On the Hill: PATENT Act Aims To Curb Patent Trolls

On Apr. 29, a bipartisan coalition of Senate Judiciary Committee members led by Senators John Cornyn (R-TX) and Chuck Schumer (D-NY) introduced the Protecting American Talent and Entrepreneurship Act of 2015 (“PATENT Act” — S. 1137, 114th Cong. (2015)). The bill aims to reform perceived abuses of the patent litigation system by so-called patent assertion entities (“PAEs”). According to those who oppose PAEs, these entities abuse the system by asserting low-quality patents against operating companies in order to secure quick, nuisance-type settlements.

The PATENT Act increases the risk associated with asserting low-quality patents in a demand letter or lawsuit. It directs district courts to determine whether the losing party’s conduct and position were “objectively reasonable in law and fact.” If the district court finds that the losing party’s conduct or position were not objectively reasonable, the court must assign reasonable attorney fees to the prevailing party.

Although the PATENT Act does target low-quality patents through fee shifting, it gives the district court more discretion than the Innovation Act (H.R. 9, 114th Cong. (Feb. 5, 2015)), a House bill proposed in February by a bipartisan coalition led by Rep. Bob Goodlatte (R-VA-6). Under 35 U.S.C. § 285(a) as revised by the Innovation Act, a district court must shift fees to the losing party unless the court finds that the position and conduct of the losing party are “reasonably justified.”

The PATENT Act also addresses the perceived problem of shell company PAEs that may be able to evade attorney fee awards. It requires that PAEs either certify that they are able to pay attorney fees or give notice to other parties with a financial interest in the lawsuit that these other parties may be liable for an award.

Compared to the Innovation Act, the PATENT Act takes stances on pleading and discovery that are more favorable to patent owners. On pleading, although the PATENT Act requires the patent owner to identify the patent claims it believes are infringed and to describe how it believes the claims are infringed, it does not require the owner to show where “each element of each claim” is found in the accused product. Additionally, in contrast to the Innovation Act, the PATENT Act has only limited provisions for staying discovery and also gives the Judicial Conference discretion to develop discovery rules.

As legislation moves through the Senate and House, another hotly contested issue is what changes, if any, should be made to the post-grant review proceedings established at the U.S. Patent and Trademark Office by the American Invents Act of 2011. A recent roundtable sponsored by the Duke Law Center for Innovation Policy reviewed the empirical evidence relevant to this question.

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