Innovation Act

Return to Patent Reform.

The H.R.9:Innovation Act was reintroduced on February 5, 2015, by Representative Bob Goodlatte (R-VA). The bill was referred to the House Committee on the Judiciary and Subcommittee on the Courts, Intellectual Property, and the Internet, and was placed on the Union Calendar on July 29, 2015. Currently the bill has 27 cosponsors, 15 Republicans and 12 Democrats.

The full title of the act is "To amend title 35, United States Code, and the Leahy-Smith America Invents Act to make improvements and technical corrections, and for other purposes." GovTrack predicts that the Innovation Act has a 36% chance of being enacted. Representative Bob Goodlatte intends for the bill to cut down on abusive patent litigation and strengthen a patent holder's rights.

The bill will target the following areas :

• Abusive Patent Litigation.
• Increasing Transparency and reducing Weak Patent Infringement Claims.
• Clarifying patent litigation procedures and practices.
• Bolstering small businesses built upon IP.
• Reducing referrals to random courts for the review of patent cases.
• Weakening power of Patent Trolls.

Provisions

The provisions of the Innovation Act encompass all of the areas of reform currently in consideration by Congress.

Pleading Requirements

In efforts to diminish the Patent Troll threat by the bill sponsors, the Innovation Act has heightened pleading requirements for parties filing for patent infringement. Form 18, the form previously used to submit generalized patent infringement claims, has been eliminated by the Judicial Conference in wide-sweeping amendments. This amendment was expected to be implemented December of 2015 and was made in an effort to heighten patent claim requirements by the Judicial Conference. The Innovation Act also proposes Form 18's elimination by the Supreme Court to reduce patent litigation, especially litigation involving Patent Trolls or Non-Practicing Entities. The Supreme Court would be allowed to codify a new model for filing infringement complaints that would include notifying the accused parties of the claim and its content.

Supporters hope that the act would go further in reducing generalized complaints and eliminating loopholes by requiring (with exceptions) the plaintiff to submit infringement charts with the initial complaint. The purpose of the charts would be to force the plaintiff to explain the specifics of a claim, how a product or the specific use of the patented idea or process (referred to as accused instrumentalities) violates each infringed component of a patent and the scope of each component's infringement.

Additionally, a claim of previous commercial use may not result in a court invalidating a patent because it lacks novelty, seems to cover obvious subject matter, or due to prior art. Prior Art refers to evidence indicating that the technology or invention in question has already been used, discovered, or generally known. Typically, simply having previously described or created a similar process or technology at any point in time by any one constitutes prior art in patent law.

Fees and Other Expenses

Writers of the bill propose that a modified "English Rule" become the new standard in patent litigation in America to avoid frivolous lawsuits and adequately sanction patent trolls for pointless or unfounded claims. The "English Rule" requires the losing party in a trial compensate the prevailing party for its attorney fees.

The act requires courts to have losing parties provide for "reasonable fees and other expenses" incurred by the other party throughout litigation. The award may be waived only if the losing party is found to have just legal and factual cause to be part of the litigation. If the losing party is unable to pay due to extraordinary circumstances, the court may ask a joined or interested party to cover the award.

Once a plaintiff has claimed a patent in civil action, dismissing the civil action by proposing an agreement to not sue for infringement, referred to as a covenant, makes the plaintiff liable for payment of attorney fees. Payment may not be required if the plaintiff had the right to settle with a covenant without a court order or if payment would not serve the "interests of justice." The "interests of justice" have been called upon previously in patent proceeding and generally determine whether a motion will best serve the outcome of a trial.

Joinder of Interested Parties

As part of the Fees and Other Expenses provisions, an interested party or parties may be required to cover attorney's fees and other expenses in the case that the nonprevailing party cannot. The purpose of this provision is to prevent Patent Trolls from claiming the inability to pay fees by shuffling accounts between all of their companies. A joinder of interested parties may be called upon only if the prevailing party proves that the nonprevailing party has simply claimed patent infringement and has no other substantial interest in the issue. Parties that have invented or invested in the disputed patents may be considered to have substantial interest. Parties that commercially practice or perform R&D in the same field as the patented technology or subject matter may also be considered to have substantial interest by the act.

Discovery Stay

The act establishes that a claim construction ruling must occur prior to discovery. Discovery is a process that occurs pre-trial in a civil action, a conflict between two private parties, and is defined by the federal government as any party's right to obtain relevant information for the trial. A claim construction ruling is a critical step in ruling on the validity of a patent and whether infringement has occurred. Claim construction defines exactly what a patent includes and the extent to which a patent holder can protect the subject matter. The provisions also specify that claim construction previously agreed upon in another court must hold when a patent claim is reviewed by the USPTO.

Courts do not have to stay, or suspend, discovery pending preliminary motion if both parties consent, the patent holder is awarded a preliminary injunction, or the case is transferred, dismissed, severed, or a party drops out of the case. A preliminary injunction forces a party to stop the actions supposedly infringing the patent prior to the court's finally ruling. Severing a lawsuit means separating the lawsuit into several parts or deciding a case on an individual basis if there are multiple defendants. Drugs and biological products may also be subject to exemption.

Additional documents may not be disclosed unless the party requesting them covers the costs of discovery and all parties consent to discovery. By enabling courts to limit discovery, the act intends to reduce litigation costs and targets patent trolls intending to settle a case quickly and early on by making use of information revealed in discovery.

Demand Letters

To protect small businesses and other entities, the act requires that the patent owner explain the reason for the lawsuit and how the infringement has occurred to the accused party or parties. A demand letter sent prior to the lawsuit cannot be used as evidence of willful infringement unless the demand letter specifies which patent is being infringed, what is infringing the patent, the parent company that owns the patent, and the grounds for lawsuit. The grounds for lawsuit consist of how the one or more claims in the patent are being violated. The purpose of this provision is to ensure that evasive demand letters are no longer considered in the review process. Plaintiffs who disregard the requirements would be forced to pay additional damages.

Venue

Amends the federal judicial code to restrict the venues where patent actions may be brought to judicial districts where: the defendant has its principal place of business or is incorporated, has committed an act of infringement and has a regular and established physical facility that gives rise to the act of infringement, or has agreed or consented to be sued in the instant action; an inventor named on the patent conducted research or development; or a party has a regular and established physical facility and has managed significant research and development for the invention claimed in the patent, has manufactured a tangible product alleged to embody that invention, or has implemented a manufacturing process for a tangible good in which the process is alleged to embody the invention.[1]

Disclosure of Ownership

An initial complaint must disclose specifics about the patent including the parent company of the patent and any party with a financial interest in the patent. Any change in patent ownership must be provided to the UPSTO. If the information is not provided or updated when changes occur, then the court will make the patentee cover the defendant's attorney fees.

Double Patenting

Rights of the Manufacturer

Small Businesses

Why it Hasn't been passed

The House Innovation Act and Senate Patent Act are very similar; both acts address abusive litigation through “increased transparency, more limited discovery, heightened pleading standards, and ‘loser pays’ fee shifting”. However, there has been a delay in the passing of the bills because of controversy surrounding the shifting of attorney fees. Fee shifting was originally suggested as a way to incentivize small firms and businesses that were being unfairly accused of patent infringement to bring the case to court, so that they would not have to pay their attorney fees. However, there have been arguments stating that fee shifting would actually increase the settlement rate of small businesses being accused of patent infringement, because they don’t want to take the risk of losing and paying for the winner’s attorneys’ fees, in addition to their own. (Bloomberg BNA)

Summary

Heightened pleading requirements

The Innovation Act requires patent owners to show how each limitation of each asserted claim in each asserted patent is found within each alleged infringement.

Presumption of attorney fees

The act encourages judges to make a party pay attorney fees if the lawsuit or claim is deemed frivolous.

Transparency of ownership

The Innovation Act requires plaintiffs to disclose the owner of the patent in question so the identity of the real parties behind the litigation is clear. This will ensure that patent trolls cannot hide behind a web of shell companies to avoid accountability for bringing frivolous litigation.

Discovery limits

The act would limit discovery in litigation until after a claim construction ruling. This provision is aimed at reducing the costs of litigation.

Analysis Notes (not organized yet)

Before: The court may conclude that the patent claim is not valid if it is shown that the claimed invention was disclosed in a prior patent or patents, a book, a magazine, a newspaper, a television show or movie, a webpage or other published work before the date of the claimed invention.

After: Innovation Act removes a provision that prohibits a patent from being deemed invalid based on novelty, prior art, or nonobvious subject matter solely because a defense is raised or established based on prior commercial use.

Findings from Katznelson Study [2] Historically, as a fraction of issued patents, reported litigation rates in the first part of the 19th century exceeded that of the last two decades by about a factor of five. Patent litigation intensities in recent years had not exceeded those experienced during the 20th century. Rather , patent litigation surges are consistent with major shifts in technological developments, which introduce novel terms and uncertainty in patent claims and require infrimgement analysis of novel and less understood products.

NPEs vs PAEs [3] We need to make a distinction between NPEs and PAEs (otherwise known as patent trolls). These terms are often used interchangeably but universities and startups are included under the definition of a non-practicing entity. If you define a Practicing Assertion Entity (PAE) as a company that asserts patents on existing products as a business model, then you separate universities and startups from PAEs, inventor monetizers, and special purpose patent monetizers.

Issues/cricism of the innovation act [4]:

• Apparent automatic fee-shifting in lawsuits
• Heightened pleading standard
• Discovery stay
• Broad ‘customer stay’ provision could shield retailers/importers from infringement claims
• Pierce corporate veil with “ownership transparency”

Indirect infringement:

• Someone who has contributed to the infringement of a patent is liable
• Can only arise when the indirect infringer has some knowledge and intent regarding the patent and infringement
• ex. someone who actively induces infringement of patent by encouraging, aiding, or causing another person to infringe a patent. Inducer must be aware of patent and intend for their actions to result in third party infringing that patent
• Contributory infringement: seller provides part of component that itself does not infringe on a patent, but has a particular use as a part of some other machine that is covered by a patent

Detailed Summary of the Bill