Tech Law Journal logo

Senate Judiciary Committee Approves PATENT Act

June 4, 2015. The Senate Judiciary Committee (SJC) amended and approved S 1137 [LOC | WW], the "Protecting American Talent and Entrepreneurship Act of 2015", or "PATENT Act".

Sen. Charles Grassley (R-IA), Sen. Patrick Leahy (D-VT), and others introduced this bill on April 29, 2015. See, stories titled "Senators Introduce PATENT Act " and "Summary of S 1137, the PATENT Act" in TLJ Daily E-Mail Alert No. 2,722, May 4, 2015.

The vote on final passage was 16-4. The no votes were cast by Sen. Ted Cruz (R-TX), Sen. David Vitter (R-LA), Sen. Richard Durbin (D-IL), and Sen. Chris Coons (D-DE).

Sen. Orrin Hatch (R-UT) stated in his opening statement, which he read at the meeting, that "So-called patent trolls cost our economy billions of dollars each year and have a crippling effect on innovation across all sectors -- from main street businesses to America’s largest technology companies."

He said that businesses receive "vague and hostile demand letters accusing them of infringing questionable patents. Even though these businesses have done nothing wrong, some agree to unwarranted settlements to avoid costly litigation. And those who do fight back are forced to spend millions in litigation costs, often with no chance of recovering attorney’s fees if and when they prevail."

This bill would, among other things, amend the Patent Act to provide:

The SJC approved a substitute version of the bill, which it further amended at this meeting. The bill as approved on June 4 also contains:

Gary Shapiro, head of the Consumer Electronics Association (CEA), praised SJC approval of this bill. He stated in a release that it "closes the legal loopholes used by patent trolls -- the individuals and companies that don’t invent or manufacture anything useful, but rather abuse our patent system and extort American innovators".

Managers' Amendment. At the beginning of the meeting, the SJC approved by unanimous consent an amendment in the nature of a substitute (also referred to during the markup as the managers' amendment) offered by Sen. Grassley. The SJC then considered numerous amendments to this managers' amendment.

Sen. Grassley released a copy of this amendment earlier in the week. See, story titled "Sen. Grassley Releases Revised Version of PATENT Act" in TLJ Daily E-Mail Alert No. 2,735, June 2, 2015.

Sen. Grassley wrote in his opening statement, which he read at the meeting, about the new language in Section 11 regarding inter partes review and post grant proceedings. He said that "I worked with the Ranking Member, Senator Cornyn, Senator Schumer, Senator Hatch, and a number of my other Committee colleagues on this particular piece. This effort was in response to concerns that had been raised by certain industry groups about what they saw as abuse of the administrative proceedings at the PTO. At the same time, there were also other stakeholders that believed these proceedings have been very effective at getting rid of weak patents."

He continued that "This piece is the product of discussions with various industry stakeholders, including the life sciences and tech groups. I think that many of us believe that the post grant proceedings at the PTO are working quite well with respect to weeding out poor quality and improperly granted patents. So it was our goal to address concerns, but not derail the very important function that these proceedings have in knocking out weak claims and patents."

Sen. Leahy explained in his opening statement, which he read at the meeting, the provision regarding preferential treatment at the USPTO. He stated that this bill "strengthens a program created by the PTO in 2012 to reward select patent holders who use their inventions to address a humanitarian issue that significantly affects the public health or quality of life of an impoverished population.  Those who receive the award are given a certificate to accelerate certain PTO processes".

Then, the bill "enhances the program by making the certificates transferable to improve their usability and increase the incentives of the Patents for Humanity Award. It is a straightforward, cost-neutral provision that will strengthen this program and encourage innovations to be used for humanitarian good."

The bill as approved incorporates S 1402 [LOC | WW], the "Patents for Humanity Program Improvement Act".  See, stories titled "Sen. Leahy Again Introduces Bill to Provide for Alienable USPTO Acceleration Certificates" and "Commentary: Preferential Treatment in the Patent Process" in TLJ Daily E-Mail Alert No. 2,729, May 25, 2015.

Demand Letters. The SJC approved by voice vote an amendment to the managers' amendment offered by Sen. Dianne Feinstein (D-CA) that deals with demand letters. The bill as introduced addresses abusive demand letters. The managers' amendment retains this. Sen. Feinstein's amendment revises this to bar including a demand for a specific amount of money in exchange for a license in a demand letter.

Sections 8 and 9 of this bill would amend the Patent Act. Section 8 specifies requirements for the contents of demand letters. Section 8 amends the Patent Act to affect Federal Trade Commission (FTC) enforcement of Section 5 of the FTC Act (15 U.S.C. § 45) in matters involving fraudulent and misleading pre-litigation demand letter practices. The bill, however, would not amend the FTC Act. This very awkward statutory structure reflects the sponsors' purpose of avoiding referrals of the bill to the Senate Commerce Committee (SCC) and the House Commerce Committee (HCC).

First, Section 8 of this bill as approved would add a new Section 299C to Title 35 titled "Pre-Suit written notice". It enumerates items to be included in pre-suit demand letters. This list contains a lighter version of the heightened pleading requirements. For example, the sender must identify the patent, and at least one claim of that patent, alleged to be infringed. The sender must also identify what product or process infringes, and why.

The bill provides that the consequences of non-compliance are that the defendant is given additional time to file an answer to the complaint, and that a claimant seeking to establish willful infringement may not rely on evidence of pre-suit notification that is not in compliance.

There is no outright mandate that all demand letters must include the enumerated items.

However, Section 9 would add a new Section 299D to Title 35 titled "Bad-faith Demand Letters". It would regulate the "widespread sending" of patent infringement demand letters.

Section 5 of the FTC Act provides in part that "unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful". However, this bill would not amend the FTC Act (over which the Commerce Committees have jurisdiction). Rather, it would awkwardly amend Title 35 (over which the Judiciary Committees have jurisdiction), but in a manner that would impact FTC enforcement of the FTC Act.

The bill would provide that patent infringement demand letter practices are an unfair or deceptive act or practice within the meaning of Section 5 of the FTC Act if demand letters employ any of numerous enumerated practices.

For example, there is "a pattern of false statements or threats" representing that administrative or judicial relief has been sought, or will be brought.

Or, "the assertions contained in the communications lack a reasonable basis in fact or law" because the person asserting the patent is not the appropriate person to make the assertion, the patent has expired or been held unenforceable, the sender knows that the recipient is authorized by the patentee, the sender falsely represents that an investigation of the recipient's alleged infringement has occurred, or the communications falsely state that litigation has been filed against, or a license has been paid by, similarly situated persons.

Or, the demand letters can violate Section 5 by omission. That is, there is a violation if "the content of the written communications is likely to materially mislead a reasonable recipient because the content fails to include facts reasonably necessary to inform the recipient ... of the identity of the person asserting a right to license the patent" and "of the patent ... alleged to have been infringed".

Notably, Section 9 of the bill does not expressly preempt any state laws regarding unfair or deceptive trade practices, or demand letter practices.

Sen. Feinstein stated at the mark up that demand letters sent to small businesses that demand money can be extortionate" . She offered an amendment directed at the demand for money.

Her amendment amends Section 8 of the bill to provide, for example, that a "shall not contain ... a request for, demand for, or offer to accept a specific monetary amount in exchange for a license, settlement, or similar agreement to resolve allegations of patent infringement".

Fee Shifting. The SJC rejected by a vote of 5-15 an amendment offered by Sen. Durbin that would have amended Section 7 regarding fee shifting.

Currently, 35 U.S.C. § 285 provides that "The court in exceptional cases may award reasonable attorney fees to the prevailing party." That is, each party ordinarily pays its own attorneys. And, except in "exceptional cases", the winner cannot recover its attorneys fees at the conclusion of the case. Fee shifting could have a significant impact, because a party often pays millions of dollars in legal fees to pursue or defend a patent case to judgment.

A straight fee shifting rule would provide that the loser reimburses the winner for its attorneys fees. But, that is not the approach of this bill.

The bill as introduced in April contained a limited fee shifting provision. The managers' amendment approved on June 4 further limited shifting.

The managers' amendment provides in part that "In connection with a civil action in which any party asserts a claim for relief arising under any Act of Congress relating to patents, upon motion by a prevailing party, the court shall determine whether the position of the non-prevailing party was objectively reasonable in law and fact, and whether the conduct of the nonprevailing party was objectively reasonable. If the court finds that the position of the non-prevailing party was not objectively reasonable in law or fact or that the conduct of the non-prevailing party was not objectively reasonable, the court shall award reasonable attorney fees to the prevailing party unless special circumstances, such as undue economic hardship to a named inventor or an institution of higher education (as defined in section 101(a) of the Higher Education Act of 1965 (20 U.S.C. 1001(a))), would make an award unjust. The prevailing party shall bear the burden of demonstrating that the prevailing party is entitled to an award." (Parentheses in original. Emphasis added by TLJ.)

The bill as introduced contained the "objectively reasonable" qualification. The managers' amendment added the "undue economic hardship" qualification.

Sen. Durbin's rejected amendment would have excepted universities, technology transfer organizations, and their licensees, from the fee shifting provision.

Sen. Durbin's amendment provided that the above quoted fee shifting provision, except in "exceptional cases", "shall not apply to a civil action in which the party alleging infringement is ... (A) an institution of higher education ... (B) a non-profit technology transfer organization whose primary purpose is to facilitate the commercialization of technologies developed by 1 or more institutions of higher education; or (C)
a party ... (i) that has licensed the patent or patents that are the subject of the alleged infringement from an institution of higher education or a non-profit technology transfer organization; and (ii) whose primary business is not the assertion and enforcement of patents or the licensing resulting therefrom".

It failed. Only Sen. Durbin, Sen. Vitter, Sen. Coons, Sen. Whitehouse, and Sen. Blumenthal voted for it.

Reduced Patent Fees for Universities. The SJC approved by unanimous consent an amendment offered by Sen. John Cornyn (R-TX) that adds a new section to the bill titled "Institutions of Higher Education and Non-Profit Research".

It would amend 35 U.S.C. § 123, which provides a definition of "Micro Entity". These Micro Entities are entitled to a discount on patent fees.

Sen. Cornyn's amendment provides that the Micro Entity discount also applies to certain applicants who are either employees of institutions of higher education, have assigned their interest to an institution of higher education, or are institutions of higher education.

This amendment has nothing to do with patent trolls, abusive patent litigation, or abusive demand letter practices.

Moreover, it would financially benefit large universities for which patent portfolios are a huge economic enterprise. It would also reduce fee collections, which are the source of USPTO funding.

Large universities are well organized, politically active, and have a powerful lobbying presence in Washington DC.

Coons Amendments. The SJC rejected a series of amendments offered by Sen. Coons.

The SJC rejected by a vote of 6-14 an amendment offered by Sen. Coons that would have stricken Section 3 of the bill, which imposes heightened pleading requirements (HPR).

The SJC rejected by a vote of 6-14 an amendment offered by Sen. Coons that would have amended the heightened pleading requirements (HPR) section. The bill provides that the HPRs do not apply to actions for infringement brought under 35 U.S.C. § 271)(e). Sen. Coons amendment would have revised this. But then, this Section 271(e) does not affect information technologies.

The SJC rejected by a vote of 4-16 an another amendment offered by Sen. Coons that pertained to HPRs and Section 271(e).

(And, the SJC rejected by a vote of 5-15 an amendment offered by Sen. Vitter that pertained to HPRs and Section 271(e).)

The SJC rejected by a vote of 3-17 an amendment offered by Sen. Coons. Section 5 of the bill imposes some limits on discovery in patent infringement actions. Sen. Coons' amendment pertained to discovery in Section 271(e) actions, which relate to Food and Drug Administration (FDA) matters.

Sen. Coons offered then withdrew an amendment that would have added a new section titled "Fairness in Post-Grant Proceedings".

Sen. Coons offered then withdrew an amendment that would have added a new section titled "Standing in Post-Grant Proceedings".

See also, SJC web page with hyperlinks to all amendments, and web page with roll call votes.

(Published in TLJ Daily E-Mail Alert No. 2,737, June 4, 2015.)