The Leahy-Smith America Invents Act, Pub. L. 112-29, 125 Stat. 341 (the “AIA”), enacted on September 16, 2011, is touted as the most significant reform of the Patent Act in recent memory. Among its provisions are those directed to addressing the litigation tactics employed by “patent trolls,” alternatively referred to as patent assertion entities (“PAEs”), patent monetization entities (“PMEs”), and/or non-practicing entities (“NPEs”).

The unabated rise in patent troll-initiated litigation since the AIA’s enactment and implementation, however, has spurred both Executive and Congressional recommendations to combat the perceived threat to the U.S. economy. The White House Task Force on High-Tech Patent Issues released in June 2013 seven legislative recommendations and five executive actions to this effect. Numerous pieces of proposed legislation have been drafted along those same lines.

H.R. 3309, the “Innovation Act” was introduced October 23, 2013 by Representative Goodlatte, Chairman of the House Judiciary Committee, and specifically targets patent troll litigation, containing a number of proposed measures. H.R. 3309 enjoys bipartisan support, having passed the House Judiciary Committee on November 20, 2013 by a vote of 33-5 and the House of Representatives on December 5, 2013 by a vote of 325-91.

If enacted, H.R. 3309 would introduce sweeping changes to several aspects of patent litigation generally, as set forth in greater detail below.

I. H.R. 3309 Sec. 3(a): Heightened Pleading Requirements

Requires a party asserting infringement in an initial complaint, counterclaim, or cross-claim to provide detailed information concerning the asserted patent(s) and claim(s), accused instrumentalities, identity of the claimant, and applicability of any licensing restrictions as determined by standard-setting organizations or governmental authorities.

Where not “readily accessible,” the required information “may instead be generally described, along with an explanation of why such undisclosed information was not readily accessible, and of any efforts made by such party to access such information.”
Exempt from the heightened pleading requirements of Section 3(a) are civil actions including a claim of relief under § 271(e), concerning generic drug and biological product submissions under the Hatch-Waxman Amendments to the Federal Food, Drug, and Cosmetic Act (“Hatch-Waxman Amendments”).

II. H.R. 3309 Sec. 3(b): Fee Shifting

Amends § 285 to institute a “loser pays” system, under which the prevailing party is awarded reasonable fees and expenses, unless the nonprevailing party’s position and conduct is determined to have been “reasonably justified.”

Additionally deems a claimant that “subsequently unilaterally extends” a covenant not to sue on its asserted patent(s) a “nonprevailing party” for purposes of this section, provided that the claimant would have been entitled to voluntarily dismiss the case under Fed. R. Civ. P. 41 without court order at the time of extension.

III. H.R. 3309 Sec. 3(c): Joinder of Interested Parties

Allows a court to join an “interested party” to satisfy an award of fees and expenses, upon motion by the prevailing party.
“Interested party” is defined as a person that: (1) is an assignee; (2) has a right to enforce or sublicense the patent(s) at issue; or (3) has a direct financial interest in the patent(s) at issue.

IV. H.R. 3309 Sec. 3(d): Limitation on Discovery Before Claim Construction

Limits discovery to issues of claim construction until entry of a claim construction ruling, allowing the court discretion in certain instances, e.g., in civil actions arising under the Hatch-Waxman Amendments, “as necessary to ensure timely resolution of the action.”

V. H.R. 3309 Sec. 4: Patent Ownership Transparency

Imposes on any party asserting infringement to identify to the U.S. Patent and Trademark Office (“PTO”), the court, and adverse parties the assignee, any entity with a right to sublicense or enforce, any entity “that the plaintiff knows to have a financial interest” with respect to the patent(s) at issue, as well as any “ultimate parent entity” thereof.

Exempt from disclosure requirements of Section 4 are civil actions including a claim of relief under § 271(e), concerning generic drug and biological product submissions under the Hatch-Waxman Amendments.

VI. H.R. 3309 Sec. 5: Customer-Suit Exception

Directs a stay of litigation against a downstream customer, pending resolution of a separate litigation against its manufacturer upon: (1) written consent of customer and manufacturer; (2) manufacturer is party to action involving same or related asserted patent(s); (3) customer agrees to be bound by any common issues; and (4) motion is filed within the later of 120 days following claim of infringement or entry of the scheduling order.

Does not apply to civil actions including a claim of relief under § 271(e), concerning generic drug and biological product submissions under the Hatch-Waxman Amendments.

VII. H.R. 3309 Sec. 6: Recommendations to the Judicial Conference

Directs the judiciary to develop rules and procedures addressing “asymmetries in discovery burdens and costs” in patent litigation, specifically:
Entitlement to and cost allocation of producing “core documentary evidence,” e.g., documents relating to conception and reduction to practice, licensing, technical operation of the accused instrumentalities, profits, and prior knowledge of the asserted patent(s) or infringement thereof.

Scope and procedure for production of “electronic communications,” e.g., e-mail, text message, or instant message;

Permissible scope of additional document discovery; and

Discovery sequence and scope.

Further directs judiciary to develop patent case management procedures that aim to “identify any potential dispositive issues of the case” and “focus on early summary judgment motions when resolutions of issues may lead to expedited disposition of the case.

VIII. H.R. 3309 Sec. 9: Technical Corrections to AIA

Narrows the scope of estoppel in Post-Grant Review (PGR) proceedings to grounds raised, not grounds that “reasonably could have [been] raised.”

Codifies the double-patenting doctrine for first-to-file patents.

Aligns the standard for claim construction applied in PGR and Inter Partes Review (IPR) proceedings to the standard applied by district courts, i.e., “construing each claim of the patent in accordance with the ordinary and customary meaning of such claim as understood by one of ordinary skill in the art and the prosecution history pertaining to the patent.”

Extends duration of Patent Cases Pilot Program (Pub. L. No. 111-349, 124 Stat. 3674 (2011)) from ten to twenty years.

I. Effect on Courts

Certain provisions of H.R. 3309 appear overly prescriptive of matters typically falling within the courts’ purview, for instance management of discovery issues. Section 3(d) seeks to limit discovery pending entry of a claim construction order. Section 6 generally mandates the Judicial Conference to develop rules and procedures based on its consideration of the detailed discovery proposals set forth therein. Section 6(a)(4)-(5) instructs implementation of such rules and procedures by the district courts and further requires the Judicial Conference to evaluate their efficacy.

Such provisions appear less deferential to the role of the judiciary in addressing patent case management issues, particularly when compared to the terms of the Patent Pilot Program, established just two years prior. In order “to encourage enhancement of expertise in patent cases among district judges,” the Patent Pilot Program entrusts the judiciary with developing appropriate recommendations. Its provisions require periodic reports to Congress analyzing, inter alia, “the extent to which the program has improved the efficiency of the courts involved by reason of such expertise.”

Before institution of the Patent Pilot Program, courts had already taken affirmative steps toward addressing some of the concerns addressed by H.R. 3309. For example, a number of district courts have already implemented local patent rules which proscribe, inter alia, limitations on the scope and sequence of discovery and procedures for claim construction. The judiciary has thus exercised its authority and demonstrated an affirmative interest in addressing certain case management issues covered by H.R. 3309.

II. Effect on Litigants

The provisions of H.R. 3309, ostensibly drafted to target the litigation tactics of a specific class of litigants (i.e. “patent trolls”), nonetheless apply to all patent litigants alike. If adopted, several of these provisions would increase the level of investment and risk associated with enforcing patent rights, which may produce an overall chilling effect on actions to enforce patent rights.

First, the heightened pleading standard imposed by Section 3(a) requires substantially more detail than is contemplated under Form 18, the current short-form patent complaint. The attendant increase in cost of pre-suit investigation may deter patentees from seeking to enforce their patents as readily. The new pleading standard also provides grounds for an alleged infringer to challenge the sufficiency of initial pleadings before engaging in the merits of the case. The prospect of motion practice on this issue at the outset, combined with uncertainty as to how courts will apply the new standard may further increase the level of investment and risk associated with filing suit.

The “loser pays” system contemplated under Section 3(b), whereby the nonprevailing party pays reasonable fees and costs unless its position and conduct is found to have been “reasonably justified,” further contributes to the risk of litigation. This is compounded by ambiguity as to what positions and conduct courts will consider to be “reasonably justified,” which may result in satellite litigation, thereby increasing the potential costs to all litigants.
The provisions of Section 4, relating to patent ownership transparency, impose specific obligations of disclosure on patentees. Upon filing a complaint alleging infringement, a patentee owes a duty of disclosure to the PTO, the court, and adverse parties to the litigation. This duty appears to extend beyond the duration of the infringement action, insofar as Section 4 mandates an “ongoing” duty to disclose patent ownership information to the PTO. Under the patentee’s ongoing duty to the PTO, it must update any ownership information within 90 days. Failure to comply with this provision precludes recovery of fees and expenses under § 285 and increased damages under § 284.