PATENT TROLL LEGISLATION How it could affect your IP portfolio - - PDF document

1/22/2014 1

Sughrue Mion, PLLC

Washington, Tokyo, San Diego www.sughrue.com

Presented by John B. Scherling and Antony M. Novom

PATENT TROLL LEGISLATION

How it could affect your IP portfolio

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This presentation is for educational purposes only, and does not provide legal advice, or comment

• n the application of US law or

USPTO regulations to any specific patent or application.

The views expressed herein are not necessarily those of Sughrue Mion, PLLC or any of its clients.

Patent Litigation is Increasing

• Recent data shows that the number of patent lawsuits

filed by “patent trolls” is increasing.

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General Definitions

Non-Practicing Entity (NPE)

• Broadly refers to a company that owns patents but does

not design or manufacture a product or use a process

• Covered entities include:

– Universities / Technology Transfer Offices – Start-ups – Research Institutions – Individual Inventors

General Definitions

Patent Assertion Entities (PAE)

• Subset of NPE
• Typically synonymous with “patent troll”

– An entity that obtains patents primarily for obtaining license fees (not for producing and selling goods) – An entity that obtains patents primarily for obtaining license fees (rather than to support the development or transfer of technology)

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Recent Statistics Misleading

Cotropia, et al. analyzed patent litigations from 2010 and 2012 (University of Illinois College of Law)

– “[t]here has not been any explosion of non-practicing entity litigation between 2010 and 2012, as others have reported.” – “…differences between the years is likely explained by and attributable to a change in the joinder rules adopted in 2011 as part of the America Invents Act.”

• The AIA included a revision to the joinder rules, which

required lawsuits filed against multiple unrelated parties to be filed separately.

Study by Cotropia, et al.

Classified all patent holders into one of the following groups:

– University – Individual inventor – Large patent aggregator – Failed operating or start-up company – Patent holding company – Operating company – IP holding company owned by operating company – Technology development company

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Study by Cotropia, et al. Study by Cotropia, et al.

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Study by Cotropia, et al. Litigation Reform

Several Bills introduced to address increasing problem of abusive patent litigation:

– Goodlatte H.R.3309 (“Innovation Act”) – passed by H.R. on 12/05/2013 – Leahy S.1720 (“Patent Transparency and Improvements Act”) – Cornyn S.1013 (“Patent Abuse Reduction Act”) – Hatch S.1612 (“Patent Litigation Integrity Act”) – Schumer S.866 (“Patent Quality Improvement Act”) – Deutch H.R.2024 (“End Anonymous Patents Act”) – Polis H.R.3540 (“Demand Letter Transparency Act”) – DeFazio H.R. 845 (“S.H.I.E.L.D. Act”) – Jeffries H.R. 2639 (“Patent Litigation and Innovation Act”) – Issa H.R. 2766 (“S.T.O.P. Act”)

– White House Fact Sheet – June 4, 2013

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Goodlatte H.R. 3309

Section 3 – Patent Infringement Actions

• § 281A Pleading Requirements

– Initial complaint shall include a listing of:

• each patent that is allegedly infringed,
• each claim of each patent that is allegedly infringed,
• each accused process/product that allegedly infringes

(including name/model number),

• how each limitation of each claim is met by the accused

instrumentality,

• clear description of the principal business of accused

infringer,

• list of each complaint filed that asserts any of the patents

Adds to cost and subjects to greater scrutiny and motion practice? Amend complaint to include new info learned in discovery?

Goodlatte H.R. 3309

Section 3 – Patent Infringement Actions

• § 285 Fee Shifting

– The court shall award to the prevailing party reasonable fees and other expenses;

• UNLESS the court finds that the position and conduct of the

nonprevailing party was reasonably justified or that special circumstances (e.g., economic hardship) make an award unjust.

– Upon motion of any party, the court shall require another party to certify whether or not the other party can pay an award of fees

• If unable to certify, the court may make a party that has been

joined liable for the unsatisfied portion of the award.

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Goodlatte H.R. 3309

Section 3 – Patent Infringement Actions

• § 285 Fee Shifting

– If an asserting party later extends a covenant not to sue for infringement with respect to the patent, the party shall be deemed to be a nonprevailing party for purposes of awarding costs/fees.

Is a ‘loser-pays’ system going to encourage PAEs to file more suits? Will it discourage some patentees from filing suit?

Goodlatte H.R. 3309

Section 3 – Patent Infringement Actions

• Joinder of Interested Parties

– If a party asserting a patent loses and is unable to pay costs/fees, the court shall grant a motion by the prevailing defendant to join an interested party. – Interested party = any assignee, any party having a right to enforce or sublicense the patent, or any party having a financial interest (>5%) in the patent.

• DOES NOT include attorneys or law firms providing legal

representation or individual investors/owners in party alleging infringement.

Disclose non-ownership interests?

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Goodlatte H.R. 3309

Section 3 – Patent Infringement Actions

• § 299A Discovery

– If court determines that claim construction is required, discovery shall be limited to the terms requiring construction until a ruling is issued. – The court may expand the scope of discovery as necessary to ensure timely resolution of the action. – DOES NOT apply to discovery related to a preliminary injunction to redress harm arising from use, sale, or offer for sale.

Will this throttle a judge’s discretion to manage discovery according to the particular circumstances in a case?

Goodlatte H.R. 3309

Section 3 – Patent Infringement Actions

• Demand Letters

– It is considered abuse of the patent system to send purposefully evasive demand letters to end users – Must include information about the patent, what is being infringed, and how it is being infringed.

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Goodlatte H.R. 3309

Section 3 – Patent Infringement Actions

• Demand Letters

– To establish willful infringement, a claimant may not rely on pre-suit notification unless the notification identifies:

• The asserted patent
• The product or process accused
• The ultimate parent entity of the claimant
• How the product or process infringes one or more claims

– Must be after a reasonable investigation or inquiry – Kilopass Technology, Inc. v. Sidense Corp.

Goodlatte H.R. 3309

Section 4 – Transparency of Patent Ownership

• Upon filing of the initial complaint, the plaintiff

shall disclose to the PTO, the court, and each party:

– The identity of the assignee(s) of the patent; – Any entity with a right to sublicense or enforce; – Any entity having a financial interest in the patent – The ultimate parent entity of any assignee

• This is an on-going duty

– Changes of info must be provided within 90 days

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Goodlatte H.R. 3309

Section 5 – Customer Suit Exception

• § 296 Stay of action against customer

– The court shall grant a motion to stay an action against a covered customer if:

• Covered manufacturer is a party to an action based on the

same patent

• Covered customer agrees to be bound by any issues that the

customer has in common with the manufacturer

• Motion must be filed within 120 days of first pleading

– The stay may be lifted if the action will not resolve an issue against the customer

Customer direct infringement may be necessary to prove manufacturer's indirect infringement

Goodlatte H.R. 3309

Section 6 – Procedures to Implement

• Discovery – Electronic Communications

– Requests for production shall be specific and may not be a general request relating to product or business – Must identify the custodian of the information, the search terms, and time frame

• Parties must cooperate to identify the above

– May not submit production requests to more than 5 custodians unless parties jointly agree – Additional discovery available at expense of requesting party

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Goodlatte H.R. 3309

Section 7 – Small Business Education/Access

• PTO must use existing resources to provide educational

programs for small businesses about litigation abuse.

• Website information to notify the public when a patent

case is brought in Federal court

– Searchable by patent number, patent art area, and entity.

Requires USPTO to do more with no additional funding.

Goodlatte H.R. 3309

Section 8 – Studies

• Study on Patent Small Claims Court
• Study on demand letters
• Study on quality of all business method patents

to expand beyond financial CBM

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Goodlatte H.R. 3309

Section 9 – Amendments to the AIA

• Estoppel fix for PGR rule

– Eliminates “…or could have raised” – Under the AIA, PGR presents harsher estoppel provisions than IPR since “grounds that reasonably could have been raised” is much broader in PGR.

• PGR is for any ground related to patent invalidity under 35 U.S.C. § 282 [e.g., §§ 101,

112, 102, 103], but IPR is for a ground related to patent invalidity under 35 U.S.C. §§ 102 and 103 and on the basis of patents or printed publications

• Use of district court claim construction in PGR

and IPR

– Each claim of a patent shall be construed as would be in a civil action – If already construed by a court, the USPTO shall consider such construction

Goodlatte H.R. 3309

Section 9 – Amendments to the AIA

• § 106 Codification of Double-Patenting Doctrine

– Applies doctrine to first inventor to file patents

• Limits on Patent Term Adjustment

– Patent term is extended by 1 day for each day after the end of the 3-year period until issuance – No “B delay” if applicant files an RCE

• Time Limit for Misconduct Proceeding

– Extends the time limit from 1 year to 18 months – Current rule: the earlier of: (i) the date that is 10 years after the day on which the misconduct occurred; or (ii) 1 year after the date on which the misconduct was made known to an officer or employee of the PTO.

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Leahy S. 1720

Section 3 – Transparency of Patent Ownership

• Initial Disclosure

– The court shall require a party asserting a patent to disclose to the court and to all adverse parties, any party known to have:

• A financial interest (of any kind) in the subject matter in

controversy

• Any interest that could be affected by the outcome of the

proceeding

Leahy S. 1720

Section 4 – Customer Stay

– The court shall grant a motion to stay an action against a covered customer

• Covered manufacturer is a party to an action based on the

same patent

• Covered customer agrees to be bound by any issues that the

customer has in common with the manufacturer

• Motion must be filed within 120 days of first pleading

– The stay may be lifted if the action will not resolve an issue against the customer

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Leahy S. 1720

Section 5 – Bad-Faith Demand Letters

– It is considered an unfair or deceptive act to send wide spread written communications alleging infringement if:

• Falsely threatening the seeking of judicial relief if

compensation is not paid

• The assertions in the letter lack a reasonable basis in fact or

law

• The content of the letter is likely to mislead a reasonable

recipient by failing to include sufficient facts related to infringement

– The Federal Trade Commission shall enforce in the same manner

Leahy S. 1720

Section 6 – Small Business Education/Access

• PTO must use existing resources to provide educational

programs for small businesses about litigation abuse.

• Website information to notify the public when a patent

case is brought in Federal court

– Searchable by patent number, patent art area, and entity.

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Leahy S. 1720

Section 7 – Improved Post-Issuance Procedures

• Estoppel fix for PGR rule

– Eliminates “…or could have raised”

• Use of district court claim construction in PGR

and IPR

– Each claim of a patent shall be construed as would be in a civil action – If already construed by a court, the PTO shall consider such construction

Leahy S. 1720

Section 8 – Protection of IP Licenses in BK

– Ensures patent and TM licenses are not eliminated during bankruptcy cases.

Section 9 – Codification of Double-Patenting Doctrine

– Applies doctrine to first inventor to file patents

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Leahy S. 1720

Section 10 – Technical corrections to AIA

– Corrections to language related to inventor oath/dec, priority benefit of applications, rejections based on art, etc.

• Time Limit for Misconduct Proceeding

– Extends the time limit from 1 year to 2 years

Leahy S. 1720

Section 11 – Reports

• Study on Patent Small Claims Court
• Study on quality of all business method patents

to expand beyond financial CBMs

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Cornyn S. 1013

Section 2 – Pleading Requirements

– Initial complaint, counterclaim, or cross-claim shall include a listing of:

• each patent that is allegedly infringed,
• each claim of each patent that is allegedly infringed,
• each accused process/product that infringes (including

name/model number),

• how each limitation of each claim is met by the accused

instrumentality,

• description of the principal business of accused infringer,
• list of each complaint filed that asserts any of the patents

Adds to cost and subjects to greater scrutiny and motion practice? Necessary to disclose multiple times?

Cornyn S. 1013

Section 2 – Pleading Requirements

– Initial complaint, counterclaim, or cross-claim shall include a listing of:

• whether the patent is subject to licensing term or pricing

commitments

• identity of any party who owns, co-owns, is an assignee, has

an exclusive licensee, or has a right to enforce the patent;

• any entity having a financial interest in the patent;
• a description of any agreement or other legal basis for a

financial interest

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Cornyn S. 1013

Section 3 – Joinder of Interested Parties

– The court shall grant a motion by a party defending an infringement claim to join an interested party if the defending party shows that the interest of the plaintiff is limited primarily to asserting the patent in litigation. – Interested party = any assignee, any party having a right to enforce or sublicense the patent, or any party having a financial interest in the patent.

• DOES NOT include attorneys or law firms providing legal

representation.

– The court may deny the motion due to lack of service or if joinder would render jurisdiction or venue improper.

Cornyn S. 1013

Section 4 – Discovery Limits

– If court determines that claim construction is required, discovery shall be limited to the terms requiring construction until a ruling is issued. – The court may expand the scope of discovery as necessary to ensure timely resolution of the action. – The court may expand the scope of discovery to resolve a motion. – Additional discovery only available at expense of requesting party

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Cornyn S. 1013

Section 5 – Costs and Expenses

– The court shall award to the prevailing party reasonable costs and expenses including attys fees;

• UNLESS the court finds that the position and conduct of the

nonprevailing party was reasonably justified or that exceptional circumstances make an award unjust.

– If the non-prevailing party is unable to pay reasonable costs and expenses, the court may make the costs and expenses recoverable against any interested party.

Hatch S. 1612

Section 101 – Fee Shifting

– The court shall award to the prevailing party reasonable fees and other expenses, including attys fees;

• UNLESS the court finds that the position and conduct of the

nonprevailing party was reasonably justified or that special circumstances make an award unjust.

1/22/2014 21

Hatch S. 1612

Section 201 – Motion for a Bond

– Upon motion by a defendant, the court may order that the party alleging infringement post a bond sufficient to ensure payment of the accused infringer’s reasonable fees and expenses – Factors considered by court

• Whether bond would hinder unrelated activities of plaintiff
• Whether plaintiff is a university or non-profit technology

transfer office

• Whether plaintiff is a named inventor

Schumer S. 866

Section 2 – Improvements to CBM Patents

– Expands AIA to allow USPTO to review the validity of all business method patents, not just those related to the financial sector.

• Strikes “…a financial product or…” and insert “…an

enterprise, product, or….”

Creates more work for the USPTO without any additional funding?

– Eliminates 8-year sunset provision for review of CBM

1/22/2014 22

Deutch H.R. 2024

Section 2 – Disclosure of Patents

– Requires the USPTO to develop regulations relating to the disclosure of each entity having the legal right to enforce a patent, its ultimate parent entity, and any entity having a controlling interest in enforcement.

• Must be disclosed at issuance, payment of maintenance

fees, and transfer of existing patents

• Must record changes to the above within 90 days
• Failure to comply may result in limited damages – collect only

from date on which the requirement is met.

Polis H.R. 3540

Section 2 – Disclosure of Information

– Any entity that sends 20 or more demand letters during any 365-day period shall disclose to the USPTO the identity of:

• Each patent with confirmation that the entity that sent the

letter is the owner of the patent, and is the last-recorded

• wner at the USPTO
• Any entity having the right to license the patent and any
• bligation to license
• The ultimate parent of the entity
• The number of entities receiving a demand letter
• Any case that has been filed by the entity regarding the patent
• Any IPR or PGR related to the patent

1/22/2014 23

Polis H.R. 3540

Section 2 – Disclosure of Information

– Failure to comply

• May be subject of monetary sanctions by a court to cover cost

incurred by the adverse party resulting from the failure to meet the requirements

– Ongoing Duty to Correct or Supplement

• Any changes in the disclosed information must be provided

within 20 days of the change

– Exemptions

• Does not apply to original inventor(s) or universities

Polis H.R. 3540

Section 2 – Disclosure of Information

– Demand Letter Database

• USPTO and FTC are required to establish a publicly available

and searchable database of demand letters

• May be redacted upon motion by recipient

– Ongoing Duty to Correct or Supplement

• Any changes in the disclosed information must be provided

within 20 days of the change

– Exemptions

• Does not apply to original inventor(s) or universities

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Polis H.R. 3540

Section 3 – Demand Letter Requirements

• Must identify:

– each patent that is allegedly infringed, – each claim of each patent that is allegedly infringed, – each accused process/product that allegedly infringes (including name/model number), – how each limitation of each claim is met by the accused instrumentality, – clear description of the principal business of accused infringer, – list of each complaint filed that asserts any of the patents – any IPR/PGR for the asserted patents – How the recipient can access the database – That the recipient is not required by law to respond to the letter

Polis H.R. 3540

Section 4 – Penalties

• A recipient who believes the demand letter has not met

the requirements may submit to the USPTO in writing which requirements were not met and any other relevant information

• Upon finding that the demand letter has not met the

requirements, the USPTO will notify the patent owner that the patent will be voided unless a fee is paid within 3 months of the notice.

– The Director may accept the fee provided that the delay in fulfilling the requirement(s) is shown to be unintentional or unavoidable.

1/22/2014 25

DeFazio H.R. 845

Section 2 – Recovery of Litigation Costs

– Any party may file a motion to determine whether the party asserting the patent is an inventor, assignee, university or technology transfer office, or a party that has made a substantial investment in the patent – If the court determines that the plaintiff does not meet at least one of the criteria, the court shall require the plaintiff to post a bond to cover costs by defendant

Jeffries H.R. 2639

Section 2 – Pleading Requirements

– Initial complaint shall include a listing of:

• each patent that is allegedly infringed,
• each claim of each patent that is allegedly infringed,
• each accused process/product that allegedly infringes each

claim (including name/model number),

• how each limitation of each claim is met by the accused

instrumentality,

• a description of the rights of the party asserting the patent

including a description of the principal business of the party,

• any co-owners, assignees, licensees

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Jeffries H.R. 2639

Section 3 – Joinder of Interested Parties

– If a party asserting a patent loses and is unable to pay costs/fees, the court shall grant a motion by the prevailing defendant to join an interested party.

• DOES NOT include attorneys or law firms providing legal

representation.

– The court may deny the motion due to lack of service

• r if joinder would render jurisdiction or venue

improper.

Jeffries H.R. 2639

Section 4 – Stay of Action Against Secondary Party

– The court shall grant a motion to stay an action against a secondary party if:

• Primary party consents in writing
• Secondary party agrees to be bound by any issues that the

customer has in common with the primary party

• Motion must be filed within 120 days of first complaint in the

action of the primary part

– During the stay, the secondary party is treated as a non-party

1/22/2014 27

Jeffries H.R. 2639

Section 5 – Stay of Discovery

– The court shall stay discovery until after the court has ruled on: motion to dismiss, motion to transfer venue, and construction of terms if deemed necessary by the court. – The court may expand the scope of discovery as necessary to ensure timely resolution of the action. – During the stay, all parties shall treat all relevant evidence as if they were subject to a request for production under FRCP.

Jeffries H.R. 2639

Section 6 – Sanctions for Abusive Litigation

– Upon final adjudication of the action, the court shall include in the record specific findings regarding compliance by each party and each attorney – If the court finds that a party violated any of the requirements of Rule 11(b) of FRCP, the court may impose sanctions on party or attorney

• The court shall give the party notice of the finding and the
• pportunity to respond

1/22/2014 28

Jeffries H.R. 2639

Section 2 – Sanctions for Abusive Litigation

– The court may award to the prevailing party reasonable fees and other expenses in exceptional cases.

• No substantive change to this section

Issa H.R. 2766

Section 2 – Improvements to CBM Patents

– Expands AIA to allow USPTO to review the validity of all business method patents, not just those related to the financial sector.

• Strikes “…a financial product or…” and insert “…an

enterprise, product, or….”

– Expansion of Pro Bono Program at USPTO

• Requires the USPTO to support IPLAs to assist financially

under-resourced resellers, users, implementers, distributors,

• r customers of an allegedly infringing product or process

– Eliminates 8-year sunset provision for review of CBM

1/22/2014 29

White House Fact Sheet

Designed to protect innovators from frivolous litigation and ensure the highest-quality patents

Executive Actions

– “Real Party-in-Interest” is New Default – requires USPTO to begin rule- making process to require applicants and owners to regularly update ownership information – Tightening Functional Claiming – new targeted training of examiners on scrutiny of functional claims in the context of software – Empowering Downstream Users – new education and outreach materials in a website offering answers to parties facing demands of PAEs – Expanding Dedicated Outreach and Study – bring experts into the USPTO to develop more robust data and research on issues related to abusive litigation – Strengthen Enforcement Process of Exclusion Orders – launch interagency review of International Trade Commission (ITC) and Customs and Border Protection (CBP)

White House Fact Sheet

Legislative Recommendations

– Require patentees and applicants to disclose “real party-in-interest” when sending demand letters, enforcing a patent, or seeking PTO review of a patent – Permit more discretion in awarding fees to prevailing parties in patent litigation – Expand the USPTO’s transitional program for CMB to include all computer-enabled patents – Protect off-the-shelf use by consumers and businesses and stay judicial proceedings against such consumers when an action is brought against a vendor, retailer, or manufacturer – Change the ITC standard for obtaining an injunction – Demand letter transparency to curb abusive suits – Ensure the ITC has flexibility in hiring qualified Administrative Law Judges

1/22/2014 30

Summary Chart

PAEs Software and Business Methods FRAND Goodlatte H.R. 3309 Real Party in Interest Discovery Joinder Customer Suits Pleading Attorneys' Fees Demand Letters Studies CBM Pleading Discovery Bankruptcy Leahy S. 1720

Real Party in Interest Customer Suits Demand Letters Studies CBM

Cornyn S. 1013 Real Party in Interest Discovery Attorneys' Fees Joinder Hatch S. 1612

Attorneys' Fees / Bond Requirement

Schumer S. 866 CBM Deutch H.R. 2024 Real Party in Interest Polis H.R. 3540 Real Party in Interest Demand Letters Sanctions DeFazio H.R. 845 Attorneys' Fees / Bond Requirement Jeffries H.R. 2639 Real Party in Interest Customer Suits Sanctions Joinder Discovery Issa H.R. 2766 CBM White House Fact Sheet (June 4, 2013) Real Party in Interest Demand Letter Disclosure Attorneys' Fees Customer Suits ITC Standards CBM Functional Claiming ITC Standards

Adapted from www.patentlyo.com