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The PATENT Act: The Senate’s Solid Start to Reforming the Patent System

DEEPLINKS BLOG
May 5, 2015

Will this be the year we pass patent reform? With both houses of Congress finally introducing strong bills to target patent trolls, we sure hope so.

EFF supported the House’s Innovation Act through its passage in 2013. Unfortunately, the Senate did not respond with a bill worth fighting for. This year, though, not only is the Innovation Act (H.R. 9) back, but the Senate has responded with its own comprehensive legislation—the PATENT Act (S. 1137).

Sponsored by Sens. Grassley, Leahy, Cornyn, Schumer, Lee, Hatch, and Klobuchar, the "Protecting American Talent and Entrepreneurship Act of 2015" includes some much-needed reforms, and EFF supports its passage.

Here’s what we like about the PATENT Act—and what we think could be improved:

Heightened Pleading and Transparency

One of the most common troll tactics is to file a lawsuit without explaining how a defendant is infringing its patent nor identifying the claims that are allegedly infringed. Even though all patent owners must go through such diligence before suing, patent trolls often keep such information under wraps until a defendant is deeply involved with a lawsuit, having spent money and time trying to make sense of unclear claims.

The PATENT Act fixes this by requiring patent owners to supply certain specific information when filing suit: which patents and claims are being infringed, what product is infringing, and how. If such information isn’t accessible, the patent owner must state why.

The bill also requires plaintiffs to report to the court and to the defendants what parties have a financial interest in the outcome of the case, as well as every complaint from the three-year period beforehand—and later report such information to the Patent Office. This transparency is crucial for defendants to fully understand who has a stake in the case at hand, as well as if the patent has been litigated before. Such information may quickly uncover licensing deals, for example, that could absolve a defendant of liability for infringement.

Customer Stay

One of the biggest issues we’ve seen over the last few years is the targeting of end users. Small businesses that have purchased Wi-Fi routers or office scanners from their local electronics shop have found themselves facing federal court litigation.

The PATENT Act would allow suits against these customers to be stayed if a manufacturer is also involved in federal court litigation. Unlike in the Innovation Act, manufacturers do not have to consent to such a stay—which is a good thing. As the authors note, “It simply allows the customer to delay its case while the manufacturer litigates.” This language would have allowed Cisco to step in to protect their customers sued for using wireless routers, or Apple to intervene and protect their end users who were simply developing mobile applications—and would remove the ability of a court to deny such a stay.

Discovery Limits

One aspect of litigation that makes patent cases so expensive is the cost of discovery—including the cost of finding, reviewing, and producing electronic documents. The PATENT Act delays discovery until certain initial trial motions (to dismiss, to change venue, or to sever accused infringers) are resolved. This is a promising reform that should make it easier for defendants to escape distant, inconvenient federal districts (e.g., the Eastern District of Texas), which plaintiffs hope will increase settlement pressure.

Unfortunately, the PATENT Act’s discovery reforms are not as strong as those found in the Innovation Act. First, the bill punts on proposals that would limit discovery abuse. Instead of mandating change, the bill merely suggests that the Judicial Conference should “consider” certain changes to discovery procedures. Also, there seems to be a loophole in the stay provision, allowing discovery using what’s known as “interrogatories” (basically, questions to the other side that require long form responses) into pretty much anything.

Fee Shifting

Patent trolls seize upon the fact that litigation is expensive in order to effectively extort their targets into settling for thousands of dollars instead of engaging in a multi-million dollar legal battle.

The PATENT Act changes this, though not quite as strongly as the Innovation Act does. It sets the same standard—a court may shift fees if it’s found that the non-prevailing party’s position or conduct was not objectively reasonable—but it shifts the burden of proof to the winner. Judges can shift fees only if the winner shows that the losing party was unreasonable; the Innovation Act’s provision has shifting as the default. The bill also allows the defendant to move for fees if the patent owner unilaterally withdraws before a trial.

Sometimes the plaintiff is a shell company—an entity that can assert patents without worrying about losing its assets, because it doesn’t have any (besides the patent itself). The bill tries to take this into account by allowing a defendant to identify “interested parties,” which the court can hold financially accountable. But there are exemptions, such as universities and passive investors, and what looks like lots of wiggle room in the definition of an “interested party.”

Demand Letters

There have been some efforts to tackle abusive demand letters. We’ve supported efforts like the Demand Letter Transparency Act. We’ve opposed bills [PDF] like the TROL Act, which preempts state laws, imposes unnecessarily strict requirements, and is short sighted.

The Senate bill requires clarity in demand letters, which are often horribly vague. It also targets abusive sending of demand letters: if an entity has engaged in widespread sending of demand letters and engaged in a deceptive trade practice under Section 5 of the FTC Act, they can be subject to civil penalties. (Though we think, depending on the content, sending even one letter can be abusive.) Importantly, the bill does not preempt state laws around demand letters—of which there are now nearly two-dozen.

The Senate’s Solid Start to Reforming the Patent System

While the PATENT Act does not go as far as the Innovation Act on some provisions, it is a welcome step in the right direction. In addition to the concerns we have above, we wish the bill addressed quality issues—the root of most of the problems with the patent system. Ultimately, current reform efforts only target litigation abuse and ignore the more fundamental problem of the flood of low-quality software patents.

While not perfect, the PATENT Act is worth backing. At the same time, we will push for improvements. With strong language in both houses and support from the White House, we agree with Sen. Schumer’s assertion that “we’re getting patent reform done this year.” We urge you to contact your senators in support.

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