session (2013); H.R. 2639, 113th Congress, First Session (2013); S. 1612, 113th Congress, First Session (2013); S. 1720, 113th Congress, First Session (2013); H.R. 3540, 113th Congress, First Session (2013); H.R. 3309, 113th Congress, First Session (2013); Innovation Act, Report 113-279, 113th Congress, First Session (2013); S. 2049, 113th Congress, 2D Session (2014).

5 For simplicity, I chose theses seven to discuss, but other reforms are proposed. For example, some of the bills propose to eliminate of the broadest reasonable interpretation (BRI) standard and would require the U.S. PTO to apply district court claim construction principals in post grant review proceedings. See, e.g., H.R. 3309 – Goodlatte and S. 1720 – Leahy.