On December 5, 2013, H.R. 3309, “The Innovation Act” overwhelmingly passed in the House of Representatives. H.R. 3309 was introduced October 23, 2013 by Rep. Bob Goodlatte (R-Va.), Chairman of the House Judiciary Committee, and had 16 cosponsors. This bill is intended to target abusive patent litigation by placing a greater burden, and greater risk, on the asserting party. The bill’s supporters believe that it will address the problem of Patent Assertion Entities, sometimes referred to as “Patent Trolls.” Many believe that an identical bill will pass quickly in the Senate also. Of course, the president is not likely to veto the bill as the White House has expressed policy that is consistent with the bill. Significant provisions of the bill are summarized below.
- Pleading Requirements in Patent Cases: Currently, we have a “notice” pleading requirement in which the patent owner need merely put the accused on notice of the patent and the general nature of infringing activity. This provision would change that to require that the party asserting the patent specifically identify claims of the patent and accused practices of the accused party. Further, the asserter would be required to map each element of the identified claims to a specific element of the accused practices. This mapping is something that – depending on the specific rules of the court – currently does not happen for many months after filing a patent infringement action. This provision, of course, makes it more difficult and expensive for the asserting party. Also, this provision, if enacted, would likely reduce the chances of a meritless suit from progressing far beyond the pleading stage or summary judgment stage, and would put both parties in a better position for early settlement of reasonable claims.
- Fees in Patent Cases: Under this Bill, the prevailing party would be presumed to be awarded fees and expenses unless it can be shown that the non-prevailing parties' actions were “substantially justified.” This is particularly novel and controversial in view of the “American System” in which all parties pay their own costs. Also, it is not clear whether the accused infringing party could ever not be “substantially justified,” and thus be forced to pay fees of the asserting party if the asserting party prevails, although it is likely that a party is always justified in defending a lawsuit. This provision, of course, greatly increases the risk on the part of those asserting patents and would cause PAEs and their contingent fee counsel to completely rebalance their criteria for filing suit.
- Joinder of Interested Parties in Patent Cases: This provision appears to be directed only to “Profiteers” whose interest is solely in “asserting such patent claim in litigation.” In such a case, the accused party generally would be able to join an “interested party,” i.e., a party having rights or financial interest in the patents. This provision could “pierce the veil” of many PAEs by placing risk back on the real parties in interest.
- Limitations on Discovery in Patent Cases: Where a judge determines that a ruling is required on the construction of terms in a patent, which is almost always the case in patent matters, discovery will be limited to information necessary for such construction until the ruling on claim construction is issued. As discovery costs are currently much higher for accused parties than for asserting PAEs, this provision would provide more symmetry in costs by focusing on discovery, at least at early stages of litigation.
- Real Party in Interest in Patent Cases: The asserting party will be required to disclose all other parties having rights or financial interests in the patent. This would assist accused parties in determining if they want to move for joinder of an interested party.
- Stay of Patent Actions Against Customers: Courts will be required to grant motions of stay for actions against customers for a product or process supplied by a supplier if the supplier and customer agree to the stay, the supplier is party to an action relating to the same patents, and the customer agrees to be bound by any judgment against the supplier. This provision would allow, but not require, suppliers, such as ad agencies, to essentially step in and handle matters on behalf of their customers, such as advertisers.
Client Alert 2013-334