Patent Litigation Reform Legislation in the 114th Congress

Summary

Introduction¹

However, while PAEs may be considered a type of "non-practicing entity" (NPE), other NPEs can serve similar intermediary functions without engaging in "trolling" tactics.⁴³ PAEs are alleged to be one-of-a-kind in that they are said to speculate on patents—they bet on how much more a patent will be worth in the future, when it is asserted, and focus on high-risk high-yield acquisitions.⁴⁴ The Federal Trade Commission has explained that while other NPEs transfer technologies that they or their clients invented and developed so that licensees can benefit from not having to develop them in-house, PAEs transfer nothing but a legal right not to be sued for using a technology that the licensee may have already invested in developing on its own, without help from the PAE or its patents.⁴⁵ PAEs also diverge from other NPEs that enforce patents because they focus on acquiring patents outright and asserting them on their own behalf, as opposed to providing services and collecting fees or a slice of the litigation award.⁴⁶

Critics of PAEs argue that they extort the patent system through litigation by extracting licensing fees or damage awards from companies that cannot afford the cost of litigation. Critics also argue that "patent trolling" deters innovation and discourages companies from seeking patents, and thus delivering new products to the market.⁴⁷ According to the White House:

PAE activities hurt firms of all sizes. Although many significant settlements are from large companies, the majority of PAE suits target small and inventor-driven companies. In addition, PAEs are increasingly targeting end users of products, including many small businesses.⁴⁸

However, defenders of PAEs argue that they actually promote invention by increasing the liquidity and managing the risk of investments in applied research and invention, as well as by compensating small inventors.⁴⁹ By enlivening a secondary⁵⁰ market for patents, PAEs provide an exit option and/or extra revenue stream for a variety of patentees. They absorb and manage the high risk by spreading it across large portfolios of patents and extracting value out of otherwise low-value or dormant patents. Patentees who do not or cannot commercialize in the "primary" market for technology⁵¹ might recoup their costs and perhaps see some returns by selling their patents to PAEs and retaining a cut of future royalties. PAEs suggest this function is especially essential for small inventors and NPEs that would otherwise have a hard time getting any value from their inventions.

The remainder of this report discusses and analyzes the key provisions of legislative proposals that have been introduced in the 114^th Congress related to patent litigation abuse. The subject matter of the patent law reforms is presented below in no particular order.

Under the Supreme Court's recent changes to the federal rules, patent plaintiffs may no longer rely on the standard outlined in Form 18 but will likely need to comply with the higher pleading standard under Ashcroft v. Iqbal⁵⁸ and Bell Atlantic Corp. v. Twombly.⁵⁹ In Twombly and Iqbal, the Supreme Court established that federal courts must evaluate the "plausibility of claims" made at the pleading stage when determining whether a civil complaint should survive a motion to dismiss for failure to state a claim.⁶⁰ Therefore, under the Twombly/Iqbal standard, a complaint must contain enough factual allegations to state a claim that is plausible on its face. However, prior to the Supreme Court's recent changes, courts have generally found that Iqbal and Twombly do not apply to patent litigation pleadings because of Form 18 and its inherent notice pleading standard. The Federal Circuit held in the 2012 case In re Bill of Lading Transmission and Processing System Patent Litigation that a patent plaintiff needs only to follow the requirements in Form 18 to survive a motion to dismiss for failure to state a claim.⁶¹ The court stated that "to the extent the parties argue that Twombly and its progeny conflict with the Forms and create different pleadings requirements, the Forms control."⁶² Without Form 18, however, patent plaintiffs will likely need to conform their patent pleadings to the higher Twombly/Iqbal standard.

The Innovation Act, H.R. 9, proposes additional heightened initial pleading requirements for an infringement claim, as compared to the current requirements under the Federal Rules of Civil Procedure's Form 18. Under these new requirements, a party alleging infringement in a complaint must include specific details regarding the following:

• each patent allegedly infringed;
• all claims necessary to produce the identification of each process, machine, manufacture, or composition of matter ("accused instrumentality") that is alleged to infringe any claim of each patent identified above;⁶³
• for each accused instrumentality alleged to infringe a claim, an identification with particularity (if known) of the name or model number of each accused instrumentality or a description of each accused instrumentality;
• for each accused instrumentality, a clear and concise statement of how it infringes each claim of each patent;
• for each claim of indirect infringement, the acts of the alleged indirect infringer that contribute to, or are inducing, a direct infringement;
• the authority of the party alleging infringement to assert each patent and the grounds for the court's jurisdiction; and
• each complaint filed that asserts any of the same patents⁶⁴

Like the Innovation Act, the Senate's PATENT Act also proposes heightened pleading requirements, including such details as

• the identification of each patent allegedly infringed;
• the identification of each claim of each patent that is allegedly infringed;
• the identification (including the name, model number, or description) of the accused instrumentality that has allegedly infringed the patent;
• a description of how the accused instrumentality is allegedly infringing specific elements of the claim; and
• a description of the acts of the alleged infringer that allegedly contributed to or induced the direct infringement, for claims of indirect infringement.⁶⁵

The PATENT Act would not require such details in the initial pleading as the authority of the party alleging infringement to assert each patent and the principal business of the party alleging infringement, as outlined in the House's Innovation Act. Instead, the Senate bill would require the patentee to disclose specific information to the court and each adverse party no later than 14 days after the filing of the pleading.⁶⁶ These disclosure requirements would cover the identity of the patent assignee(s), the right to enforce the patent at issue, any ultimate parent entity, and entities that would have a particular financial interest in the patent at issue.⁶⁷ Both the Innovation Act and PATENT Act would also explicitly eliminate the Federal Rules of Civil Procedure's Form 18.⁶⁸

Both the PATENT Act and the Innovation Act provide that if the information is not readily accessible, then the party may generally describe the information with an explanation of why such undisclosed information was not readily accessible.⁶⁹ Similarly, both bills also exempt from the proposed heightened pleading requirements any civil action that includes a claim for relief arising under Section 271(e)(2) of the current Patent Act relating to certain drug claims.⁷⁰Commentators have linked "patent trolls" together with the current patent pleading requirements for a patent infringement claim.⁷¹ They have argued that the minimal information required in a patent infringement complaint encourages PAEs to initiate "frivolous" lawsuits that otherwise would not survive the initial pleading state under a more stringent standard. Proponents of these pleadings changes state that such heightened pleading requirements would force a plaintiff to consider the alleged infringement instrumentality more carefully and decide whether infringement has occurred before filing the suit.⁷² Supporters of heightened pleading requirements also argue that "not providing the necessary information at the beginning of a case in the complaint slows down the litigation and makes it inefficient and expensive for both parties."⁷³ Additionally, these proponents assert that heightened pleadings standards would not impose a greater burden on the plaintiff, who would develop a good-faith case, and providing such information at the early stages of litigation would improve efficiency and costs.⁷⁴ However, some commentators believe that the heightened pleading requirements would render patent enforcement impractical. According to these opponents, the plaintiff may not have the information available at this stage of litigation, as the discovery process typically reveals the information necessary to build a successful infringement claim.⁷⁵

The Federal Rules of Civil Procedure permit discovery⁷⁶ into any unprivileged matter that is relevant to the claim or defense of any party.⁷⁷ This broad definition leads to costly discovery in patent litigation.⁷⁸ During the discovery process, the court may decide to hold a "Markman hearing,"⁷⁹ during which a judge examines evidence concerning the parties' disputes over the meaning and language of a patent claim that defines the boundaries of the invention. (Also referred to as "claim construction," or the interpretation of a patent's claims, this process largely determines the scope of the patent owner's proprietary rights.) For these hearings, courts must consider volumes of evidence produced during discovery relating to many different aspects of claim construction including evidence regarding the definition, meaning, scope, and pertinent art of the claim.⁸⁰

The Innovation Act (as reported) would postpone discovery if the defendant makes a motion to (1) sever a claim or drop a party for misjoinder; (2) transfer the action to another venue; or (3) dismiss the action.⁸¹ Such motion must be filed within 90 days after service of the complaint and must include a declaration or other evidence in support of the motion. There are four exceptions to this stay of discovery provision:

• 1. the court may allow such discovery that the court deems is necessary to decide the motion to sever, drop a party, dismiss, or transfer the action;
• 2. the provision does not apply to an action in which the patent holder seeks a preliminary injunction to prevent harm arising from the manufacture, use, sale, or importation of an allegedly infringing product that competes with a product made or sold by the patent holder;
• 3. parties may consent to voluntary exclusion from these proposed limitations on discovery; and
• 4. the provision does not apply to any civil action that includes a claim for relief arising under 35 U.S.C. Section 271(e)(2) relating to certain drug claims.⁸²

Like the Innovation Act (as reported), the Senate's PATENT Act would require a court to stay discovery pending the resolution of preliminary motions (which must be filed prior to the first responsive pleading), including the motion to dismiss, the motion to transfer venue, and the motion to sever accused infringers.⁸³ The bill would provide a court with the discretion to allow limited discovery to resolve these motions or a motion for a preliminary injunction or to preserve evidence or otherwise prevent specific prejudice to a party, if the court would find that additional discovery is necessary.⁸⁴ Similar to the Innovation Act, the PATENT Act would also grant parties with the opportunity to exclude themselves voluntarily from these proposed limitations.

Supporters of these proposed limitations on discovery note that the technical nature and complexity of patent litigation inherently leads to the extensive document discovery, and correspondingly encourages frequent settlements to avoid this high cost.⁸⁵ These supporters have stated that the propensity towards settlements in patent litigation encourages PAEs to file infringement suits. Critics of these discovery limitations have raised concerns that the discovery limitation provision may cause "patent litigation in the overwhelming majority of patent cases [to] incur significant across-the-board delays and increased expense for all parties."⁸⁶ Others have argued that the discovery stay provision could be subject to abuse; for example, a "defendant could ... invoke a stay of discovery by moving to transfer venue or to sever, even though the merits of a venue or severance motion have no bearing whatsoever on whether or not the plaintiff will ultimately be allowed discovery."⁸⁷

Under current law, within a month after the filing of a civil action involving a patent, the clerks of the federal courts must provide written notice of the action to the USPTO director that describes the names and addresses of the parties, the name of the inventor, and the number of the patent upon which the action is based.⁸⁹ The USPTO director is then required to enter this information in the file of that patent.

Section 4 of the Innovation Act would amend this section of the Patent Act to impose specific disclosure requirements upon plaintiffs upon the filing of an initial complaint for patent infringement. (Similar to the exemption for the new pleading requirements, the Innovation Act's patent ownership disclosure requirement would not apply to any civil action that includes a cause of action for patent infringement under 35 U.S.C. §271(e)(2).)⁹⁰ Upon the filing of an initial complaint for patent infringement, plaintiffs would be required to disclose to the USPTO, the court, and all adverse parties the following information relating to entities that own or have a financial interest in the patent:

• 1. the assignee(s) of the patent(s) involved in the case;
• 2. any entity with a right to sublicense or enforce the patent(s) at issue;
• 3. any entity, other than the plaintiff, that the plaintiff knows to have a financial interest⁹¹ in the patent(s) at issue or in the plaintiff;
• 4. the ultimate parent entity⁹² of any assignee, or the entities identified in #2 and #3 above;
• 5. a clear and concise description of the principal business, if any, of the party alleging infringement;⁹³
• 6. a list of each complaint filed, of which the party alleging infringement has knowledge, that asserts or asserted any of the patents identified above;⁹⁴
• 7. for each patent identified, a statement as to whether the patent is subject to certain licensing requirements (imposed by the federal government, a foreign government, or by a standards development organization).⁹⁵

Section 4 of the Innovation Act would require the plaintiff to notify the USPTO of any changes in the identity of the assignee of the patent or the entities described above, within 90 days of such change.⁹⁶ Failure to comply with this ongoing duty of disclosure would result in the plaintiff being barred from recovering either enhanced damages or reasonable fees and other expenses incurred in connection with the infringement lawsuit (with respect to infringing activities occurring during the period of noncompliance), "unless the denial of such damages or fees would be manifestly unjust."⁹⁷ In addition, the Innovation Act directs a court to award to a prevailing party accused of infringement any reasonable fees and other expenses that the party incurred to uncover the updated information about the assignee or entities, "unless such sanctions would be unjust."⁹⁸

Section 4 of the Innovation Act grants the USPTO director the power to issue regulations to establish a registration fee in order to recover the cost of administering the "disclosure of interests" requirement, which includes the costs to facilitate collection and maintenance of the information submitted by plaintiffs and "to ensure the timely disclosure of such information to the public."⁹⁹

According to the sponsors of the Innovation Act, the amendments made by Section 4 "will ensure that patent trolls cannot hide behind a web of shell companies to avoid accountability for bringing frivolous litigation."¹⁰⁰ However, a critic of this provision argued that it would be "needlessly burdensome" and that the required disclosure "could lead to the revelation of confidential financial and licensing agreements";¹⁰¹ furthermore, he noted that if such information is relevant to the litigation, "it is readily discoverable under current rules, with appropriate protective orders to maintain needed confidentiality."¹⁰²

The PATENT Act would require similar initial disclosures by a patentee in a patent infringement lawsuit as the Innovation Act.¹⁰³ Within 14 days of the patentee filing the pleading, the patentee would be required to notify the court and each adverse party of the following information:

• 1. The identity of each:
• assignee of the patent(s) at issue, and any "ultimate parent entity"¹⁰⁴ thereof;
• entity with a right to sublicense to unaffiliated entities or to enforce the patent(s) at issue, and any ultimate parent entity thereof;
• any other entity that the patentee knows to have a financial interest¹⁰⁵ in the patent(s) at issue, or in the patentee (and any ultimate parent entity thereof); and
• 2. For each patent that the patentee alleges to be infringed:
• a list of other complaints filed by the patentee in the three years before the filing of the action, as well as any other complaints filed in the United States (not by the patentee but that the patentee was aware of) that asserted the patent during the same three-year period;
• a statement as to whether the patent is subject to certain licensing requirements (imposed by the federal government or by a standards development organization).¹⁰⁶

The PATENT Act would allow the patentee to file such information under seal if the patentee considers the information to be confidential (such as the home addresses of any individuals);¹⁰⁷ the Innovation Act does not contain a similar provision.

Within a month of the disclosure of the information listed above, the patentee would be required to file the information described in #1 above with the USPTO.¹⁰⁸ However, unlike the Innovation Act, the PATENT Act does not appear to place upon the patentee an ongoing duty of disclosure of such information to the USPTO.

In addition, Section 10 of the PATENT Act would require that an assignment of all substantial rights in any issued patent (and the name of the assignee and the ultimate parent entity of the assignee) be recorded in the USPTO within the following time periods:

• 1. no later than the date on which the patent is issued; and
• 2. when any subsequent assignment is made that results in a change to the ultimate parent entity
• no later than three months after such assignment is made; or,
• in the case of an assignment made as part of a corporate acquisition, not later than six months after the closing date of such acquisition.¹⁰⁹

The PATENT Act provides similar consequences as the Innovation Act for failure to comply with the duty to disclose this information to the USPTO: that is, the party asserting infringement of a patent would be denied the right to receive either enhanced damages or reasonable fees and other expenses incurred in connection with the infringement lawsuit (with respect to infringing activities occurring during the period of noncompliance).¹¹⁰ Like the Innovation Act, the PATENT Act would also require a court to award to a prevailing accused infringer reasonable attorney fees and expenses incurred to discover the identity of any undisclosed entity that was required to be disclosed.¹¹¹ Under the PATENT Act, the USPTO Director would be given the same authority granted by the Innovation Act to establish fees to administer the process of collecting and maintaining the submitted assignment information.¹¹²

Under the Patent Act, anyone who "makes, uses, offers to sell, or sells any patented invention"¹¹³ is potentially liable for patent infringement if such actions occur without the authority of the patent holder. Thus, the patent holder has the right to bring a lawsuit against not only the manufacturer or seller of products that incorporate allegedly infringing components, but also the customers who purchase and use those products.¹¹⁴ Over the past few years, businesses (including restaurants, retailers, and grocery stores) and individuals increasingly have faced charges of patent infringement for their use of certain equipment that contain technologies such as Wi-Fi, PDF scanning, email, and vehicle tracking.¹¹⁵ A witness at a congressional hearing in 2013 described the situation as follows:

Another patent litigation practice that has been sharply criticized is the institution of suits against large numbers of assemblers, distributors or retailers rather than the original manufacturer or provider of the component or product alleged to infringe. This tactic takes advantage of the fact that such suits threaten defendants with the disruption of aspects of their businesses that are at best tangentially related to the invention which is the subject of the patent, and that each individual defendant has less motivation to litigate the issue to final conclusion than the manufacturer of the product at issue. The result can be to collect enormous sums as the result of a very large number of small settlements whose cumulative value far exceeds the amount that could have been recovered from the original manufacturer.¹¹⁶

The judicially created response to such customer lawsuits is the so-called "customer suit exception" doctrine, which allows courts to prioritize litigation against or brought by the manufacturer of infringing goods over a lawsuit by the patent owner against customers of the manufacturer in the interest of efficiency and judicial economy.¹¹⁷ The doctrine permits a court to stay an earlier-filed action against a customer involving an infringement product pending the outcome of a later-filed declaratory judgment action brought by the manufacturer of the accused product. As explained by the First Circuit Court of Appeals (prior to the creation of the Federal Circuit), "At the root of the preference for a manufacturer's declaratory judgment action is the recognition that, in reality, the manufacturer is the true defendant in the customer suit.... [I]t is a simple fact of life that a manufacturer must protect its customers, either as a matter of contract, or good business, or in order to avoid the damaging impact of an adverse ruling against its products."¹¹⁸ However, the doctrine "has long existed in a state of relative disuse" and the Federal Circuit has affirmed its application in only one case in the last three decades.¹¹⁹

Section 5 of the Innovation Act would codify a modified version of the customer suit exception by amending the Patent Act¹²⁰ to require a court to suspend or postpone litigation against a customer of a product or process that contains allegedly infringing technologies, if several requirements are satisfied:¹²¹

• 1. the manufacturer is a party to the civil action or a separate action involving the same patent(s);
• 2. the customer agrees to be bound by the decisions of the court in the action involving the manufacturer, with respect to any issues that the customer and manufacturer have in common; and
• 3. the customer requests the court to stay the action no later than the later of (a) 120 days after the date on which the first pleading in the action is served (if such pleading specifically identifies the product or process that is the source of the customer's alleged infringement of the patent, and the pleading specifically explains how the product or process is alleged to infringe the patent), or (b) the date on which the first scheduling order in the case is entered.

The Innovation Act provides two limited exceptions to the manufacturer and customer's entitlement to a stay: (1) if the action involving the manufacturer will not resolve a major issue in the suit against the customer; or (2) if the stay unreasonably prejudices and would be manifestly unjust to the party seeking to lift the stay.¹²² In addition, like the exemption for the new pleading and patent ownership disclosure requirements, the Innovation Act exempts from the customer suit stay provision any action that includes a cause of action for patent infringement under 35 U.S.C. Section 271(e)(2).¹²³

Though the stay provision would only postpone, and not terminate, a cause of action against the customer, supporters of the stay provision assert that "in the vast majority of cases, a suit involving the manufacturer will eliminate all potential infringement liability of the customer."¹²⁴

The Innovation Act (as reported) contains definitions of "covered customer," "retailer," and "end user" that limit the applicable scope of the customer stay provision, as follows:

• 1. A "covered customer" is a retailer or end user who is accused of patent infringement based on sale or use of a product/process alleged to infringe a patent, if the retailer or end user did not materially modify such product/process for their own purposes.
• 2. An "end user" is a user of a product/process alleged to infringe a patent and also an affiliate of such an end user, but does not include an entity that manufactures (or causes the manufacture of) the product/process.
• 3. A "retailer" is an entity that generates its revenues mostly through sale of consumer goods or services, or an affiliate of such an entity, but does not include an entity that manufactures (or causes the manufacture of) the product/process alleged to infringe a patent.

The PATENT Act includes a customer stay provision similar to that of the Innovation Act (as reported).¹²⁵

Both the Innovation Act (as reported) and the PATENT Act would require the written consent of the manufacturer to obtain a stay of an action against a customer only if the manufacturer had been made a party to the action on motion by the customer.¹²⁶ The PATENT Act contains the same provisions as the Innovation Act pertaining to situations in which a stay may be lifted: if the action involving the manufacturer will not resolve major issues in the suit against the customer, or the stay unreasonably prejudices or is manifestly unjust to the party seeking to lift the stay.¹²⁷ Also like the Innovation Act, the PATENT Act would exempt from the customer suit stay provision any action that includes a cause of action for patent infringement under 35 U.S.C. Section 271(e)(2).¹²⁸

For many years, patent cases were subject to the "American Rule," under which "[e]ach litigant pays his own attorney fees, win or lose."¹²⁹ Then in 1947, Congress enacted a fee-shifting provision that gave district courts the power to award attorney fees to the prevailing party in patent suits. The 1952 revision of the patent laws codified this provision at 35 U.S.C. Section 285. This section of the Patent Act provides a court with the discretion to award "reasonable" attorney fees to the prevailing party (plaintiff or defendant) only "in exceptional cases."

Standing

Pleading Requirement

Proposed pleading requirements to include:

• each patent allegedly infringed;
• all claims necessary to identify each process, machine, manufacture, or composition of matter alleged to infringe any claim of each patent;
• accused instrumentalities;
• description of alleged infringement;
• authority of plaintiff to assert patent

General description of the above where information is not readily accessible

Confidential information may be filed under seal

ANDA suit exception

Proposed pleading requirements to include:

• each patent allegedly infringed;
• each claim of each patent allegedly infringed;
• accused instrumentalities;
• description of infringement

General description where information is not available

Confidential information may be filed under seal

ANDA suit exception

n/a

n/a

n/a

Limits on Discovery

Postpone discovery if the defendant makes a motion to dismiss, transfer venue, or sever accused infringers

Such motions must be filed within 90 days after service of the complaint and must include a declaration or other evidence in support of the motion

Court may allow such discovery that the court deems is necessary to decide those motions

Stay of discovery does not apply to an action in which patent holder seeks a preliminary injunction to prevent competitive harm

Parties may also consent to exclusion from discovery limitations

ANDA suit exception

Discovery stayed pending court's ruling on defendant's motions to dismiss, transfer venue, or sever accused infringers; such motion must be filed prior to the first responsive pleading

Court may allow limited discovery necessary to resolve those motions

Court may allow additional discovery to preserve evidence or prevent prejudice to party

Parties may consent to exclusion from discovery limitations

ANDA suit exception

n/a

n/a

n/a

Transparency of Patent Ownership

Upon filing of initial complaint for infringement, plaintiff must disclose to USPTO, court, and all adverse parties:

• Assignee(s) of the patent
• Entities with right to sublicense or enforce patent
• Entities with financial interest in the patent (right to receive proceeds related to patent assertion) or in the plaintiff (direct or indirect ownership/control of more than 5% of the plaintiff)
• Ultimate parent entities (UPE) of the above entities
• Description of the principal business of the plaintiff
• List of all other complaints filed that assert the patent
• Any licensing requirements that patent is subject to

Plaintiff has an ongoing duty to notify USPTO of any changes in the above

Failure to comply with duty of disclosure means plaintiff may not recover treble damages or reasonable fees during period of noncompliance; court may award fees to prevailing party for expenses incurred to uncover the updated information

ANDA suit exception

Within 14 days of filing the complaint, plaintiff must notify court and adverse parties of:

• Assignee(s)
• Entities with right to sublicense or enforce patent
• Entities with financial interest in the patent or in the plaintiff (direct or indirect ownership/control of > 20% of the plaintiff)
• UPE of the above
• List of other complaints filed in prior 3 years asserting the patent
• Any licensing requirements that patent is subject to

Patentee may file this information under seal if confidential

Patentee must file information regarding identity of entities with USPTO but no ongoing duty to update the information

Assignment of all substantial rights in issued patent (and name of assignee and UPE) must be recorded in USPTO upon grant of patent and whenever subsequent assignments are made

Same consequences as Innovation Act for failure to comply with duty to disclose assignment/UPE information to USPTO

NO ANDA suit exception

n/a

n/a

n/a

Stays of Customer-Suits

Court required to suspend/postpone litigation against customer if:

• manufacturer is party to the civil action or in a separate action involving the patent
• customer agrees to be bound by issues decided against the manufacturer
• customer requests stay within the later of: 120 days after first pleading is served, or the first scheduling order in the case

Defines "customer" as a retailer or end user who has not materially modified the product/process alleged to infringe the patent

Defines "end user" and "retailer" to exclude entities that manufacture the product/process at issue

Stay may be lifted if suit against manufacturer will not resolve major issue in suit against customer or if stay unreasonably prejudices or is manifestly unjust to the party seeking to lift it

ANDA suit exception

Court required to suspend/postpone litigation against customer if:

• manufacturer is party to the civil action or in a separate action involving the patent
• customer agrees to be bound by issues decided against the manufacturer
• Consent of the manufacturer to the stay is needed only if manufacturer was made a party to the action on motion by the customer
• customer requests stay within the later of: 90 days after first pleading is served, or the first scheduling order in the case

Same definitions for "customer," "retailer," and "end user" as the Innovation Act (as reported)

Same criteria as the Innovation Act for lift of the stay

ANDA suit exception

n/a

n/a

n/a

Shifting of Attorney Fees

Requires a court to award attorney fees to prevailing party unless court finds that either:

• nonprevailing party's litigation position and conduct are "reasonably justified in law and fact" or
• special circumstances exist that make an award unjust (special circumstances include undue economic hardship to a named inventor)

NO ANDA suit exception

On motion of the prevailing party, court must determine whether the nonprevailing party's position was "objectively reasonable in law and fact" and whether its conduct was "objectively reasonable"

• If they were not, court must award reasonable attorney fees to prevailing party unless special circumstances exist that make an award unjust
• Special circumstances include undue economic hardship to a named inventor or to an institution of higher education

The prevailing party shall bear the burden of demonstrating that the prevailing party is entitled to an award of attorney fees

ANDA suit exception

• n/a

n/a

n/a

Attorney Fee Recovery

If nonprevailing party cannot pay, court shall join an interested party to pay if prevailing party shows that nonprevailing party has no substantial interest in the case other than asserting the patent

Defendant must file initial statement expressing good faith belief that plaintiff has no substantial interest in the case other than asserting the patent

Plaintiff must certify within 45 days of defendant's initial statement that: (a) the party has sufficient funds to pay for any potential fee award, (b) the party has substantial interest in the case other than asserting the patent, or (c) no other interested parties exist

Court may deny motion to join interested party if: (a) interested party is not subject to service of process, or (b) joinder would deprive court of subject matter jurisdiction or make venue improper

Court must deny motion to join interested party if: (a) party did not receive timely notice of being identified as an interested party, or (b) interested party renounces in writing and with notice to the court and parties, any ownership, right, or direct financial interest in the patent

Exceptions for: university tech transfer organizations

Defendant may file initial statement expressing good faith belief that the plaintiff's primary business is asserting patents

Plaintiff must file a certification within 45 days of defendant's initial statement that includes:

• that the party has sufficient funds to pay for any potential fee award,
• that the party's primary business is not asserting/enforcing patents,
• identity of interested parties, or
• no such interested parties exist

Plaintiff must provide interested parties notice that the party may be held accountable to pay for an award of attorney fees if the plaintiff cannot satisfy the full amount of the award

Interested parties may avoid financial liability by renouncing their interest in the patent, within 120 days of receipt of the notice above

Interested parties may intervene in the action to contest its identification as an interested party or their liability for attorney fees

Court may exempt interested party from liability in the interest of justice

Exceptions for: universities, non-profit tech transfer organizations, and ANDA suits

n/a

n/a

n/a

Demand Letters

"Sense of Congress" that action including litigation stemming from purposely evasive demand letter should be considered fraudulent or deceptive practice

Party may not rely on evidence of pre-suit notification to establish willful infringement unless communication contains specific information

Prohibits pre-suit notification from containing statements that:

• request, demand, or offer to accept a specific monetary amount in exchange for a license, settlement, or similar agreement to resolve allegations of patent infringement; or
• demand a specific monetary amount based on the cost of legal defense in a lawsuit concerning any asserted claim

Defines widespread demand letter abuse as violation of FTC Act

Defines a demand letter as an unfair or deceptive practice under FTC Act if wrongly and in bad faith misrepresents specific details

Entity that sends 20 or more demand letters per year must disclose specific information to USPTO

Demand letters must include specific information relating to the patent claim allegedly infringed and the party alleging infringement

Defines a demand letter as a unfair or deceptive practice under FTC Act if wrongly and in bad faith misrepresents specific details

Reforms of PTAB's IPR and PGR Proceedings

Requires the Patent Trial and Appeal Board (PTAB), in inter partes review (IPR) and post-grant review (PGR) proceedings, to follow the same claim construction standard used by district courts

Narrows the estoppel effect arising from a PGR by allowing a PGR petitioner to raise in a later civil action issues (with respect to the validity of a patent claim) that they "reasonably could have raised" during the PGR

Prohibits IPR or PGR from being initiated unless petitioner certifies that the petitioner:

• does not own and will not acquire a financial instrument that is designed to hedge or offset any decrease in the market value of an equity security of the patent owner or an affiliate of the patent owner; and
• has not demanded payment (monetary or otherwise) from the patent owner or an affiliate of the patent owner in exchange for a commitment not to file a petition for IPR with respect to the owner's patent, unless the petitioner has been sued for or charged with infringement of the patent

Requires the PTAB, in IPR and PGR proceedings, to follow the same claim construction standard used by district courts

Narrows the estoppel effect arising from a PGR by allowing a PGR petitioner to raise in a later civil action issues (with respect to the validity of a patent claim) that they "reasonably could have raised" during the PGR

Clarifies that the patent challenged in an IPR or PGR shall be presumed to be valid

Allows the USPTO Director to refuse to institute an IPR or PGR proceeding "if the Director determines that institution would not serve the interest of justice;" factors relevant to such determination include:

• whether the grounds of unpatentability are the same as those considered and decided in prior judicial or USPTO proceedings, and
• whether there is another proceeding or matter involving the same patent that is pending before the USPTO
• Requires that panels convened to adjudicate PGR or IPR proceedings have no more than 1 person, if any, who participated in the decision to institute such proceeding

Requires the PTAB, in IPR and PGR proceedings, to follow the same claim construction standard used by district courts

Provides a presumption of validity to a previously issued claim that is challenged during an IPR or PGR proceeding

Requires IPR/PGR petitioner to prove unpatentability of a previously issued claim "by clear and convincing evidence" (existing law is "preponderance of the evidence")

Provides more stringent standing requirements for IPR/PGR petitioner

n/a

n/a

Elimination of USPTO Fee Diversion

n/a

n/a

Establishes a revolving fund in which fees collected by USPTO would be deposited; such fees would be available to USPTO until expended

n/a

n/a

Venue

Limited to judicial districts where:

• defendant has its principal place of business or is incorporated;
• defendant has committed an act of infringement of a patent in suit and has a regular and established physical facility that gives rise to the act of infringement;
• defendant has agreed or consented to be sued in the instant action;
• where inventor named on the patent in suit conducted research or development that led to the application for the patent in suit;
• a party has a regular and established physical facility that such party controls/operates and has engaged in significant research and development of, or manufactured a tangible product that is alleged to embody, the invention claimed in the patent

General venue statute (28 U.S.C. §1391(d)) governs venue for patent cases involving foreign defendants that are not incorporated or have no regular and established physical facilities in the United States

n/a

n/a

n/a

n/a

Small Business

Requires USPTO director to develop educational resources for small businesses with respect to their "concerns arising from patent infringement"

Requires USPTO and other federal agencies to provide, through existing small business outreach programs, education and awareness on abusive litigation practices

Requires USPTO to create and maintain a "user-friendly" section of its website in which the public may find information about filed patent cases and the patents at issue in those cases

Requires USPTO director to conduct a study examining the economic impact of the Innovation Act on the ability of individuals and small businesses owned by women, veterans, and minorities to enforce their patent rights

Requires USPTO director to develop educational resources for small businesses with respect to their "concerns arising from patent infringement"

Requires USPTO to create and maintain a "user-friendly" section of its website in which the public may find information about filed patent cases and the patents at issue in those cases

Requires Small Business Administration to produce a report analyzing the impact of patent ownership by small businesses and patent infringement actions against small businesses

Requires Director of the Administrative Office to designate at least six district courts to address special issues raised in patent infringement suits against individuals or small business concerns; such courts would be required to expedite cases in which an individual or small business concern is accused of patent infringement

n/a

n/a

Author Contact Information

Footnotes

Portions of this report have been borrowed and adapted from CRS Report R42668, An Overview of the "Patent Trolls" Debate, by [author name scrubbed] and CRS Report R43321, Patent Infringement Pleadings: An Analysis of Recent Proposals for Patent Reform, by [author name scrubbed].

H.R. 9, the Innovation Act: Hearing Before the House Judiciary Comm., 114^th Cong., 1^st Sess. (2015); S. 1137, the "PATENT ACT"—Finding Effective Solutions to Address Abusive Patent Practices: Hearing Before the Senate Judiciary Comm., 114^th Cong. 1^st Sess. (2015); H.R. __, the Targeting Rogue and Opaque Letters Act (TROL Act): Hearing Before the House Energy & Commerce Comm., Subcomm. on Commerce, Manufacturing, and Trade, 114^th Cong. 1^st Sess. (2015); Patent Reform: Protecting American Innovators and Job Creators from Abusive Patent Litigation: Hearing Before the House Judiciary Comm., Subcomm. on Courts, Intellectual Property and Internet, 114^th Cong. 1^st Sess. (2015); The Impact of Abusive Patent Litigation Practices on the American Economy: Hearing Before the Senate Judiciary Comm., 114^th Cong. 1^st Sess. (2015); Patent Reform: Protecting Innovation and Entrepreneurship: Hearing Before the Senate Comm. on Small Business & Entrepreneurship, 114^th Cong. 1^st Sess. (2015); Trolling for a Solution: Ending Abusive Patent Demand Letters: Hearing Before the House Energy & Commerce Comm., Subcomm. on Commerce, Manufacturing, and Trade, 113^th Cong. 2d Sess. (2014); H.R. 3309, the "Innovation Act:" Hearing Before the House Judiciary Comm., 113^th Cong., 1^st Sess. (2013); Protecting Small Businesses and Promoting Innovation by Limiting Patent Troll Abuse: Hearing Before the Senate Judiciary Comm., 113^th Cong., 1^st Sess.(2013); The Impact of Patent Assertion Entities on Innovation and the Economy: Hearing Before the House Energy and Commerce Comm., Subcomm. on Oversight and Investigations, 113^th Cong., 1^st Sess. (2013); Demand Letters and Consumer Protection: Examining Deceptive Practices by Patent Assertion Entities: Hearing Before the Senate Commerce, Science, & Transportation Comm., Subcomm. on Consumer Protection, Product Safety, and Insurance, 113^th Cong., 1^st Sess. (2013); Abusive Patent Litigation: The Issues Impacting American Competitiveness and Job Creation at the International Trade Commission and Beyond: Hearing Before the House Judiciary Comm., Subcomm. on Courts, Intellectual Property, and the Internet, 113^th Cong., 1^st Sess. (2013); Abusive Patent Litigation: The Impact on American Innovation & Jobs, and Potential Solutions: Hearing Before the House Judiciary Comm., Subcomm. on Courts, Intellectual Property, and the Internet, 113^th Cong., 1^st Sess. (2013).

In the 114^th Congress, introduced legislation includes the Innovation Act (H.R. 9), Protecting American Talent and Entrepreneurship Act (PATENT) Act (S. 1137), Demand Letter Transparency Act of 2015 (H.R. 1896), Targeting Rogue and Opaque Letters (TROL) Act (H.R. 2045), and the Support Technology and Research for Our Nation's Growth (STRONG) Patents Act of 2015 (S. 632). In the 113^th Congress, legislation that was introduced but not enacted included the following: the Innovation Act (H.R. 3309), Transparency in Assertion of Patents Act (S. 2049), the Patent Transparency and Improvements Act of 2013 (S. 1720), the Patent Abuse Reduction Act of 2013 (S. 1013), the Patent Litigation Integrity Act of 2013 (S. 1612), the Demand Letter Transparency Act of 2013 (H.R. 3540), Patent Litigation and Innovation Act of 2013 (H.R. 2639), End of Anonymous Patents Act (H.R. 2024), and the Saving High-Tech Innovators from Egregious Legal Disputes (SHIELD) Act of 2013 (H.R. 845).

The House Judiciary Committee reported H.R. 9 on July 29, 2015, see H.Rept. 114-235. The Senate Judiciary Committee reported S. 1137 on September 8, 2015.

35 U.S.C. §101.

Diamond v. Diehr, 450 U.S. 175, 185 (1981).

35 U.S.C. §131.

Id. §112.

3-8 Donald S. Chisum, Chisum on Patents §8.01 (2006).

35 U.S.C. §§102, 103(a).

Id. §102.

"Prior art" is a legal term of art that refers to the materials (usually called "references" in patent law) that comprise the available knowledge regarding the subject matter of the invention sought to be patented, such as other issued patents, publications, and evidence of actual uses or sales of the technology. Roger Schechter & John Thomas, Principles of Patent Law 4-1 (2d ed. 2004).

35 U.S.C. §103(a).

In re Fischer, 421 F.3d 1365, 1371 (Fed. Cir. 2005).

35 U.S.C. §§154(a)(1), 271(a).

Id. §271(a).

Id. §283.

Id. §284.

Id. §154(a)(2).

Id. §261.

Roger Schechter & John Thomas, Principles of Patent Law §11-1 (2d ed. 2004).

A patent holder has the right to exclude others from making, using, offering for sale, or selling the invention throughout the United States, or importing the protected invention into the United States. 35 U.S.C. §154(a)(1).

Schechter & Thomas, supra footnote 21, §11-1.

United States v. General Electric Co., 272 U.S. 476, 490 (1926).

[author name scrubbed], Pharmaceutical Patent Law 427 (BNA Books 2005).

28 U.S.C. §1295(a)(1).

Id. §1254(1).

Colleen V. Chien, Patently Protectionist, 50 William & Mary L. Rev. 63, 70 (2008) (patent cases comprise 85% of the ITC's Section 337 docket). For more information about Section 337 proceedings, see CRS Report RS22880, Intellectual Property Rights Protection and Enforcement: Section 337 of the Tariff Act of 1930, by [author name scrubbed].

35 U.S.C. §282.

For more on declaratory judgment actions in patent cases, see CRS Report RL34156, A Nonrepudiating Patent Licensee's Right To Seek Declaratory Judgment of Invalidity or Noninfringement of the Licensed Patent: MedImmune v. Genentech, by [author name scrubbed].

The requirement that an immediate, concrete dispute between the patent owner and another individual arises because the U.S. Constitution vests the federal courts with jurisdiction only where a "case or controversy" exists. U.S. Const., Art. III, Sec. 2, cl. 1. A charge of patent infringement typically satisfies the "case or controversy" requirement. See Prasco, LLC v. Medicis Pharm. Corp., 537 F.3d 1329 (Fed. Cir. 2008).

The PTAB's membership consists of the USPTO director, deputy director, the Commissioner for Patents, the Commissioner for Trademarks, and the administrative patent judges. 35 U.S.C. §6(a).

The USPTO provides a helpful chart that compares the major differences between the three administrative trials, in terms of (1) who may file a petition with the USPTO to institute the review; (2) when such a petition is allowed; (3) the estoppel provisions applicable to the review (to prevent individuals from making repetitive arguments during later proceedings—either in federal court, the ITC, or in a USPTO administrative proceeding); (4) standards to trigger the review; (5) the standard to prove invalidity; (6) time limits for completing the review; and (7) the basis for challenging validity of the patent, available at http://beta.uspto.gov/sites/default/files/ip/boards/bpai/aia_trial_comparison_chart.pptx.

35 U.S.C. §§318(b); 328(b).

For comprehensive background information on these entities, see CRS Report R42668, An Overview of the "Patent Trolls" Debate, by [author name scrubbed].

Federal Trade Commission, The Evolving IP Marketplace: Aligning Patent Notice and Remedies with Competition 67-68 (2011).

See Gerard N. Magliocca, Blackberries and Barnyards: Patent Trolls and the Perils of Innovation, 82 Notre Dame L. Rev. 1809 (2007).

John R. Allison, Mark A. Lemley & Joshua Walker, Patent Quality and Settlement Among Repeat Patent Litigants, 99 Geo. L.J. 677, 694 (2011).

The term was coined at Intel in 2001 as a pithy label for litigants asserting patents that they owned but did not practice and which they typically acquired. An Intel Corporation vice president had been sued after referring to such litigants as "patent extortionists." See Joff Wild, The Real Inventors of the Term "Patent Troll" Revealed, IAM Magazine, August 22, 2008, http://iam-magazine.com/blog/detail.aspx?g=cff2afd3-c24e-42e5-aa68-a4b4e7524177.

See, e.g., Ronald S. Katz et al., Patent Trolls: A Selective Etymology, IP Law 360, March 20, 2008, http://manatt.com/uploadedFiles/News_and_Events/Articles_By_Us/patentroll.pdf; see also Jenna Greene, Trolls? Patent Director Says the Term Isn't Helpful, Nat'l Law Journal, January 22, 2015 (quoting USPTO Director Michelle Lee: "I don't find the term [patent troll] helpful. It means different things to different people. We need to focus on behavior.").

Nathan Myhrvold, The Big Idea: Funding Eureka!, Harv. Bus. Rev. 44 (2010).

Id. at 48–49; Sannu K. Shrestha, Trolls or Market-Maker? An Empirical Analysis of Nonpracticing Entities, 110 Colum. L. Rev. 114, 126–30 (2010); FTC Report, supra note 36, at 64, 68.

See, e.g., James Bessen et. al., The Private and Social Costs of Patent Trolls, Regulation 26, 34 (2006); Elizabeth D. Ferrill, Patent Investment Trusts: Let's Build a PIT to Catch the Patent Trolls, 6 N.C. J.L. & Tech. 367, 371–374 (2005).

Bessen et. al, supra note 43, at 34.

FTC Report, supra note 36, at 40 n. 43.

Ferrill, supra note 43, at 371–374.

See, e.g., Bessen et. al, supra note 43, at 31-35.

Executive Office of the President, Patent Assertion and U.S. Innovation 1 (June 2013), at https://www.whitehouse.gov/sites/default/files/docs/patent_report.pdf.

See, e.g., Ron Epstein, Debunking the 'Patent Troll' Myth, Bloomberg Businessweek, August 15, 2011, available at http://www.businessweek.com/stories/2010-02-01/debunking-the-patent-troll-mythbusinessweek-business-news-stock-market-and-financial-advice.

In the primary market for technology, revenue and returns on investment come from commercializing the patented technology and exploiting exclusive rights to use it in the marketplace. In the secondary market for patents, revenue comes from licensing fees. PAEs sell or license their patents "as assets whose values are based on the amount of licensing fees that can be extracted from operating companies already using and marketing the technology." See FTC Report, supra note 36, at 60.

Smaller inventors may lack the resources or know-how to commercialize, and it will often be inefficient for them to try. Other patents may not become valuable for years or require further capital and sunk costs.

U.S. Supreme Court Order, April 2015.

As previously discussed, patent infringement is the unauthorized making, using, offering for sale, selling, and importing of a patented invention. 35 U.S.C. §271.

Fed. R. Civ. P. Form 18.

K-Tech Telecommunications v. Time Warner Cable, 714 F.3d 1278 (Fed. Cir. 2013).

McZeal v. Sprint Nextel Corp., 501 F.3d 1354, 1358 (Fed. Cir. 2007).

Id.

Ashcroft v. Iqbal, 556 U.S. 662 (2009).

Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007).

Iqbal, 556 U.S. at 678; Twombly, 550 U.S. at 556.

In re Bill of Lading Transmission and Process System Patent Litigation, 681 F.3d 1323, 1334 (Fed. Cir. 2012).

Id.

As originally introduced, H.R. 9 would have required "[a]n identification of each claim of each patent ... that is allegedly infringed" (which is also the same information required by the PATENT Act). However, the Manager's Amendment to the Innovation Act that was approved by the House Judiciary Committee on June 11, 2015, replaces that language with the text described above, thereby lowering the standard of this particular pleading requirement.

H.R. 9, §3, adding new 35 U.S.C. §281A.

S. 1137, §3, adding new 35 U.S.C. §281A.

Id., adding new 35 U.S.C. §281B.

Id.

H.R. 9, §6; S. 1137, §3. The Supreme Court's order abolishing Form 18 went into effect on December 1, 2015 absent congressional action.

H.R. 9, §3, adding new 35 U.S.C. §281A; S. 1137, §3, adding new 35 U.S.C. §281A.

The Innovation Act and the PATENT Act provide an exception to this disclosure requirement for civil actions that include a specific cause of action for patent infringement involving pharmaceutical drugs. The particular cause of action, established by the Hatch-Waxman Act and codified in 35 U.S.C. §271(e)(2), allows a brand-name drug company to enforce its patents against a potential generic competitor at such time that the generic firm files an application (a so-called Abbreviated New Drug Application (ANDA)) with the Food and Drug Administration, seeking marketing approval. For more information on this provision, see CRS Report R42354, Patent Infringement and Experimental Use Under the Hatch-Waxman Act: Current Issues, by [author name scrubbed].

H.Rept. 113-279, at 23.

Id.

Id.

See Edward R. Ergenzinger and Andrew R. Shores, "Here We Go Again: The Next Round of Legislative Patent Law Reform," at http://www.wardandsmith.com/articles/the-next-round-of-legislative-patent-law-reform.

Discovery is the process to gather information in preparation for trial.

See Fed. R. Civ. P. 26.

See Chief Judge Randall R. Rader, The State of Patent Litigation, Eastern District of Texas Bar Association Judicial Conference, September 27, 2011.

This type of hearing developed as the result of the U.S. Supreme Court decision in Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996).

See Phillips v. AWH Corp., 415 F.3d 1303 (Fed. Cir. 2005).

H.R. 9 (as reported), §3(d), adding new 35 U.S.C. §281B(a). As introduced, the Innovation Act would have required that hearings relating to patent claim construction occur prior to significant fact discovery, as the bill would have limited discovery "to information necessary for the court to determine the meaning of the terms used in the patent claim." H.R. 9 (as introduced), §3, adding new 35 U.S.C. §299A. In addition, the Innovation Act (as introduced) would have granted courts with the discretion to permit discovery "in special circumstances" to prevent manifest injustice. Id.

H.R. 9 (as reported), §3(d), adding new 35 U.S.C. §281B(d).

S. 1137, §4, adding new 35 U.S.C. §299B.

Id.

H.Rept. 113-279, at 9.

The Impact of Abusive Patent Litigation Practices on the American Economy: Hearing Before the Senate Judiciary Comm., 114^th Cong., 1^st Sess. (2015) (Statement of Hans Sauer, Deputy General Counsel for Intellectual Property, Biotechnology Industry Organization).

This topic is often referred to as the disclosure of the "real party-in-interest."

35 U.S.C. §290.

H.R. 9, §4(a)(3), adding new 35 U.S.C. §290(b)(2).

The Innovation Act defines "financial interest" to mean (1) with regard to a patent, the right of a person to receive proceeds related to the assertion of the patent(s), and (2) with regard to the plaintiff, direct or indirect ownership or control by a person of more than 5% of such plaintiff. H.R. 9, §4(a)(3), adding new 35 U.S.C. §290(e)(1). However, the definition expressly excludes anyone who owns shares or other interests in a mutual or common investment fund (unless the person participates in the management of such fund) and also excludes the proprietary interest of a policyholder in a mutual insurance company or of a depositor in a mutual savings association, unless the outcome of the civil action could substantially affect the value of that proprietary interest.

The Innovation Act defines "ultimate parent entity" by reference to 16 C.F.R. §801.1(a)(3), which provides that the term "means an entity which is not controlled by any other entity." H.R. 9, §4(a)(3), adding new 35 U.S.C. §290(e)(3).

Additional required information added by the Manager's Amendment to the Innovation Act, which was approved by the House Judiciary Committee. See H.R. 9 (as reported), §4(a)(3), adding new 35 U.S.C. §290(b)(1)(E).

Id., adding new 35 U.S.C. §290(b)(1)(F).

Id., adding new 35 U.S.C. §290(b)(1)(G).

H.R. 9, §4(a)(3), adding new 35 U.S.C. §290(d)(1).

Id., adding new 35 U.S.C. §290(d)(2)(A).

Id., adding new 35 U.S.C. §290(d)(2)(B).

Id. §4(c).

Press Release: Goodlatte, Defazio, Issa, Nadler, Smith, Lofgren, Eshoo Introduce Patent Litigation Reform Bill, February 5, 2015, available at http://judiciary.house.gov/index.cfm/2015/2/goodlatte-defazio-issa-nadler-smith-lofgren-eshoo-introduce-patent-litigation-reform-bill.

Howard Klein, Patent Law Reform—Proceed with Caution, Law360.com, March 9, 2015, at http://www.law360.com/articles/626618/patent-law-reform-proceed-with-caution.

Id.

S. 1137, §3(b)(1), adding new 35 U.S.C. §281B(b). However, unlike the Innovation Act, the PATENT Act would NOT create an exception to the patent ownership disclosure requirement for a civil action that includes a cause of action for patent infringement under 35 U.S.C. §271(e)(2).).

The PATENT Act uses the same definition for "ultimate parent entity" as the Innovation Act.

The PATENT Act defines the term "financial interest" in a similar fashion to the Innovation Act, except that S. 1137 would, with regard to the patentee, apply the term to persons who have "direct or indirect ownership or control" of more than 20% of the patentee (compared to the Innovation Act's 5%).

For more information about the promise of members of standard-setting organizations to license certain patented inventions to others on "fair, reasonable, and nondiscriminatory (FRAND) terms," see CRS Report R42705, Availability of Injunctive Relief for Standard-Essential Patent Holders, by [author name scrubbed].

Id., adding new 35 U.S.C. §281B(e).

Id. §3(b)(1), adding new 35 U.S.C. §281B(d).

Id. §10(a), adding new 35 U.S.C. §261(A)(b), (c).

Id., adding new 35 U.S.C. §261(A)(d).

Id.

Id. §10(b).

35 U.S.C. §271(a) (emphasis added).

See Aro Mfg. Co., Inc. v. Convertible Top Replacement Co., Inc., 377 U.S. 476, 484 (1964) (explaining that "it has often and clearly been held that unauthorized use, without more, constitutes infringement.").

See Colleen V. Chien & Edward Reines, Why Technology Customers Are Being Sued en Masse for Patent Infringement & What Can Be Done (Santa Clara Univ. Sch. of L. Legal Studies Research Papers Series, Working Paper No. 20-13, 2013), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2318666.

Abusive Patent Litigation: The Impact on American Innovation & Jobs, and Potential Solutions: Hearing Before the House Judiciary Comm., Subcomm. on Courts, Intellectual Property, and the Internet, 113^th Cong., 1^st Sess. (2013) (Statement of Philip S. Johnson, Chief Intellectual Property Counsel, Johnson & Johnson, on behalf of the 21^st Century Coalition for Patent Reform), at 7, available at http://judiciary.house.gov/_files/hearings/113th/03142013_2/Johnson%2003142013.pdf.

Spread Spectrum Screening LLC v. Eastman Kodak Co., 657 F.3d 1349, 1357 (Fed. Cir. 2011).

Codex Corp. v. Milgo Electronic Corp., 553 F.2d 735 (1^st Cir.), cert. denied, 434 U.S. 860 (1977).

Brian J. Love and James C. Yoon, Expanding Patent Law's Customer Suit Exception, 93 B.U. L. Rev. 1605, 1614 (October 2013), citing Katz v. Lear Siegler, Inc., 909 F.2d 1459 (Fed. Cir. 1990).

H.R. 9, §5(a), replacing existing 35 U.S.C. §296 that contains an unrelated provision that attempted to make state governments and state institutions liable for monetary damages in a patent infringement lawsuit. This provision that sought to abrogate a state's Eleventh Amendment sovereign immunity has been invalidated by the Supreme Court in a 1999 decision, Florida Prepaid v. College Savings Bank, 527 U.S. 627 (1999). For more information on this issue, see CRS Report RL34593, Infringement of Intellectual Property Rights and State Sovereign Immunity, by [author name scrubbed].

H.R. 9 (as reported), §5(a), adding revised 35 U.S.C. §296(b)(1)-(3). As originally introduced, the Innovation Act would have required both the manufacturer of the product and the customer to consent to the stay of the action in writing. H.R. 9 (as introduced), adding revised 35 U.S.C. §296(a)(1).

Id., adding revised 35 U.S.C. §296(c).

Id., adding revised 35 U.S.C. §296(d).

H.Rept. 113-279, p. 30.

S. 1137, §4, adding new 35 U.S.C. §299A.

H.R. 9 (as reported), §5, adding revised 35 U.S.C. §296(b)(4); S. 1137, §4, adding new 35 U.S.C. §299A(c).

S. 1137, §4, adding new 35 U.S.C. §299A(d).

Id., adding new 35 U.S.C. §299A(b).

Marx v. General Revenue Corp., 133 S. Ct. 1166, 1175 (2013); see also Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 247-53 (1975) (explaining that "[i]n the United States, the prevailing litigant is ordinarily not entitled to collect a reasonable attorneys' fee from the loser.").

Brooks Furniture Mfg., Inc. v. Dutailier Intern., Inc., 393 F.3d 1378 (Fed. Cir. 2005) (overruled by Octane Fitness, LLC v. ICON Health & Fitness, Inc., No. 12-1184, slip op. (2014)).

Id. at 1382.

See Randall R. Rader et al., Make Patent Trolls Pay in Court, N.Y. Times, June 4, 2013, available at http://www.nytimes.com/2013/06/05/opinion/make-patent-trolls-pay-in-court.html?_r=0 (noting that "fees were shifted under Section 285 in only 20 out of nearly 3,000 patent cases filed in 2011.").

Octane Fitness, LLC v. ICON Health & Fitness, Inc., No. 12-1184, slip op. at 1 (2014).

Id. at 7.

Id. at 8.

Id. at 11.

Highmark Inc. v. Allcare Health Mgmt.Sys., No. 12-1163, slip. op. (2014).

Id. at 5.

Examining Recent Supreme Court Cases in the Patent Area: Hearing Before the House Judiciary Comm., Subcomm. on Courts, Intellectual Property, and the Internet, 114^th Cong., 1^st Sess. (2015) (Statement of Andrew J. Pincus, Partner, Mayer Brown LLP), at 3, available at http://judiciary.house.gov/_cache/files/43c13fd8-8287-4a3f-b172-67a0b37d236f/02.12.15-pincus-testimony.pdf.

H.R. 9, §3(b), adding revised 35 U.S.C. §285(a).

Id.

H.Rept. 113-279, at 21.

Id. at 107 (quoting a letter from the American Association for Justice).

S. 632, §101(12).

S. 1137, §7(a).

S. 1137, §7(b), adding revised 35 U.S.C. §285(a).

S. 1137 (as reported), §7(b), adding revised 35 U.S.C. §285(a).

Ryan Davis, 4 Differences in the House and Senate Patent Troll Bills, Law360.com, April 30, 2015 (citing the views of several patent litigators).

S. 1137, §7(b), adding revised 35 U.S.C. §285(d)(1). However, the PATENT Act would permit a court, in exceptional cases, to award reasonable attorney fees to the prevailing party in a civil action that includes a claim for relief arising under Section 271(e). Id., adding revised 35 U.S.C. §285(d)(2).

Fed. R. Civ. P. 19.

Fed. R. Civ. P. 20.

Id.

Joint and several liability occurs when two or more people are found liable, and the plaintiff may collect the entire judgment from any one of the parties or from any and all of the parties in various amounts until the judgment is paid in full. See Black's Law Dictionary, 2d. ed.

35 U.S.C. §299(a).

Id.

Id. §299(b).

The Manager's Amendment to the Innovation Act provided a definition of "substantial interest" to include an interest in the subject matter of a patent at issue if the party: (A) invented the subject matter, or (B) commercially practices or implements or is engaged in research and development in technology in the field of the subject matter. H.R. 9 (as reported), §3(c), adding new 35 U.S.C. §299(d)(7).

H.R. 9, §3(c), adding new 35 U.S.C. §299(d)(1).

H.R. 9 (as reported), §3(c), adding new 35 U.S.C. §299(d)(6)(A)-(C).

This additional exclusion to the "interested party" definition was added by the Manager's Amendment to the Innovation Act. See H.R. 9 (as reported), §3(c), adding new 35 U.S.C. §299(d)(6)(C)(i).

This clarification to the "right or ability to direct or control the civil action" was added by the Manager's Amendment to the Innovation Act. See H.R. 9 (as reported), §3(c), adding new 35 U.S.C. §299(d)(6)(C)(iii).

H.R. 9 (as reported), §3(c), adding new 35 U.S.C. §299(d)(5).

Id., §3(c), adding new 35 U.S.C. §299(d)(4)(A).

Id., §3(c), adding new 35 U.S.C. §299(d)(4)(B). The Manager's Amendment to the Innovation Act states that the joinder provision "shall not apply to an action" if the plaintiff files this certification.

H.R. 9, adding new 35 U.S.C. §299(d)(2)(A).

Id., adding new 35 U.S.C. §299(d)(2)(B)(i).

H.R. 9 (as reported), adding new 35 U.S.C. §299(d)(3).

H.R. 9, adding new 35 U.S.C. §299(d)(2)(B)(ii).

H.R. 9, §3(b), adding revised 35 U.S.C. §285(b).

Hearing on H.R. 3309 Innovation Act Before the House Committee on the Judiciary, Subcommittee on Courts, Intellectual Property, and the Internet, 113^th Cong., 1^st Sess., (2013) (Statement of Kevin T. Kramer, Vice President and Deputy General Counsel for Intellectual Property, on behalf of Yahoo! Inc.).

Protecting Small Businesses and Promoting Innovation by Limiting Patent Troll Abuse: Hearing Before the Senate Judiciary Comm., 113^th Cong., 1^st Sess. (2013) (Statement of Philip S. Johnson, Chief Intellectual Property Counsel, Johnson & Johnson).

The Impact of Abusive Patent Litigation Practices on the American Economy: Hearing Before the Senate Judiciary Comm., 114^th Cong. 1^st Sess. (2015) (Statement of Hans Sauer, Ph.D., Deputy General Counsel for Intellectual Property, on behalf of Biotechnology Industry Organization).

Id.

H.Rept. 113-279, p. 109.

Id.

S. 1137, §7(b), adding revised 35 U.S.C. §285(c)(1)(A).

Id., adding revised 35 U.S.C. §285(c)(1)(B).

Id., adding revised 35 U.S.C. §285(c)(2)(A),

Id., adding revised 35 U.S.C. §285(c)(2)(B), (C), and (D).

This additional exclusion to the "interested party" definition was added by the Manager's Amendment to the PATENT Act, which was approved by the Senate Judiciary Committee. See S. 1137 (as reported), §7(b), adding revised 35 U.S.C. §285(c)(2)(E).

Id., adding revised 35 U.S.C. §285(c)(1)(B).

Id., adding revised 35 U.S.C. §285(c)(1)(C).

Id.

Id., adding revised 35 U.S.C. §285(c)(1)(D).

Id.

Id., adding revised 35 U.S.C. §285(c)(1)(G).

Id., adding revised 35 U.S.C. §285(c)(1)(F).

In re Seagate Technology, 497 F.3d 1360, 1371 (Fed. Cir. 2007).

Id. at 1371-72.

H.R. 9, §3.

Id.

H.R. 1896, §2, adding new 35 U.S.C. §263.

Id.

Id.

H.R. 1896, §3, adding new 35 U.S.C. §264. H.R. 1896, §2 also would require the USPTO to establish a demand letter database that is publicly accessible and searchable.

H.R. 2014.

S. 632.

15 U.S.C. §45(a)(1).

S. 632, §202.

Id.

Id.

Id. §203.

Id. §204.

S. 1137, §9, adding new 35 U.S.C. §299D.

Id.

Id. §8, adding new 35 U.S.C. §299C.

S. 1137 (as reported), §8, adding new 35 U.S.C. §299C(b)(3).

See, e.g., Brian Fung, "Patent reform advocates are launching a 'super-coalition' to whack patent trolls," Washington Post, January14, 2015.

Trolling for a Solution: Ending Abusive Patent Demand Letters: Hearing Before the House Energy & Commerce Comm., Subcomm. on Commerce, Manufacturing, and Trade, 113^th Cong. 2d Sess. (2014) (Statement of Mark Chandler, Senior Vice President and Chief Compliance Officer, on behalf of Cisco Systems Incorporated).

Id.

P.L. 112-29. For more information on this law, see CRS Report R42014, The Leahy-Smith America Invents Act: Innovation Issues, by [author name scrubbed].

35 U.S.C. §321(b).

Id. §321(c).

Id. §324(a).

Id. §326(a)(11).

Id. §311(c).

Id. §311(b).

Id. §314(a).

Id. §315.

Id. §315(e).

Id. §316(a)(11).

Ryan Davis, Senate Bill Tips Scales for Patent Owners in AIA Reviews, Law360.com, June 5, 2015 (describing the surprise of one practitioner that the legislation contains "such substantial changes to AIA reviews that favor patent owners—which will benefit trolls when their patents are challenged—when the rest of the bill appears aimed at aiding infringement defendants.").

USPTO, Changes to Implement Inter Partes Review Proceedings, Post-Grant Review Proceedings, and Transitional Program for Covered Business Method, 77 Federal Register 48680 (August 14, 2012) (final rule).

37 C.F.R. §42.100(b).

In re Cuozzo Speed Technologies LLC, 778 F.3d 1271 (Fed. Cir. 2015).

Id. at *16.

Id. at *17 (quoting In re Prater, 415 F.2d 1393, 1396 (CCPA 1981).

Id. at *17.

Id. at *21.

H.R. 9, §9, adding new 35 U.S.C. §316(a)(14)(A); S. 1137 (as reported), §11(a)(4)(A)(vii).

Id., adding new 35 U.S.C. §316(a)(14)(B).

H.R. 3309, the "Innovation Act:" Hearing Before the House Judiciary Comm., 113^th Cong., 1^st Sess. (2013) (Statement of David J. Kappos, Former Under Secretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office), at 8.

Id.

Ryan Davis, Innovation Act Would Revamp AIA Reviews to Shield Patents, Law360.com, February 10, 2015 (explaining that "[c]onstruing the claims of a patent in an AIA review broadly means that significantly more prior art can be used to invalidate the patent than would be available in district court. A majority of AIA final decisions to date have invalidated at least some claims of the patent.").

Business Software Alliance (BSA) Letter to Speaker Boehner and Minority Leader Pelosi, July 9, 2015, available at ihttp://www.bsa.org/~/media/Files/Policy/SoftwareInnovation/Letters/07092015InnovationActLetter.pdf, at 1.

Information Technology Industry Council Letter to Senate Judiciary Committee Chairman Grassley and Ranking Member Leahy, June 3, 2015.

35 U.S.C. §325(e).

H.R. 9, §9(a), amending 35 U.S.C. §325(e)(2); S. 1137, §14(a).

See Colleen Chien and Eric Goldman, In its Rush to Fix Patent Reform, Congress Didn't Fix Its Biggest Error, Forbes.com, January 2, 2013; see also 158 Cong.Rec. S8517 (daily ed. December 28, 2012) (statement of Senator Leahy) ("Regrettably, the legislation passed today does not include one technical correction that would improve the law by restoring Congress's intent for the post-grant estoppel provision of the America Invents Act. Chairman Smith recently described certain language contained in that provision as an 'inadvertent scrivener's error.' As written, it unintentionally creates a higher threshold of estoppel than was in the legislation that passed the Senate 95-5, or that was intended by the House, according to Chairman Smith's statement. I hope we will soon address this issue so that the law accurately reflects Congress's intent.").

35 U.S.C. §§316(e), 326(e).

S. 632, §102(c), adding revised 35 U.S.C. §316(e)(1); S. 632, §103(c), adding revised 35 U.S.C. §326(e)(1).

Id. §102(c), adding revised 35 U.S.C. §316(e)(2); S. 632, §103(c), adding revised 35 U.S.C. §326(e)(2).

S. 1137 (as reported), §11(a)(4)(C)(ii), amending 35 U.S.C. §316(e) (for IPR proceedings); S. 1137 (as reported), §11(b)(4)(C)(ii), amending 35 U.S.C. §326(e) (for PGR proceedings).

Information Technology Industry Council Letter to Senate Judiciary Committee Chairman Grassley and Ranking Member Leahy, June 3, 2015.

H.R. 9 (as reported), §9(b)(1), adding new 35 U.S.C. §316(a)(15) (regarding IPR); H.R. 9 (as reported), §9(b)(1), adding new 35 U.S.C. §326(a)(14) (regarding PGR).

See H.R. 9, the Innovation Act: Hearing Before the House Judiciary Comm., 114^th Cong., 1^st Sess. (2015) (statement of Mr. Hans Sauer, Deputy General Counsel, Biotechnology Industry Organization) (arguing that "the statistically disproportionate 'kill rates' of IPR proceedings invite unintended abuses and predatory practices by those seeking to attack patents for illegitimate reasons, including for their own financial gain ... "); see also Joseph Walker & Rob Copeland, New Hedge Fund Strategy: Dispute the Patent, Short the Stock, Wall St. Journal, April 7, 2015 (describing a recent strategy employed by a hedge fund manager, Kyle Bass, in which he files IPR petitions to challenge the validity of patents protecting drugs offered by certain pharmaceutical companies; after filing the IPR, he either shorts the stock of those drug companies (whose stock prices likely fall due to news of the IPR being initiated) or buys shares in other companies that would benefit from the patent being held invalid).

S. 632, §102(d), adding new 35 U.S.C. §311(d)(2).

The STRONG Patents Act defines the term "charged with infringement," for purposes of this standing provision, to mean "a real and substantial controversy regarding infringement of a patent exists such that the petitioner would have standing to bring a declaratory judgment action in Federal court." S. 632, §102(d), adding new 35 U.S.C. §311(d)(1).

S. 632, §103(d), adding new 35 U.S.C. §321(d)(2).

S. 1137 (as reported), §11(a)(2), adding new 35 U.S.C. §314(a)(2) (regarding IPR); S. 1137 (as reported), §11(b), adding new 35 U.S.C. §324(a)(2) (regarding PGR).

S. 1137 (as reported), §11(c)(1).

See Figueroa v. United States, 466 F.3d 1023, 1027-28 (Fed. Cir. 2006). The USPTO became fully user-fee funded as a result of P.L. 101-508, the Omnibus Budget Reconciliation Act (OBRA) of 1990. For more information about USPTO's funding structure, see CRS Report RS20906, U.S. Patent and Trademark Office Appropriations Process: A Brief Explanation, by [author name scrubbed].

In the absence of an appropriation making fees collected by an agency available to that agency, the collected fees are placed in the general fund of the Treasury as miscellaneous receipts, unless otherwise directed. See Government Accountability Office (GAO), Office of the General Counsel, 3 Principles of Federal Appropriations Law 1-12 (2004) (citing 31 U.S.C. §3302(b)).

35 U.S.C. §42(c)(2).

Id.

H.Rept. 113-279, p. 104.

A bill introduced in the House, the Innovation Protection Act (H.R. 1832), would similarly end USPTO fee diversion. However, this legislation does not contain provisions unrelated to the funding of the USPTO.

S. 632, §107(a)(4), adding revised 35 U.S.C. §42(d)(2).

Id. §107(a)(2), adding revised 35 U.S.C. §42(c)(1).

Id. §107(a)(4), adding revised 35 U.S.C. §42(d)(4).

28 U.S.C. §1400(b).

VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574, 1581 (Fed. Cir. 1990).

Id. at 1583.

Ryan Davis, House Bill Would Shut Down Eastern Texas Patent Docket, Law360.com, June 12, 2015, at http://www.law360.com/articles/667339/house-bill-would-shut-down-eastern-texas-patent-docket (noting that "u]nder current venue rules, nonpracticing entities are able to buy up patents and rent an office in the Eastern District of Texas in order to establish venue there, then have free rein to sue just about any company in America. Given the district's reputation and history of large jury awards for patent owners, many nonpracticing entities take advantage of that opportunity.").

Statement of Chairman Goodlatte, on the Manager's Amendment to the Innovation Act, available at http://judiciary.house.gov/index.cfm/hearings?Id=2848E2C2-F705-4A03-800C-64930626A395&Statement_id=CF3D1F76-9219-4E6C-9B28-692BD6206E21.

H.R. 9 (as reported), §3(g)(1), amending 28 U.S.C. §1400(b).

H.R. 9, §7(a)(1); S. 1137, §12(a)(1).

Id. §7(a)(2); S. 1137, §12(a)(2).

S. 632, §111(c)(1).

Id. §111(c)(2).