.
Patent Litigation Reform Legislation in the
114th Congress
Brian T. Yeh
Legislative Attorney
Emily M. Lanza
Legislative Attorney
May 11, 2015
Congressional Research Service
7-5700
www.crs.gov
R43979
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
Summary
This report describes how current patent litigation reform legislation would change existing
patent law to address the perceived problems caused by entities that engage in patent litigation
tactics that have been criticized as abusive or deceptive. The bills introduced in the 114th
Congress include 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). The legislation includes the
following changes to the patent system:
Heightened Pleading Requirements: The Innovation Act and the PATENT Act would require
parties alleging patent infringement in a civil action to include in the court pleadings specified
details concerning each claim of each patent infringed, and the acts of the alleged infringer.
Limits on Discovery: During hearings relating to patent claim construction, the Innovation Act
proposes to limit discovery “to information necessary for the court to determine the meaning of
the terms used in the patent claim.” The PATENT Act proposes limitations on discovery pending
the resolution of certain motions.
Transparency of Patent Ownership: The Innovation Act and the PATENT Act would require
plaintiffs in patent cases to disclose to the United States Patent and Trademark Office (USPTO),
the court, and all adverse parties information relating to entities that own or have a financial
interest in the patent.
Customer-Suit Exception: The Innovation Act and the PATENT Act would allow a court to stay
litigation against a customer of a product that contains allegedly infringing technologies, if the
manufacturer of the product is a party to the same or other action on the same patent and other
requirements are satisfied.
Shifting of Attorney Fees: The Innovation Act would require a district court to award attorney
fees to a prevailing party in patent cases, unless the court finds that the nonprevailing party’s
position and conduct “were reasonably justified in law and fact or that special circumstances ...
make an award unjust.” The PATENT Act would require the prevailing party to make a motion to
the court to determine whether the nonprevailing party’s position and conduct were “objectively
reasonable”; if they were not, then the court must award reasonable attorney fees to the prevailing
party unless there are special circumstances that would make an award unjust.
Fee Recovery: The Innovation Act would establish mandatory joinder rules when the
nonprevailing party alleging infringement is unable to pay the fee award and other expenses. The
PATENT Act would allow a defendant to submit a statement early in the litigation claiming that
plaintiff’s primary business is the assertion and enforcement of patents; the plaintiff would then
need to certify that it has sufficient funds to satisfy any potential award of attorney fees that may
be assessed, and to identify (and provide notice to) any “interested parties” that could be held
accountable for the award if the plaintiffs are unable to pay it.
Demand Letters: Several bills propose various approaches to address demand letters. The
STRONG Patents Act and the TROL Act would impose specific enforcement and content
requirements for demand letters. The Innovation Act expresses the sense of Congress that
Congressional Research Service
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
purposely evasive demand letters are abusing the patent system in a manner contrary to public
policy. The Demand Letter Transparency Act proposes both disclosure and content requirements
directed towards “abusive” demand letter practices, and the PATENT Act focuses on pre-suit
notifications.
Post-Grant Review Reforms: The Innovation Act and the STRONG Patents Act would mandate
that the Patent Trial and Appeal Board, in inter partes review (IPR) and post-grant review (PGR)
proceedings, follow the same claim construction standard used by district courts. In addition, the
Innovation Act and the PATENT Act would narrow the estoppel effect arising from a PGR. The
STRONG Patents Act would heighten the standing requirements for persons wanting to initiate a
PGR or IPR. The STRONG Patents Act would also require the IPR/PGR petitioner to prove
unpatentability of a patent claim by “clear and convincing evidence.”
Elimination of USPTO Fee Diversion: The STRONG Patents Act would permit the USPTO to
spend all fee revenue that it collects without further appropriation action or fiscal year limitation.
Assistance for Small Businesses: The Innovation Act, STRONG Patents Act, and the PATENT
Act contain provisions designed to help small businesses that participate in the patent system
either as patent owners or as defendants.
Congressional Research Service
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
Contents
Introduction ...................................................................................................................................... 1
Background ...................................................................................................................................... 2
Patent Law Fundamentals .......................................................................................................... 2
Patent Assertion Entities ............................................................................................................ 5
Legislation in the 114th Congress ..................................................................................................... 6
Heightened Pleading Requirements ........................................................................................... 6
Limits on Discovery and Cost-Shifting ..................................................................................... 8
Transparency of Patent Ownership ............................................................................................ 9
Stays of Litigation Brought Against Infringing Customers ..................................................... 12
Shifting of Attorney Fees ......................................................................................................... 16
Recovery of Fee Awards from Interested Parties .............................................................. 19
Demand Letters ....................................................................................................................... 22
Post-Grant Review Reforms .................................................................................................... 26
Ending Diversion of USPTO Fees ........................................................................................... 29
Provisions Concerning Small Businesses ................................................................................ 30
Tables
Table 1. Patent Litigation Reform Legislation in the 114th Congress ............................................ 32
Contacts
Author Contact Information........................................................................................................... 40
Congressional Research Service
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
Introduction1
Congress has shown significant interest in altering the current patent system in response to
concerns about entities that engage in patent litigation tactics that have been criticized as abusive
or deceptive. Many congressional hearings on the topic of patent litigation abuse have been held
in the 114th and 113th Congresses,2 and several legislative proposals have been introduced;3 one
bill in the 113th Congress, H.R. 3309, the Innovation Act, was passed by the House in December
2013. This report describes how the major provisions of current patent litigation reform
legislation would change existing patent law to address the perceived problems in the patent
litigation system.
1 Portions of this report have been borrowed and adapted from CRS Report R42668, An Overview of the “Patent
Trolls” Debate, by Brian T. Yeh and CRS Report R43321, Patent Infringement Pleadings: An Analysis of Recent
Proposals for Patent Reform, by Emily M. Lanza.
2 S. 1137, the “PATENT ACT” – Finding Effective Solutions to Address Abusive Patent Practices: Hearing Before the
Senate Judiciary Comm., 114th Cong. 1st 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,
114th Cong. 1st 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, 114th
Cong. 1st Sess. (2015); The Impact of Abusive Patent Litigation Practices on the American Economy: Hearing Before
the Senate Judiciary Comm., 114th Cong. 1st Sess. (2015); Patent Reform: Protecting Innovation and Entrepreneurship:
Hearing Before the Senate Comm. on Small Business & Entrepreneurship, 114th Cong. 1st Sess. (2015); Trolling for a
Solution: Ending Abusive Patent Demand Letters: Hearing Before the House Energy & Commerce Comm., Subcomm.
on Commerce, Manufacturing, and Trade, 113th Cong. 2d Sess. (2014); H.R. 3309, the “Innovation Act:” Hearing
Before the House Judiciary Comm., 113th Cong., 1st Sess. (2013); Protecting Small Businesses and Promoting
Innovation by Limiting Patent Troll Abuse: Hearing Before the Senate Judiciary Comm., 113th Cong., 1st 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, 113th Cong., 1st 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,
113th Cong., 1st 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, 113th Cong., 1st 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, 113th Cong., 1st Sess. (2013).
3 In the 114th 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 113th 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).
Congressional Research Service
1
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
Background
Patent Law Fundamentals
According to Section 101 of the Patent Act, one who “invents or discovers any new and useful
process, machine, manufacture, or any composition of matter, or any new and useful
improvement thereof, may obtain a patent therefore, subject to the conditions and requirements of
this title.”4 Thus, in order for an invention to qualify for patent protection, it must fall within one
of the four statutory categories of patent-eligible subject matter: processes, machines,
manufactures, and compositions of matter. However, the U.S. Supreme Court has articulated
certain limits to Section 101 of the Patent Act, stating that “laws of nature, natural phenomena,
and abstract ideas” may not be patented.5
The U.S. Patent and Trademark Office (USPTO) issues a patent to an inventor after USPTO
examiners approve the submitted patent application for an allegedly new invention.6 An
application for a patent consists of two primary parts: (1) a “specification,” which is a written
description of the invention enabling those skilled in the art to practice the invention, and (2) one
or more claims that define the scope of the subject matter which the applicant regards as his
invention.7 Therefore, these claims define the scope of the patentee’s rights under the patent.8
Before a patent may be granted, the USPTO examiners must find that the new invention satisfies
several substantive requirements that are set forth in the Patent Act.9 For example, one of the
statutory requirements for patentability of an invention is “novelty.”10 For an invention to be
considered “novel,” the subject matter must be different than, and not be wholly “anticipated” by,
the so-called “prior art,” or public domain materials such as publications and other patents.
Another statutory requirement is that the subject matter of an alleged invention must be
“nonobvious” at the time of its creation. A patent claim is invalid if “the differences between the
subject matter sought to be patented and the prior art11 are such that the subject matter as a whole
would have been obvious at the time the invention was made to a person having ordinary skill in
the art to which said subject matter pertains.”12 Finally, the invention must also be “useful,”
which means that the invention provides a “significant and presently available,” “well-defined
and particular benefit to the public.”13
4 35 U.S.C. § 101.
5 Diamond v. Diehr, 450 U.S. 175, 185 (1981).
6 35 U.S.C. § 131.
7 Id. § 112.
8 3-8 DONALD S. CHISUM, CHISUM ON PATENTS § 8.01 (2006).
9 35 U.S.C. §§ 102, 103(a).
10 Id. § 102.
11 “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).
12 35 U.S.C. § 103(a).
13 In re Fischer, 421 F.3d 1365, 1371 (Fed. Cir. 2005).
Congressional Research Service
2
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
The Patent Act grants patent holders the exclusive right to exclude others from making, using,
offering for sale, or selling their patented invention throughout the United States, or importing the
invention into the United States.14 Whoever performs any one of these five acts during the term of
the invention’s patent, without the patent holder’s authorization, is liable for infringement.15 A
patent holder may file a civil action against an alleged infringer in order to enjoin him from
further infringing acts (by securing an injunction, also referred to as injunctive relief).16 The
patent statute also provides federal courts with discretion to award damages to the patent holder
that are “adequate to compensate for the infringement, but in no event less than a reasonable
royalty for the use made of the invention by the infringer.”17 The usual term of patent protection
is 20 years from the date the patent application is filed.18 At the end of that period, others may use
the invention without regard to the expired patent.
Because the Patent Act expressly provides that “patents shall have the attributes of personal
property,”19 patent holders may sell their patent rights in a legal transfer called an “assignment.”20
Alternatively, patent holders may grant others a “license” to exercise one of the five statutory
patent rights.21 A license is not a transfer of ownership of the patent, but rather is the patent
holder’s permission to another entity to use the invention in a limited way, typically in exchange
for periodic royalty payments during the term of the patent.22 A patent holder may grant to a
licensee the right to practice the invention through a contract (typically known as a patent
licensing agreement). The terms of the licensing agreement, however, may include conditions
upon the grant of rights—for example, restricting the licensee from making the invention but
allowing that party to sell it.23 A licensee that performs an act that exceeds the scope of the license
(through a violation of the limitations and conditions of the grant of rights) or refuses to comply
with the terms of the license agreement (such as by refusing to pay the required royalties) is
potentially liable to the patent holder for breach of contract as well as for patent infringement.24
The U.S. Court of Appeals for the Federal Circuit (Federal Circuit) is a specialized tribunal
established by Congress that has exclusive appellate jurisdiction in patent cases.25 Parties
dissatisfied with the Federal Circuit’s rulings may petition the U.S. Supreme Court to review the
appellate court’s decision. However, the Supreme Court is not required to entertain the appeal; it
has discretion to decide whether to grant certiorari to review the case.26
14 35 U.S.C. §§ 154(a)(1), 271(a).
15 Id. § 271(a).
16 Id. § 283.
17 Id. § 284.
18 Id. §154(a)(2).
19 Id. § 261.
20 ROGER SCHECHTER & JOHN THOMAS, PRINCIPLES OF PATENT LAW § 11-1 (2d ed. 2004).
21 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).
22 SCHECHTER & THOMAS, supra footnote 20, § 11-1.
23 United States v. General Electric Co., 272 U.S. 476, 490 (1926).
24 JOHN R. THOMAS, PHARMACEUTICAL PATENT LAW 427 (BNA Books 2005).
25 28 U.S.C. § 1295(a)(1).
26 Id. § 1254(1).
Congressional Research Service
3
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
Besides seeking legal relief for infringement in the federal courts, U.S. patent holders may also
obtain an order from the U.S. International Trade Commission (ITC or Commission) preventing
the importation of foreign goods that infringe their rights. The ITC is an independent,
nonpartisan, quasi-judicial federal government agency responsible for investigating and
arbitrating complaints of violations of Section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337),
which prohibits unfair methods of competition or other unfair acts in the importation of products
into the United States. Section 337 also prohibits the importation of articles that infringe valid
U.S. patents, copyrights, processes, trademarks, or protected design rights. (The majority of
unfair competition acts asserted under Section 337 involve allegations of patent infringement.)27
The ITC has the power to order several forms of prospective injunctive relief, including ordering
the U.S. Customs and Border Protection (CBP) to stop imports from entering U.S. borders (an
exclusion order), or issuing cease and desist orders that prohibit parties from distributing or
selling infringing articles from existing U.S. inventory. However, unlike the federal courts, the
ITC lacks the statutory authority to award monetary damages for patent infringement (past or
future).
Although issued patents are presumed to be valid, accused infringers may assert in court that a
patent is invalid or unenforceable on a number of grounds.28 The accused infringer could raise
this argument as an affirmative defense or counterclaim when sued for patent infringement. A
party could also preemptively file a “declaratory judgment action”29 against a patent owner to
challenge a patent’s validity, if there is a case or controversy between them.30
However, the constitutionally based “case or controversy” requirement for federal judicial
proceedings significantly limits the ability of members of the public to challenge the USPTO’s
decision to grant a patent. Unless the patent holder becomes involved in an actual, continuing
controversy with another person, that person cannot successfully request that a court determine
whether the patent is valid or not. To address this perceived deficiency, Congress established
several administrative procedures that are conducted by the USPTO’s Patent Trial and Appeal
Board, or PTAB,31 through which any interested person may challenge the validity of an issued
patent. Three trial proceedings comprise the current system of administrative patent challenges:
inter partes review (IPR), post-grant review (PGR), and the transitional post-grant review for
covered business method patents (CBM). The three proceedings have different rules, timing, and
eligibility requirements.32 The proceedings may result in the confirmation of patentability of the
27 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 Shayerah Ilias
Akhtar.
28 35 U.S.C. § 282.
29 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 Brian T. Yeh.
30 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).
31 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).
32 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
(continued...)
Congressional Research Service
4
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
original claims, an amended patent with narrower claims, or a declaration of patent invalidity.33 A
party dissatisfied with the PTAB’s final written decision in an IPR, PGR, or CBM review may
appeal directly to the Federal Circuit.
Patent Assertion Entities34
“Patent assertion entities” are people or companies that do not develop, manufacture, or sell any
product covered by the patents they own. The business model of a patent assertion entity (PAE)
instead focuses on buying and asserting patents against companies that have already begun using
and developing the patent, often without knowledge of the PAE’s ownership of the patent.35 PAEs
emerged alongside the burgeoning tech industry around the turn of the 21st century and gained
notoriety with lawsuits claiming exclusive ownership of such ubiquitous technologies as wireless
email, digital video streaming, and the interactive web.36 The vast majority of lawsuits brought by
PAEs end in settlements because litigation is risky, costly, and disruptive for defendants, and
PAEs often offer to settle for amounts well below litigation costs to make the business decision to
settle an obvious one.37 PAEs are frequently referred to as “patent trolls,” after the villains of
folklore known to lie in wait under bridges they did not build, then emerge from the smog to
demand tolls from unsuspecting travelers.38 The term “troll” is controversial because it is both
pejorative and ambiguous, often used imprecisely for any opportunistic or unpopular patent
holder.39
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.40 However, defenders of PAEs argue that they actually
(...continued)
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.
33 35 U.S.C. §§ 318(b); 328(b).
34 For comprehensive background information on these entities, see CRS Report R42668, An Overview of the “Patent
Trolls” Debate, by Brian T. Yeh.
35 FEDERAL TRADE COMMISSION, THE EVOLVING IP MARKETPLACE: ALIGNING PATENT NOTICE AND REMEDIES WITH
COMPETITION 67-68 (2011).
36 See Gerard N. Magliocca, Blackberries and Barnyards: Patent Trolls and the Perils of Innovation, 82 NOTRE DAME
L. REV. 1809 (2007).
37 John R. Allison, Mark A. Lemley & Joshua Walker, Patent Quality and Settlement Among Repeat Patent Litigants,
99 GEO. L.J. 677, 694 (2011).
38 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.
39 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, Jan. 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.”).
40 See, e.g., James Bessen et al., The Private and Social Costs of Patent Trolls, REGULATION 26, 31-35 (2006).
Congressional Research Service
5
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
promote invention by increasing the liquidity and managing the risk of investments in applied
research and invention, as well as by compensating small inventors.41 PAEs’ strongest allies
include universities and other nonpracticing entities that benefit from having PAEs as buyers for
their patents and are not as vulnerable to lawsuits because they ordinarily do not make or sell
anything that could be infringing.42
Legislation in the 114th Congress
The remainder of this report discusses and analyzes the key provisions of legislative proposals
that have been introduced in the 114th Congress related to patent litigation abuse. The subject
matter of the patent law reforms is presented below in no particular order.
Heightened Pleading Requirements
According to the Federal Rules of Civil Procedure, a complaint for patent infringement43 must
include four statements that assert jurisdiction, patent ownership, patent infringement by the
defendant, and a demand for relief.44 Plaintiffs typically rely upon the Federal Rules of Civil
Procedure’s Form 18 to structure their patent infringement complaint. Generally, the Federal
Circuit has applied the “notice pleading standard” to patent infringement pleadings for the
purpose of a motion to dismiss for failure to state a claim (a typical method by which a defendant
may attempt to have a case dismissed at the beginning of the case). Under this standard, a court
finds that the patent pleading statements contain sufficient particularity to survive a motion to
dismiss for failure to state a claim if they notify parties of the general issues of the case. In K-
Tech Telecommunications v. Time Warner Cable, the Federal Circuit held that the information
required by the Federal Rules of Civil Procedure’s Form 18 is sufficient for pleading a patent
infringement claim as the form states a plausible claim and places the alleged infringer on
notice.45 Additionally, the Federal Circuit in McZeal v. Sprint Nextel Corporation found that a
party does not need to describe the relationship between each element of the claim and the
infringing device in a patent infringement complaint.46 According to the court, specific
information such as this “is something to be determined through discovery.”47
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:
41 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.
42 See Mark A. Lemley, Are Universities Patent Trolls?, 18 FORDHAM INTELL. PROP. MEDIA & ENT. L.J. 611, 618
(2008).
43 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.
44 Fed. R. Civ. P. Form 18.
45 K-Tech Telecommunications v. Time Warner Cable, 714 F.3d 1278 (Fed. Cir. 2013).
46 McZeal v. Sprint Nextel Corp., 501 F.3d 1354, 1358 (Fed. Cir. 2007).
47 Id.
Congressional Research Service
6
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
• each claim of each patent allegedly infringed;
• for each claim of indirect infringement, the acts of the alleged indirect infringer
that contribute to, or are inducing, a direct infringement;
• the principal business of the party alleging infringement;
• the authority of the party alleging infringement to assert each patent and the
grounds for the court’s jurisdiction;
• each complaint filed that asserts any of the same patents; and
• whether the patent is essential or has potential to become essential to a standard-
setting body, as well as whether the United States or a foreign government has
imposed any specific licensing requirements.48
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.49
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.50 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.51 The PATENT Act would
also explicitly eliminate the Federal Rules of Civil Procedure’s Form 18.52
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.53 Similarly, both bills also exempt from
48 H.R. 9, § 3, adding new 35 U.S.C. § 281A.
49 S. 1137, § 3, adding new 35 U.S.C. §281A.
50 Id., adding new 35 U.S.C. § 281B.
51 Id.
52 S. 1137, § 3.
53 H.R. 9, § 3, adding new 35 U.S.C. § 281A; S. 1137, § 3, adding new 35 U.S.C. § 281A.
Congressional Research Service
7
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
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.54
Commentators have linked “patent trolls” together with the current patent pleading requirements
for a patent infringement claim.55 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.56 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.”57 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.58 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.59
Limits on Discovery and Cost-Shifting
The Federal Rules of Civil Procedure permit discovery60 into any unprivileged matter that is
relevant to the claim or defense of any party.61 This broad definition leads to costly discovery in
patent litigation.62 During the discovery process, the court may decide to hold a “Markman
hearing,”63 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
54 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 John R. Thomas.
55 See, e.g., Patent Progress, Common Sense Solutions to the Patent Control Problem, at http://www.patentprogress.org/
patent-troll-reform/common-sense-solutions-to-the-patent-troll-problem/.
56 H.Rept. 113-279, at 23.
57 Id.
58 Id.
59 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.
60 Discovery is the process to gather information in preparation for trial.
61 See Fed. R. Civ. P. 26.
62 See Chief Judge Randall R. Rader, The State of Patent Litigation, Eastern District of Texas Bar Association Judicial
Conference, Sept. 27, 2011.
63 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).
Congressional Research Service
8
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
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.64
During hearings relating to patent claim construction, the Innovation Act proposes to limit
discovery “to information necessary for the court to determine the meaning of the terms used in
the patent claim.”65 The bill would grant the courts with the discretion to permit discovery “in
special circumstances” to prevent manifest injustice. Under H.R. 9, parties would also have the
ability to consent to voluntary exclusion from these proposed limitations on discovery.
The Senate’s PATENT Act would require a court to stay discovery pending the resolution of
preliminary motions including the motion to dismiss, the motion to transfer venue, and the motion
to sever accused infringers.66 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.67 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.68 These supporters have
stated that the propensity towards settlements in patent litigation encourages PAEs to file
infringement suits. Thus, supporters have also emphasized that specific limits on claim
construction discovery, such as those proposed by the Innovation Act, would help the parties to
focus “on truly relevant discovery” and to reduce “wasted efforts” during litigation over claim
construction.69 Critics of these discovery limitations argue that this approach may create further
discovery by encouraging courts to separate claim construction analysis from its summary
judgment decisionmaking.70 Others have also 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.”71
Transparency of Patent Ownership72
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
64 See Phillips v. AWH Corp., 415 F.3d 1303 (Fed. Cir. 2005).
65 H.R. 9, § 3, adding new 35 U.S.C. §299A.
66 S. 1137, § 4, adding new 35 U.S.C. § 299B.
67 Id.
68 H.Rept. 113-279, at 9.
69 Id. at 24.
70 Dennis Crouch, “Patent Reform: Innovation Act of 2015,” Feb. 5, 2015, available at http://patentlyo.com/patent/
2015/02/patent-reform-innovation.html.
71 The Impact of Abusive Patent Litigation Practices on the American Economy: Hearing Before the Senate Judiciary
Comm., 114th Cong., 1st Sess. (2015) (Statement of Hans Sauer, Deputy General Counsel for Intellectual Property,
Biotechnology Industry Organization).
72 This topic is often referred to as the disclosure of the “real party-in-interest.”
Congressional Research Service
9
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
the names and addresses of the parties, the name of the inventor, and the number of the patent
upon which the action is based.73 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).) 74 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
interest75 in the patent(s) at issue or in the plaintiff; and
4. the ultimate parent entity76 of any assignee, or the entities identified in #2 and #3
above.
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.77 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.”78 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.”79
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
73 35 U.S.C. § 290.
74 H.R. 9, § 4(a)(3), adding new 35 U.S.C. § 290(b)(2).
75 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.
76 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).
77 Id., adding new 35 U.S.C. § 290(d)(1).
78 Id., adding new 35 U.S.C. § 290(d)(2)(A).
79 Id., adding new 35 U.S.C. § 290(d)(2)(B).
Congressional Research Service
10
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
information submitted by plaintiffs and “to ensure the timely disclosure of such information to the
public.”80
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.”81 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”;82 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.”83
The PATENT Act would require similar initial disclosures by a patentee in a patent infringement
lawsuit as the Innovation Act.84 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:
a. assignee of the patent(s) at issue, and any “ultimate parent entity”85 thereof;
b. entity with a right to sublicense to unaffiliated entities or to enforce the
patent(s) at issue, and any ultimate parent entity thereof;
c. any other entity that the patentee knows to have a financial interest86 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. 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;
b. a statement as to whether the patent is subject to certain licensing
requirements (imposed by the federal government or by a standards
development organization).87
80 Id. § 4(c).
81 Press Release: Goodlatte, Defazio, Issa, Nadler, Smith, Lofgren, Eshoo Introduce Patent Litigation Reform Bill, Feb.
5, 2015, available at http://judiciary.house.gov/index.cfm/2015/2/goodlatte-defazio-issa-nadler-smith-lofgren-eshoo-
introduce-patent-litigation-reform-bill.
82 Howard Klein, Patent Law Reform—Proceed with Caution, Law360.com, Mar. 9, 2015, at http://www.law360.com/
articles/626618/patent-law-reform-proceed-with-caution.
83 Id.
84 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).).
85 The PATENT Act uses the same definition for “ultimate parent entity” as the Innovation Act.
86 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%).
87 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 Brian T. Yeh.
Congressional Research Service
11
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
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);88 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.89 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
a. no later than three months after such assignment is made; or,
b. 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.90
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).91 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.92 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.93
Stays of Litigation Brought Against Infringing Customers
Under the Patent Act, anyone who “makes, uses, offers to sell, or sells any patented invention”94
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.95 Over the past few years, businesses (including
88 Id., adding new 35 U.S.C. § 281B(e).
89 Id. § 3(b)(1), adding new 35 U.S.C. § 281B(d).
90 Id. § 10(a), adding new 35 U.S.C. § 261(A)(b), (c).
91 Id., adding new 35 U.S.C. § 261(A)(d).
92 Id.
93 Id. § 10(b).
94 35 U.S.C. § 271(a) (emphasis added).
95 See Aro Mfg. Co., Inc. v. Convertible Top Replacement Co., Inc., 377 U.S. 476, 484 (1964) (explaining that “it has
(continued...)
Congressional Research Service
12
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
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.96 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 that 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.97
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.98 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.”99 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.100
Section 5 of the Innovation Act would codify a modified version of the customer suit exception
by amending the Patent Act101 to require a court to suspend or postpone litigation against a
(...continued)
often and clearly been held that unauthorized use, without more, constitutes infringement.”).
96 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.
97 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, 113th Cong., 1st Sess. (2013)
(Statement of Philip S. Johnson, Chief Intellectual Property Counsel, Johnson & Johnson, on behalf of the 21st Century
Coalition for Patent Reform), at 7, available at http://judiciary.house.gov/_files/hearings/113th/03142013_2/
Johnson%2003142013.pdf.
98 Spread Spectrum Screening LLC v. Eastman Kodak Co., 657 F.3d 1349, 1357 (Fed. Cir. 2011).
99 Codex Corp. v. Milgo Electronic Corp., 553 F.2d 735 (1st Cir.), cert. denied, 434 U.S. 860 (1977).
100 Brian J. Love and James C. Yoon, Expanding Patent Law’s Customer Suit Exception, 93 B.U. L. REV. 1605, 1614
(Oct. 2013), citing Katz v. Lear Siegler, Inc., 909 F.2d 1459 (Fed. Cir. 1990).
101 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 Brian T. Yeh.
Congressional Research Service
13
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
customer of a product or process that contains allegedly infringing technologies, if several
requirements are satisfied:102
1. the manufacturer of the product and the customer consent to the stay of the action
in writing;
2. the manufacturer is a party to the civil action or a separate action involving the
same patent(s);
3. 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
4. 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.103 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.
§ 271(e)(2).104
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.”105
In testimony offered before the House Judiciary Committee in October 2013, former USPTO
Director David Kappos argued that the Innovation Act’s stay provision’s definition of a “covered
customer” is overbroad and may also have the potential for unintended consequences:
[A]s currently written the stay provision permits all parties in the product channel
downstream of the first component part maker to escape infringement liability, including
large commercial actors such as manufacturers combining procured components into value-
added completed devices, as well as assemblers, and others not operating in the roles of
“mere retailers” or “mere end users,” and certainly not operating in the roles of “mom and
pop shops.” This unnecessarily devalues intellectual property and thus innovation by
artificially limiting or even eliminating legitimate patentees’ ability to protect their
innovations. It also may leave an American innovator with no infringer at all to pursue where
infringing manufacturers are located outside the reach of the US courts, such as overseas, or
lack adequate assets to answer for infringement.106
102 H.R. 9, § 5(a), adding revised 35 U.S.C. § 296(a)(1)-(4).
103 Id., adding revised 35 U.S.C. § 296(c).
104 Id., adding revised 35 U.S.C. § 296(d).
105 H.Rept. 113-279, p. 30.
106 H.R. 3309, the “Innovation Act:” Hearing Before the House Judiciary Comm., 113th Cong., 1st Sess. (2013)
(continued...)
Congressional Research Service
14
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
Others have raised similar concerns about stay provisions in patent litigation reform legislation
that are “overly inclusive” by providing the benefit of a stay of a suit to “any and all downstream
parties.”107 One critic of the Innovation Act’s stay provision suggests that any bill providing for a
stay of infringement suits against customers “limit eligibility of customer stays to retailers and
end users who have not materially altered the product or process, or incorporated it into another
product or process.”108
The PATENT Act includes a customer stay provision similar to that of the Innovation Act,
although there are several important differences. First, in apparent response to concerns raised
about the potentially overbroad applicability of the Innovation Act’s customer stay provision, the
PATENT Act provides narrower definitions of “covered customer,” “retailer,” and “end user,”109
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.
Second, the PATENT Act would require a court to suspend or postpone litigation against a
customer of a product or process that contains allegedly infringing technologies if
1. the manufacturer of the product/process alleged to infringe the patent is a party to
the action or a separate federal court action involving the same patent(s) relating
to the product/process;
2. the customer agrees to be bound by the issue decided in the action involving the
manufacturer; and
3. the motion for the stay is filed after the first pleading in the action and the later of
(a) 120 days or (b) the date on which the first scheduling order in the case is
entered.110
(...continued)
(Statement of David J. Kappos, Former Under Secretary of Commerce for Intellectual Property and Director of the
United States Patent and Trademark Office), at 7, available at http://judiciary.house.gov/_files/hearings/113th/
10292013/Kappos%20Testimony.pdf.
107 Thomas M. Susman and Robert O. Lindefield, Re: S. 1720, the “Patent Transparency and Improvements Act of
2013,” and Related Bills, Letter to Senate Judiciary Chairman Leahy and Ranking Member Grassley, Feb. 4, 2014, at
8, available at http://www.americanbar.org/content/dam/aba/uncategorized/GAO/
2014feb4_patentreformletters.authcheckdam.pdf.
108 Id. at 9.
109 S. 1137, § 4, adding new 35 U.S.C. § 299A(a).
110 Id., adding new 35 U.S.C. § 299A(b).
Congressional Research Service
15
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
Note that the Innovation Act would require that both the manufacturer and customer consent in
writing to the stay, whereas such consent is not needed for a customer to obtain a stay under the
PATENT Act. According to the sponsors of the legislation, this provision in the PATENT Act was
intended “[t]o address concerns that manufacturer could prevent a stay from issuing by refusing
to consent.”111 However, the PATENT Act would require the consent of the manufacturer if the
manufacturer had been made a party to the action on motion by the customer.112 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.113 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.
§ 271(e)(2).114
Shifting of Attorney Fees
For many years, patent cases were subject to the “American Rule,” under which “[e]ach litigant
pays his own attorney fees, win or lose.”115 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. § 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.”
However, the Federal Circuit in its 2005 opinion, Brooks Furniture Manufacturing, Inc. v.
Dutailier International, Inc.,116 established that courts may find an “exceptional case” under
Section 285 in only two limited circumstances: (A) “when there has been some material
inappropriate conduct” (during the litigation or in obtaining the patent from the USPTO) or (B)
when the litigation is both (1) brought in subjective bad faith and (2) objectively baseless. In
addition, Brooks Furniture held that the prevailing party must prove its entitlement to attorney
fees by “clear and convincing evidence.”117 In part due to this strict standard, federal judges have
rarely award these fees.118
In April 2014, the Supreme Court in Octane Fitness v. Icon Health & Fitness unanimously
overruled the Federal Circuit’s Brooks Furniture standard because the two-prong test “is unduly
111 Section-by-Section Summary of the PATENT Act, at 2, available at http://www.judiciary.senate.gov/imo/media/
doc/Patents,%2004-29-15,%20PATENT%20Act%20-%20Short%20Section%20by%20Section.pdf.
112 S. 1137, § 4, adding new 35 U.S.C. § 299A(c).
113 Id., adding new 35 U.S.C. § 299A(d).
114 Id., adding new 35 U.S.C. § 299A(b).
115 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.”).
116 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)).
117 Id. at 1382.
118 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.”).
Congressional Research Service
16
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
rigid, and it impermissibly encumbers the statutory grant of discretion to district courts.”119
Instead, the Court adopted a more lenient standard, holding “that an ‘exceptional’ case is simply
one that stands out from others with respect to the substantive strength of a party’s litigating
position (considering both the governing law and the facts of the case) or the unreasonable
manner in which the case was litigated.”120 The Court explained that district courts must make the
Section 285 determination by considering the “totality of the circumstances.”121 The Court also
rejected the Federal Circuit’s requirement that prevailing parties establish their entitlement to
legal fees by “clear and convincing evidence” and instead embraced a “preponderance of the
evidence” standard.122 In a companion case decided the same day as Octane Fitness, the Supreme
Court in Highmark v. Allcare Health Management123 rejected the Federal Circuit’s position that a
district court’s “exceptional case” determination is to be reviewed on appeal “de novo” and
“without deference.” Instead, the Court held that the district court’s Section 285 determination
must be reviewed on appeal under an abuse-of-discretion standard.124
By overruling the Federal Circuit’s restrictive interpretation of Section 285, Octane Fitness and
Highmark provide district courts with greater discretion in deciding whether to award fees, thus
likely increasing the number of patent cases in which attorney fees are shifted. Thus, in
evaluating whether to award attorney fees, a court must first assess whether the case is
“exceptional” in accordance with the standard announced in Octane Fitness, and if so, the court
may (or may not) choose to award the fees. It is unclear the extent to which these recent Supreme
Court decisions will impact the filing of patent infringement lawsuits by patent assertion entities,
yet supporters of patent litigation reform express hope that the increased prospect of paying the
other party’s litigation expenses could be a significant financial disincentive to PAEs’ litigation
tactics.125 However, some observers predict that Octane Fitness and Highmark will not have a
significant impact on PAEs because fee-shifting will remain limited:
[R]ecent Supreme Court cases ... make clear that a case is exceptional only if it is unusually
weak. Moreover, because district courts now have substantial discretion to decide whether to
award fees, district courts that signal a reluctance to shift fees will invariably attract greater
proportions of future patent lawsuits from plaintiffs eager to avoid any risk of fee-shifting.
Finally, even when a court does shift fees to a plaintiff, the shell-corporation structure of
many abusive litigants precludes any meaningful recovery for the defendant. So long as the
entity that owns the patent rights holds no other assets, patent plaintiffs can effectively
render themselves judgment proof.126
119 Octane Fitness, LLC v. ICON Health & Fitness, Inc., No. 12-1184, slip op. at 1 (2014).
120 Id. at 7.
121 Id. at 8.
122 Id. at 11.
123 Highmark Inc. v. Allcare Health Mgmt.Sys., No. 12-1163, slip. op. (2014).
124 Id. at 5.
125 Daniel Fisher, Patent Trolls Face Higher Risks As Supreme Court Loosens Fee-Shifting Rule, Forbes, April 29,
2014, at http://www.forbes.com/sites/danielfisher/2014/04/29/patent-trolls-face-higher-risks-as-supreme-court-loosens-
fee-shifting-rule/.
126 Examining Recent Supreme Court Cases in the Patent Area: Hearing Before the House Judiciary Comm., Subcomm.
on Courts, Intellectual Property, and the Internet, 114th Cong., 1st 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.
Congressional Research Service
17
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
Section 3(b) of the Innovation Act would amend Section 285 to require a court, in any patent
case, to award attorney fees to a prevailing party (plaintiff or defendant), unless the court finds
that either
1. the nonprevailing party’s position and conduct are “reasonably justified in law
and fact”127 or
2. there are “special circumstances (such as severe economic hardship to a named
inventor) [that] make an award unjust.”128
Although not explicitly stated by the legislation, the nonprevailing party would appear to have the
burden of production and persuasion in proving the existence of either of these exceptions in
order to rebut the presumption of an award of attorney fees. Supporters of the Innovation Act’s
fee-shifting provision believe that “allowing more liberal shifting of attorney fees against losing
parties would reduce the frequency of such nuisance settlements, and would allow more
defendants to challenge patents that are invalid or that have been asserted beyond what their
claims reasonably allow.”129 On the other hand, those wary of fee-shifting provisions are
concerned that they may benefit wealthy corporate parties to the disadvantage of individual
inventors. They assert that “[a] ‘loser pays’ provision will deter patent holders from pursuing
meritorious patent infringement claims and protects institutional defendants with enormous
resources who can use the risk of fee-shifting to force inventors into accepting unfair settlements
or dismissing their legitimate claims.”130
The Support Technology and Research for Our Nation’s Growth (STRONG) Patents Act of 2015
(S. 632) does not include a fee-shifting provision; instead, Section 101 of S. 632 (the “findings”
section) asserts that the Supreme Court’s Octane Fitness and Highmark rulings “significantly
reduced the burden on an alleged infringer to recover attorney fees from the patent owner, and
increased the incidence of fees shifted to the losing party.”131
Section 7(a) of the PATENT Act expresses a “sense of Congress that, in patent cases, reasonable
attorney fees should be paid by a nonprevailing party whose litigation position or conduct is not
objectively reasonable.”132 Unlike the Innovation Act’s creation of a presumption of an award of
attorney fees, Section 7(b) of the PATENT Act would require the prevailing party to make a
motion for the fees, thereby placing the burden of production and persuasion on the prevailing
party to show that the nonprevailing party’s litigation position or conduct was not objectively
reasonable. Specifically, the PATENT Act would amend 35 U.S.C. § 285 to provide that, upon
motion by a prevailing party, the court must determine whether the position of the nonprevailing
party was “objectively reasonable in law and fact, and whether the conduct of the nonprevailing
party was objectively reasonable.” If the court finds that the nonprevailing party’s position and
conduct does not satisfy these standards, the court must award reasonable attorney fees to the
prevailing party, unless special circumstances would make an award unjust.133 Some practitioners
127 H.R. 9, § 3(b), adding revised 35 U.S.C. § 285(a).
128 Id.
129 H.Rept. 113-279, at 21.
130 Id. at 107 (quoting a letter from the American Association for Justice).
131 S. 632, § 101(12).
132 S. 1137, § 7(a).
133 S. 1137, § 7(b), adding revised 35 U.S.C. § 285(a).
Congressional Research Service
18
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
believe that the Innovation Act’s fee-shifting provision “would likely require fee awards in more
cases than” the PATENT Act’s comparable provision.134
Unlike the Innovation Act, the PATENT Act would exempt from the fee-shifting provision any
action that includes a cause of action for patent infringement under 35 U.S.C. § 271(e)(2).135
Recovery of Fee Awards from Interested Parties
The Federal Rules of Civil Procedure outline when a person must and may join as a party in
litigation. Under Rule 19, a person must join as a party if, in the person’s absence, the court
would be unable to accord complete relief among existing parties, the person is unable to protect
an interest, or a present party would be subject to a substantial risk of incurring multiple
obligations.136 Under Rule 20, a person may join as a plaintiff if all the plaintiffs could claim a
right to relief for injuries arising from the same occurrence or transaction.137 Likewise, persons
may be joined as defendants if any right to relief is asserted against them jointly, severally, or in
the alternative with respect to or arising out of the same transaction or occurrence.138 The Patent
Act outlines mores specific joinder requirements for a patent civil action. Under the Patent Act, a
party may join a patent civil action as a defendant (accused infringer) only if any right to relief is
asserted against the parties jointly and severally,139 or arises out of the same transaction relating to
the making, using, importing into the United States, offering for sale, or selling of the same
accused product/process.140 All defendants in the action must share the same questions of fact for
joinder to occur.141 Joinder cannot occur if “based solely on allegations that they each have
infringed the patent or patents in suit.”142
Section 3(c) of the Innovation Act would establish mandatory joinder rules when the
nonprevailing party alleging infringement is unable to pay the fee award ordered by the court and
other expenses. Thus, this provision would require a court presiding over a patent case to grant a
defendant’s motion to join an “interested party,” “if such defending party shows that the plaintiff
has no substantial interest in the patent or patents at issue other than asserting such patent claim in
litigation.”143 An “interested party” subject to this joinder provision would include a party that is a
patent assignee, has a right to enforce or sublicense the patent, or has a direct financial interest in
the patent, such as the right to any part of a damage award or licensing revenue. The bill would
exclude as an “interested party” legal counsel retained on a contingency fee basis or an individual
134 Ryan Davis, 4 Differences in the House and Senate Patent Troll Bills, Law360.com, April 30, 2015 (citing the views
of several patent litigators).
135 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).
136 Fed. R. Civ. P. 19.
137 Fed. R. Civ. P. 20.
138 Id.
139 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.
140 35 U.S.C. § 299(a).
141 Id.
142 Id. § 299(b).
143 H.R. 9, § 3(c), adding new 35 U.S.C. § 299(d)(1).
Congressional Research Service
19
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
“whose sole financial interest in the patent or patents at issue is ownership of an equity interest in
the party alleging infringement, unless such person has the right or ability to influence, direct or
control the civil action.”144
The Innovation Act would grant the court with the discretion to deny a motion to join if the
interested party is not subject to service of process, or if the joinder would deprive the court of
subject matter jurisdiction or render the venue improper.145 The Innovation Act would require a
court to deny a motion to join an interested party if the party did not receive “timely notice” of
being identified as an interested party.146 (The Innovation Act defines “timely notice” to mean
actual notice, provided within 30 days after the party was identified in the plaintiff’s initial
disclosure regarding entities that have financial interests in the patent, that the party may be liable
for paying an award of fees if the plaintiff is unable to pay it.147)
A court would also be required to deny a motion to join an interested party if the interested party,
within 30 days after receiving the notice described above, renounces in writing and with notice to
the court and parties to the action, any ownership, right, or direct financial interest in the patent at
issue.148
The Innovation Act would provide a court with discretionary authority to make an “interested
party” who was joined under Section 3(c) of the act liable for any part of the award of attorney
fees that the nonprevailing party is unable to pay.149
Mandatory joinder provisions, including that proposed by the Innovation Act, respond to the
alleged lack of transparency regarding PAEs or the absence of financial resources held by some
PAEs and their corresponding inability to pay fees to a prevailing defendant. Proponents of this
proposed provision state that mandatory joinder would encourage greater transparency by
granting patent defendants with further knowledge regarding all the parties who may have an
interest in the litigation beyond the PAE “shell company.”150 Proponents of the joinder provision
also argue that such a change would allow prevailing defendants to seek a greater financial award
against PAEs, who may not have extensive financial resources, by permitting the defendants to
seek financial recovery against additional parties.151 Opponents of this provision argue that the
mandatory joinder of third parties is “one-sided” and may restrict the ability of patent owners to
enforce their patents.152 Some have stated that joinder provisions such as the one proposed by the
Innovation Act may harm business relationships that arise through licensing by forcing parties to
144 Id., adding new 35 U.S.C. § 299(d)(4).
145 Id., adding new 35 U.S.C. § 299(d)(2)(A).
146 Id., adding new 35 U.S.C. § 299(d)(2)(B)(i).
147 Id., adding new 35 U.S.C. § 299(d)(3).
148 Id., adding new 35 U.S.C. § 299(d)(2)(B)(ii).
149 H.R. 9, § 3(b), adding revised 35 U.S.C. § 285(b).
150 Hearing on H.R. 3309 Innovation Act Before the House Committee on the Judiciary, Subcommittee on Courts,
Intellectual Property, and the Internet, 113th Cong., 1st Sess., (2013) (Statement of Kevin T. Kramer, Vice President
and Deputy General Counsel for Intellectual Property, on behalf of Yahoo! Inc.).
151 Protecting Small Businesses and Promoting Innovation by Limiting Patent Troll Abuse: Hearing Before the Senate
Judiciary Comm., 113th Cong., 1st Sess. (2013) (Statement of Philip S. Johnson, Chief Intellectual Property Counsel,
Johnson & Johnson).
152 The Impact of Abusive Patent Litigation Practices on the American Economy: Hearing Before the Senate Judiciary
Comm., 114th Cong. 1st Sess. (2015) (Statement of Hans Sauer, Ph.D., Deputy General Counsel for Intellectual
Property, on behalf of Biotechnology Industry Organization).
Congressional Research Service
20
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
join in order to pay damages and other fees.153 Opponents also contend that joinder in this context
for the purposes of fee-shifting raises constitutional concerns as the provision would create
standing for parties that would otherwise not have standing.154 Specifically, the opponents point to
the scenario where “a defendant may join [as] a third-party at the end of the case for the purposes
of fee-shifting, but the third-party had no standing to assert or defend themselves during the
course of the legal proceedings.”155
The PATENT Act contains a mechanism for recovering fee awards from interested parties that
differs from the Innovation Act. First, the PATENT Act’s recovery of award provision would
require the defendant to file (no later than 14 days before a scheduling conference is to be held or
a scheduling order is due) an initial statement expressing the good faith belief that the primary
business of the plaintiff is the assertion and enforcement of patents (or the licensing that results
from it).156 Within 45 days of being served with such an initial statement, the plaintiff would then
be required to file a certification that157
1. the party will have sufficient funds to pay for any potential award of reasonable
attorney fees;
2. the party’s primary business is not the assertion and enforcement of patents (or
the licensing that results from it);
3. the identity of “interested parties,” if any; or
4. it has no such interested parties.
The PATENT Act defines “interested party” for purposes of this section concerning the recovery
of fees, to mean a person who has a substantial financial interest related to the proceeds from any
settlement, license, or damages award resulting from the enforcement of the patent in the
action.158 However, the term does NOT include any of the following: (A) an attorney or law firm
providing legal representation in the action if the sole basis for its financial interest in the action
arises from compensation related to the provision of legal representation; (B) a person who has
assigned all right, title, and interest in a patent, except for passive receipt of income to an
institution of higher education or a nonprofit technology transfer organization affiliated with the
institution; and (C) a person who would otherwise meet the definition of an interested party but
whose financial interest is based solely on an equity or security interest that had been initially
established when the party alleging infringement’s primary business was not the assertion and
enforcement of patents (or the licensing resulting from it).159 The PATENT Act would place an
ongoing duty on the plaintiff to update its certification within 30 days after a material change to
any of the information provided within it.160Prior to filing the certification, the plaintiff must
provide each identified interested party “actual notice in writing by service of notice in any
district where the interested party may be found,” in order to establish jurisdiction over the
interested party for the sole purpose of enforcing an award of attorney fees, “consistent with the
153 Id.
154 H.Rept. 113-279, p. 109.
155 Id.
156 S. 1137, § 7(b), adding revised 35 U.S.C. § 285(c)(1)(A).
157 Id., adding revised 35 U.S.C. § 285(c)(1)(B).
158 Id., adding revised 35 U.S.C. § 285(c)(2)(A),
159 Id., adding revised 35 U.S.C. § 285(c)(2)(B), (C), and (D).
160 Id., adding revised 35 U.S.C. § 285(c)(1)(B).
Congressional Research Service
21
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
Constitution of the United States.”161 The notice must identify the action, the parties, the patents
at issue, and the interest qualifying the party to be an interested party. The notice must also inform
the recipient that the recipient may be held accountable for any award of attorney fees (or a
portion thereof) resulting from the action in the event the plaintiff cannot satisfy the full amount
of such award, unless the recipient submits a statement to the court and parties in the action,
within 120 days of receiving the notice, that renounces its interest related to the enforcement of
the patent.162 The PATENT Act would make any interested parties who are timely served with this
notice potentially liable to pay any attorney fees, or portion thereof, awarded by the court, in the
event that the party alleging infringement cannot satisfy the full amount of the award.163
However, interested parties would not be accountable if “a true and correct certification” is filed
with the court that the plaintiff will have sufficient funds to pay for any potential award of
reasonable attorney fees, or that the party’s primary business is not the assertion and enforcement
of patents (or the licensing that results from it).164
The PATENT Act grants an interested party the right to intervene in the action for purposes of
contesting its identification as an interested party or its liability for attorney fees.165 A court may,
in the interest of justice, exempt from award recovery any party identified as an interested party.
Finally, the PATENT Act would create a statutory exception to the applicability of the award
recovery provision for any institution of higher education (as defined in 20 U.S.C. § 1001(a), or
under equivalent laws in foreign jurisdictions), or a non-profit technology transfer organization
whose primary purpose is to facilitate the commercialization of technologies developed by one or
more institutions of higher education.166 These entities must file with the court a certification that
they qualify for this exception and provide notice to the parties in the action.
Demand Letters
A patent demand letter is a letter sent by a patent-holder to a company or an individual accusing
the recipient of patent infringement. The letters tend to demand that the alleged infringer take a
specific action such as ceasing the infringing action or agreeing to a licensing arrangement. A
patentee may use demand letters to prove willfulness in a patent infringement lawsuit, a high bar
after recent court decisions. In the 2007 case, In re Seagate Technology, the Federal Circuit
established a two-pronged test for willful infringement in a patent case. First, the patentee must
show, by clear and convincing evidence, “that the infringer acted despite an objectively high
likelihood that its actions constituted infringement of a valid patent.”167 Then the patentee must
prove “subjective recklessness,” which means that the accused infringer knew or should have
known the risk of infringement.168 A detailed demand letter, including a summary of the alleged
patent infringement, helps to establish that the recipient/alleged infringer has the high degree of
knowledge to meet this standard. Current law, however, does not dictate any specific content
requirements or level of detail for demand letters.
161 Id., adding revised 35 U.S.C. § 285(c)(1)(C).
162 Id.
163 Id., adding revised 35 U.S.C. § 285(c)(1)(D).
164 Id.
165 Id., adding revised 35 U.S.C. § 285(c)(1)(G).
166 Id., adding revised 35 U.S.C. § 285(c)(1)(F).
167 In re Seagate Technology, 497 F.3d 1360, 1371 (Fed. Cir. 2007).
168 Id. at 1371-72.
Congressional Research Service
22
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
The Innovation Act states that it is the “sense of Congress” that “it is an abuse of the patent
system and against public policy for a party to send out purposely evasive demand letters to end
users alleging patent infringement.”169 H.R. 9 also states that any claimant asserting willful
infringement may not rely on demand letters as notification of infringement unless the letter
identifies with particularity the asserted patent, the product or process accused, and the ultimate
parent entity of the claimant, and explains how the product or process infringes to the extent
possible.170
H.R. 1896, the “Demand Letter Transparency Act of 2015,” outlines both content and disclosure
requirements for demand letters. The bill would require any entity that sends 20 or more demand
letters during any 365-day period to submit to the USPTO a disclosure identifying
• the patent, including a confirmation that the entity that sent the letter is the owner
of the patent and is the last recorded entity in USPTO records for purposes of
assignment, grant, or conveyance;
• the entity that has the right to license the patent or the name of the exclusive
licensee;
• each entity asserting a claim with regard to the patent;
• each obligation to license the patent and the financial terms at which such patent
has been licensed;
• the ultimate parent entity of such entity;
• the number of recipients of the letter;
• any case that has been filed by such entity relating to such patent; and
• any ex parte review or inter partes review of such patent.171
In order to enforce these proposed disclosure requirements, H.R. 1896 would permit a court in a
patent infringement or validity action brought by an entity that does not meet such USPTO
disclosure requirements to sanction such entity for an amount to be awarded to the adverse party
to cover any costs incurred as a result of such violation.172 The bill would exempt from these
disclosure requirements original or joint inventors, institutions of higher education, and
technology transfer organizations facilitating the commercialization of technology developed by
institutions of higher education.173
In addition to the disclosure requirements, the Demand Letter Transparency Act of 2015 would
require any demand letter sent to another entity to include specified information concerning
• each claim of each patent allegedly infringed, including each accused
instrumentality;
• each party alleging infringement;
169 H.R. 9, § 3.
170 Id.
171 H.R. 1896, § 2, adding new 35 U.S.C. § 263.
172 Id.
173 Id.
Congressional Research Service
23
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
• the direct infringement for each claim alleged to have been infringed indirectly;
• the principal business of the party alleging infringement;
• each complaint filed that asserts or asserted any of the same patents, each case
filed by such entity, and any ex parte or inter partes review for each patent;
• whether the patent is subject to any licensing term or pricing commitments;
• owners, co-owners, assignees, or exclusive licensees of the patent;
• any person who has a legal right to enforce the patent;
• any person with a direct financial interest in the outcome of the action; and
• how the recipient can access the USPTO demand letter database.174
Under the House’s TROL Act175 and the Senate’s STRONG Patents Act,176 a demand letter would
qualify as an “unfair or deceptive act or practice” under the Federal Trade Commission Act177 if
the sender states or represents wrongly and in bad faith that
• the sender is a person with the right to license and enforce the patent;
• a civil action asserting a claim of infringement has been filed against the
recipient;
• a civil action asserting a claim of infringement has been filed against other
persons;
• legal action for infringement of the patent will be taken against the recipient;
• the sender is the exclusive licensee of the patent;
• persons other than the recipient purchased a license for the patent asserted in the
letter;
• persons other than the recipient purchased an unrelated license and it is not
identified as such;
• an investigation of the recipient’s infringement occurred.178
The TROL Act and the STRONG Patents Act also would consider demand letters as unfair
practices if the sender in bad faith seeks compensation for
• a patent that is held to be unenforceable or invalid in a final determination;
• activities taken by the recipient after expiration of the asserted patent;
• activity of the recipient that the sender knew was authorized by a person with the
right to license the patent.179
174 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.
175 H.R. 2014.
176 S. 632.
177 15 U.S.C. § 45(a)(1).
178 S. 632, § 202.
Congressional Research Service
24
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
Demand letters would also qualify as unfair practices under the TROL Act and the STRONG
Patents Act if the sender fails to include
• the identity of the person including the name of the parent entity unless such
person is a public company and the name of the public company is identified;
• an identification of at least one patent allegedly infringed;
• an identification of at least one product or service of the recipient infringing the
identified patent;
• a name and contact information of a person the recipient may contact about the
assertions or claims.180
Under both the TROL Act and the STRONG Patents Act, the Federal Trade Commission would
enforce any violations of the provisions above.181 This provision would also preempt any state
law “expressly relating to the transmission or contents of communications relating to the assertion
of patent rights.”182
The Senate’s PATENT Act addresses both abusive demand letters and demand letters sent as pre-
suit notification. Section 9 of the Senate’s PATENT Act would impose civil penalties on a person
who has engaged in widespread abusive demand letter practices and has committed an unfair or
deceptive act within the meaning of Section 5 of the Federal Trade Commission Act.183 This bill
outlines abusive demand letter practices as communications that falsely represent judicial relief or
threaten litigation, and contain assertions that lack a reasonable basis in law or fact because the
person does not have the right to assert the patent, the patent has expired, the patent is
unenforceable, or the person has falsely represented that an infringement has occurred.184 Similar
to the enforcement provision outlined in the Senate’s STRONG Patents Act, the Federal Trade
Commission would enforce any violations of this particular provision. The Senate’s PATENT Act
would also require pre-suit notice letters that accuse a party of infringement to identify each
patent believed to be infringed, to identify the allegedly infringing product, to describe why the
plaintiff believes each patent identified is infringed, and to identify the person who can rightfully
enforce the patent, as well as additional information.185 The bill also states that if the plaintiff is
seeking to establish willful infringement, then he may not rely on evidence of pre-suit notification
of infringement unless that evidence includes this information. Commentators often associate
vague demand letters with PAEs using these letters for the sole purpose of extracting financial
concessions.186 Supporters of more stringent requirements for demand letters point to vague
demand letters as impediments of innovation due to the financial costs relating to litigation or
settlement that ultimately arise from receiving these types of communications and the resulting
(...continued)
179 Id.
180 Id.
181 Id. § 203.
182 Id. § 204.
183 S. 1137, § 9, adding new 35 U.S.C. § 299D.
184 Id.
185 Id. § 8, adding new 35 U.S.C. § 299C.
186 See, e.g., Brian Fung, “Patent reform advocates are launching a ‘super-coalition’ to whack patent trolls,”
Washington Post, Jan.14, 2015.
Congressional Research Service
25
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
impact on small businesses that cannot afford such costs.187 Supporters also claim that placing
more content-based requirements on demand letters would encourage patent owners to target
specific infringers more carefully and likewise, would allow alleged infringers to have a clearer
understanding of the infringement claims.188 Critics of patent legislation have argued, however,
that the legislation itself is not sufficiently tailored towards letters sent by PAEs, and additional
requirements for patent letters may make “it more difficult for patent owners to communicate
with potential licensees and alleged infringers even when those communications are in good
faith.”189
Post-Grant Review Reforms
The Leahy-Smith America Invents Act (AIA)190 established a new administrative proceeding
conducted by the USPTO’s Patent Trial and Appeal Board (PTAB) called a “post grant review”
(PGR). In this proceeding, petitioners may challenge the validity of an issued patent based on any
ground of patentability.191 A petition to initiate a PGR must be filed within nine months of the
date of patent grant.192 To initiate a PGR, the petitioner must present information that, if not
rebutted, would demonstrate that it is “more likely than not that at least one of the claims” is
unpatentable.193 A PGR must be completed within a year of its commencement, with an extension
of six months possible for good cause shown.194
Claim Construction Standard
The AIA is silent on what claim construction standard is appropriate in post-grant proceedings
conducted by the PTAB. Pursuant to authority granted by the AIA, the USPTO promulgated a
regulation in August 2012195 that provided the following standard for instituting post-grant review
as well as regulating proceedings after such institution: “[a] claim in an unexpired patent shall be
given its broadest reasonable construction in light of the specification of the patent in which it
appears.”196 In a case issued in February 2015 involving a challenge to the USPTO’s rulemaking
authority to promulgate this regulation, a divided panel of the Federal Circuit upheld the PTAB’s
use of the “broadest reasonable interpretation” (BRI) standard in claim construction.197 The
appellate court noted that the USPTO has long applied the BRI standard in a variety of
187 Trolling for a Solution: Ending Abusive Patent Demand Letters: Hearing Before the House Energy & Commerce
Comm., Subcomm. on Commerce, Manufacturing, and Trade, 113th Cong. 2d Sess. (2014) (Statement of Mark
Chandler, Senior Vice President and Chief Compliance Officer, on behalf of Cisco Systems Incorporated).
188 Id.
189 Gene Quinn & Steve Brachmann, “Demand Letter Legislation Must be Narrowly Tailored,” March 4, 2015,
available at http://www.ipwatchdog.com/2015/03/04/demand-letter-legislation-must-be-narrowly-tailored/id=55365/.
190 P.L. 112-29. For more information on this law, see CRS Report R42014, The Leahy-Smith America Invents Act:
Innovation Issues, by John R. Thomas.
191 35 U.S.C. § 321(b).
192 Id. § 321(c).
193 Id. § 324(a).
194 Id. § 326(a)(11).
195 USPTO, Changes to Implement Inter Partes Review Proceedings, Post-Grant Review Proceedings, and Transitional
Program for Covered Business Method, 77 Fed. Reg. 48680 (Aug. 14, 2012) (final rule).
196 37 C.F.R. § 42.100(b).
197 In re Cuozzo Speed Technologies LLC, 778 F.3d 1271 (Fed. Cir. 2015).
Congressional Research Service
26
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
proceedings, including initial examinations, interferences, and reissue and reexamination
proceedings.198 The Federal Circuit explained that by applying the BRI standard, the USPTO
“reduce[s] the possibility that, after the patent is granted, the claims may be interpreted as giving
broader coverage than is justified.”199 The appellate court stated that “Congress is presumed to
legislate against the background of existing law where Congress in enacting legislation is aware
of the prevailing rule,”200 and concluded that “Congress implicitly adopted the broadest
reasonable interpretation standard in enacting the AIA.”201
Section 9 of the Innovation Act would legislatively overrule the Federal Circuit’s recent decision
regarding the use of the BRI standard in post-grant proceedings. Instead, the Innovation Act
would require that the PTAB, in inter partes review (IPR) and PGR proceedings, use the same
claim construction standard that is applied by federal courts; that is, the PTAB would need to
construe a patent claim “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.”202 The Innovation Act would also require the PTAB to consider prior claim construction
by a court in a civil action in which the patent owner was a party.203
Sections 102 and 103 of the STRONG Patents Act contain similar amendments regarding the
claim construction standard to be used in IPR and PGR proceedings. The PATENT Act does not
include a provision that would alter the existing claim construction standard.
Former USPTO Director David Kappos has observed that currently, “the speed mandated for
post-grant procedures is leading to greater interaction between court interpretations and USPTO
interpretations of the same patent claims, and having the USPTO apply a different standard than
the courts [for claim construction] is leading, and will continue to lead, to conflicting
decisions.”204 However, he notes that there are valid arguments for retaining the broader standard
for post-grant proceedings, such as that the BRI standard “requires patentees to define their
claims clearly over the prior art during proceedings” before the USPTO.205
Others have asserted that changing the claim construction standard in IPR and PGR from BRI to
“ordinary and customary meaning” would be a positive benefit to patent owners who feel that the
BRI standard makes it easier to invalidate their patents in the AIA-established post-grant reviews
than in federal courts.206
198 Id. at *16.
199 Id. at *17 (quoting In re Prater, 415 F.2d 1393, 1396 (CCPA 1981).
200 Id. at *17.
201 Id. at *21.
202 H.R. 9, § 9, adding new 35 U.S.C. § 316(a)(14)(A).
203 Id., adding new 35 U.S.C. § 316(a)(14)(B).
204 H.R. 3309, the “Innovation Act:” Hearing Before the House Judiciary Comm., 113th Cong., 1st 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.
205 Id.
206 Ryan Davis, Innovation Act Would Revamp AIA Reviews to Shield Patents, Law360.com, Feb. 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.”).
Congressional Research Service
27
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
Estoppel Effect of Unsuccessful Challenges in PGR and IPR Proceedings
An individual who commences a PGR proceeding, along with anyone who has a legal interest in
the patent, are barred from raising in a later civil action issues that they raised in the
administrative review of the validity of a patent claim—as well as any issue that “reasonably
could have been raised” during the PGR.207 Section 9 of the Innovation Act and Section 14(a) of
the PATENT Act would narrow the estoppel effect arising from a PGR by removing the phrase
“or reasonably could have raised” in the statute.208 Thus, this provision would effectively permit
parties to later assert in a civil action that a patent claim is invalid on any ground that the party
“reasonably could have raised” during the PGR. The purpose of this change is apparently to
correct an “inadvertent scrivener’s error” made in drafting the AIA.209
Presumption of Validity and Burdens of Proof
The AIA provided that in an IPR or PGR proceeding, “the petitioner shall have the burden of
proving a proposition of unpatentability by a preponderance of the evidence.”210 Sections 102(c)
and 103(c) of the STRONG Patents Act would amend existing law to provide a presumption of
validity to a previously issued claim that is challenged during an IPR or PGR proceeding.211
These sections of the legislation would also heighten the evidentiary standard for proving
unpatentability of a previously issued claim, requiring that the IPR or PGR petitioner prove such
unpatentability “by clear and convincing evidence.”212
Standing
Sections 102(d) and 103(d) of the STRONG Patents Act would provide more stringent standing
requirements for persons wanting to initiate a PGR or IPR. The legislation provides that in order
to have standing to file a petition with the USPTO to institute an IPR,213 a person, or a real party
in interest or privy of the person, must show a reasonable possibility of being sued for, or charged
with,214 infringement of the patent. The STRONG Patents Act adjusts the standing requirement
207 35 U.S.C. § 325(e).
208 H.R. 9, § 9(a), amending 35 U.S.C. § 325(e)(2); S. 1137, § 14(a).
209 See Colleen Chien and Eric Goldman, In its Rush to Fix Patent Reform, Congress Didn’t Fix Its Biggest Error,
Forbes.com, Jan. 2, 2013; see also 158 Cong.Rec. S8517 (daily ed. Dec. 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.”).
210 35 U.S.C. §§ 316(e), 326(e).
211 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).
212 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).
213 Id. §102(d), adding new 35 U.S.C. § 311(d)(2).
214 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).
Congressional Research Service
28
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
slightly for instituting a PGR:215 a person, or a real party in interest or privy of the person, must
demonstrate
1. a reasonable possibility of being sued for, or charged with, infringement of the
patent; or
2. a competitive harm related to the validity of the patent.
Ending Diversion of USPTO Fees
The USPTO is funded entirely by fees it charges to patent and trademark applicants, as well as
other entities that interact with the agency.216 However, the amounts received as fees by the
USPTO must still be appropriated by Congress in order for the funds to be available to the agency
for obligation or expenditure.217 Yet over the past 25 years, Congress has often not allocated all of
the fees that the USPTO has collected towards the operation of that agency. It has been estimated
that, since 1999, over $1 billion in USPTO fee revenue has been withheld from the USPTO and
directed towards unrelated government programs and operations.218
The America Invents Act (AIA) that was enacted in 2011 made several changes to the handling of
fees collected by the USPTO. Under the AIA, the use of fees generated is still subject to the
appropriations process, whereby Congress provides the budget authority for the USPTO to spend
these fees. To address the issue of fees withheld from the office in the past, the AIA created within
the Treasury a “Patent and Trademark Fee Reserve Fund” into which fee collections above that
“appropriated by the Office for that fiscal year” are to be placed.219 These funds are to be
available to the USPTO “to the extent and in the amounts provided in appropriations Acts” and
may only be used for the work of the USPTO.220 However, the USPTO must still obtain
congressional authority to use these “excess” funds.
Some argue that USPTO fee diversion is the “single most important problem facing our patent
system today” because “continuing fee diversion constitute[s] a tax on innovation and
undermine[s] efforts of the USPTO to reduce its backlog [of pending patent applications].”221
The STRONG Patents Act would put an end to USPTO fee diversion.222 Section 107(a) of S. 632
would establish within the U.S. Treasury a revolving fund223 called the “United States Patent and
215 S. 632, §103(d), adding new 35 U.S.C. § 321(d)(2).
216 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 Glenn J. McLoughlin.
217 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)).
218 See Intellectual Property Owners, USPTO Funding, at http://www.ipo.org/index.php/advocacy/hot-topics/uspto-
funding/.
219 35 U.S.C. § 42(c)(2).
220 Id.
221 H.Rept. 113-279, p. 104.
222 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.
Congressional Research Service
29
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
Trademark Office Innovation Promotion Fund” (Fund). Any fees collected by the USPTO would
be deposited into this Fund and would be available to the USPTO Director until they are
expended.224 The amounts in the Fund would be available, without fiscal year limitation, to pay
for all expenses of the USPTO, including all administrative and operating expenses that the office
incurs.225
Provisions Concerning Small Businesses
The patent reform litigation legislation introduced in the 114th Congress contains several
provisions designed to help small businesses that are involved in the patent system either as
patent owners or as defendants in infringement lawsuits.
Innovation Act and the PATENT Act
Section 7(a) of the Innovation Act and Section 12 of the PATENT Act would require the USPTO
director to develop educational resources for small businesses with respect to their “concerns
arising from patent infringement.”226 Furthermore, the Innovation Act would require that the
USPTO’s existing small business patent outreach programs, as well as relevant offices at the
Small Business Administration and the Minority Business Development Agency, provide
education and awareness on abusive patent litigation practices.227 Section 7(b) of the Innovation
Act and Section 12(b) of the PATENT Act would require the USPTO to create and maintain a
“user-friendly” section of its official website, in which the public can find information about
patent cases that have been filed in federal court and information about the patent at issue
(including the disclosures regarding patent ownership that are mandated by the Innovation Act
and PATENT Act). Neither bill authorizes or provides additional appropriations to pay for these
initiatives; rather, they are to be implemented using existing agency resources.
Section 8(g) of the Innovation Act would require the USPTO director, in consultation with several
heads of relevant agencies and interested parties, to conduct a study that examines 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. STRONG Patents Act
Section 111 of the STRONG Patents Act would require the Small Business Administration to
produce a report that analyzes the impact of patent ownership by small businesses (those that are
independently owned and operated and which are not dominant in their field of operation) and
patent infringement actions against small businesses. In addition, the STRONG Patents Act would
require the Director of the Administrative Office of the United States to designate at least six U.S.
district courts (that are already participating in the patent cases pilot program) “for the purpose of
that program to address special issues raised in patent infringement suits against individuals or
(...continued)
223 S. 632, § 107(a)(4), adding revised 35 U.S.C. § 42(d)(2).
224 Id. § 107(a)(2), adding revised 35 U.S.C. § 42(c)(1).
225 Id. § 107(a)(4), adding revised 35 U.S.C. § 42(d)(4).
226 H.R. 9, § 7(a)(1); S. 1137, § 12(a)(1).
227 Id. § 7(a)(2); S. 1137, § 12(a)(2).
Congressional Research Service
30
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
small business concerns.”228 These specially designated courts would be required to expedite
cases in which an individual or small business concern is accused of patent infringement.229
228 S. 632, § 111(c)(1).
229 Id. § 111(c)(2).
Congressional Research Service
31
c11173008
.
Table 1. Patent Litigation Reform Legislation in the 114th Congress
H.R. 1896
S. 632
Demand Letter
H.R. 9
S. 1137
STRONG Patents
Transparency
H.R. 2045
Innovation Act
PATENT Act
Act
Act
TROL ACT
Pleading
Proposed pleading requirements to
n/a n/a
n/a
Requirement
include: each patent claim, acts of
Proposed pleading requirements to include:
alleged infringer, principal business of
each patent claim, accused instrumentality,
plaintiff, authority to assert patent
description of infringement
General description where
General description where information is
information is not available
not available
ANDA suit exception
ANDA suit exception
Limits on
Proposed discovery limitations prior
Proposed discovery limitations to ruling on
n/a n/a
n/a
Discovery
to claim construction to information
motions to dismiss, transfer venue, and
necessary to construe claims
sever accused infringers to information
necessary to resolve those motions
Court may allow discovery to prevent
injustice
Court may allow discovery to preserve
evidence or prevent prejudice to party
Parties may consent to exclusion from
limitation
Parties may consent to exclusion from
limitation
c11173008
.
H.R. 1896
S. 632
Demand Letter
H.R. 9
S. 1137
STRONG Patents
Transparency
H.R. 2045
Innovation Act
PATENT Act
Act
Act
TROL ACT
Transparency
Upon filing of initial complaint for
Within 14 days of filing the complaint,
n/a n/a
n/a
of Patent
infringement, plaintiff must disclose to
plaintiff must notify court and adverse
Ownership
USPTO, court, and all adverse parties: parties of:
•
Assignee(s) of the patent
•
Assignee(s)
•
Entities with right to
•
Entities with right to sublicense
sublicense or enforce patent
or enforce patent
•
Entities with financial
•
Entities with financial interest in
interest in the patent (right to
the patent or in the plaintiff (direct or
receive proceeds related to
indirect ownership/control of > 20%
patent assertion) or in the
of the plaintiff)
plaintiff (direct or indirect
ownership/control of more than
•
UPE of the above
5% of the plaintiff)
•
List of other complaints filed in
Ultimate parent entities (UPE) of the
prior 3 years asserting the patent
above entities (UPE is an entity not
•
Any licensing requirements that
control ed by any other entity)
patent is subject to
Plaintiff has an ongoing duty to notify
Patentee may file this information under
USPTO of any changes in the above
seal if confidential
Failure to comply with ongoing duty of Patentee must file information regarding
disclosure means the plaintiff may not
identity of entities with USPTO but no
recover treble damages or reasonable
ongoing duty to update the information
fees during period of noncompliance;
court may award fees to prevailing
Assignment of all substantial rights in issued
party for expenses incurred to
patent (and name of assignee and UPE)
uncover the updated information
must be recorded in USPTO upon grant of
patent and whenever subsequent
ANDA suit exception
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
c11173008
.
H.R. 1896
S. 632
Demand Letter
H.R. 9
S. 1137
STRONG Patents
Transparency
H.R. 2045
Innovation Act
PATENT Act
Act
Act
TROL ACT
Stays of
Court required to suspend/postpone
Court required to suspend/postpone
n/a n/a
n/a
Customer-
litigation against customer if:
litigation against customer if:
Suits
•
manufacturer and customer
•
manufacturer is party to the civil
consent to the stay in writing
action or in a separate action involving
the patent
•
manufacturer is party to the
civil action or in a separate action
•
customer agrees to be bound by
involving the patent
issues decided against the
manufacturer
•
customer agrees to be
bound by issues decided against
•
Consent of the manufacturer to
the manufacturer
the stay is needed only if
manufacturer was made a party to the
•
customer requests stay
action on motion by the customer
within the later of: 120 days after
first pleading is served, or the
•
customer requests stay within
first scheduling order in the case
the later of: 120 days after first
pleading is served, or the first
Stay may be lifted if suit against
scheduling order in the case
manufacturer will not resolve major
issue in suit against customer or if stay Defines “customer” as a retailer or end
unreasonably prejudices or is
user who has not material y modified the
manifestly unjust to the party seeking
product/process alleged to infringe the
to lift it
patent
ANDA suit exception
Defines “end user” and “retailer” to
exclude entities that manufacture the
product/process at issue
Same criteria as the Innovation Act for lift
of the stay
ANDA suit exception
c11173008
.
H.R. 1896
S. 632
Demand Letter
H.R. 9
S. 1137
STRONG Patents
Transparency
H.R. 2045
Innovation Act
PATENT Act
Act
Act
TROL ACT
Shifting of
Requires a court to award attorney
On motion of the prevailing party, court
n/a
n/a n/a
Attorney Fees fees to prevailing party unless court
must determine whether the the
finds that either:
nonprevailing party’s position was
“objectively reasonable in law and fact” and
•
nonprevailing party’s
whether its conduct was “objectively
litigation position and conduct
reasonable”
are “reasonably justified in law
and fact” or
•
If they were not, court must
award reasonable attorney fees to
•
special circumstances exist
prevailing party unless special
that make an award unjust
circumstances exist that make an
NO ANDA suit exception
award unjust
ANDA suit exception
c11173008
.
H.R. 1896
S. 632
Demand Letter
H.R. 9
S. 1137
STRONG Patents
Transparency
H.R. 2045
Innovation Act
PATENT Act
Act
Act
TROL ACT
Attorney Fee
If nonprevailing party is unable to pay
No later than 2 weeks before scheduling
n/a n/a
n/a
Recovery
attorney fee award, upon motion by
conference is held, defendant may file initial
prevailing party, court shall join an
statement expressing good faith belief that
interested party to pay if prevailing
the plaintiff’s primary business is
party shows that nonprevailing party
asserting/enforcing patents
has no substantial interest in the case
other than asserting the patent
Plaintiff must file a certification within 45
days of the defendant’s initial statement
Court may deny motion to join
that includes:
interested party if:
•
that the party has sufficient funds
•
interested party is not
to pay for any potential fee award,
subject to service of process
•
that the party’s primary business
•
joinder would deprive court
is not asserting/enforcing patents,
of subject matter jurisdiction or
make venue improper
•
identity of interested parties, or
Court must deny motion to join
•
no such interested parties exist
interested party if:
Plaintiff must provide interested parties
•
party did not receive timely
notice that the party may be held
notice of being identified as an
accountable to pay for an award of
interested party
attorney fees if the plaintiff cannot satisfy
the ful amount of the award
•
interested party renounces
in writing and with notice to the
Interested parties may avoid financial
court and parties, any ownership,
liability by renouncing their interest related
right, or direct financial interest
to enforcement of the patent, within 120
in the patent
days of receipt of actual notice described
above
Joined interested parties may be
required by the court to pay any
Interested parties have right to intervene in
unsatisfied portion of the fee award
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
c11173008
.
H.R. 1896
S. 632
Demand Letter
H.R. 9
S. 1137
STRONG Patents
Transparency
H.R. 2045
Innovation Act
PATENT Act
Act
Act
TROL ACT
Demand
“Sense of Congress” that action
Party may not rely on evidence of pre-suit
Defines a demand
Entity that sends
Defines a
Letters
including litigation stemming from
notification to establish willful infringement
letter as an unfair or
20 or more
demand letter as
purposely evasive demand letter
unless communication contains specific
deceptive practice
demand letters
a unfair or
should be considered fraudulent or
information
under FTC Act if
per year must
deceptive
deceptive practice
wrongly and in bad faith disclose specific
practice under
Defines widespread demand letter abuse as misrepresents specific
information to
FTC Act if
violation of FTC Act
details
USPTO
wrongly and in
bad faith
Demand letters
misrepresents
must include
specific details
specific
information
relating to the
patent claim
allegedly infringed
and the party
alleging
infringement
c11173008
.
H.R. 1896
S. 632
Demand Letter
H.R. 9
S. 1137
STRONG Patents
Transparency
H.R. 2045
Innovation Act
PATENT Act
Act
Act
TROL ACT
Post-Grant
Requires the Patent Trial and Appeal
Narrows the estoppel effect arising from a
Requires the PTAB, in
n/a n/a
Review
Board (PTAB), in inter partes review
PGR by al owing a PGR petitioner to raise
IPR and PGR
Reforms
(IPR) and post-grant review (PGR)
in a later civil action issues (with respect to proceedings, to follow
proceedings, to follow the same claim
the validity of a patent claim) that they
the same claim
construction standard used by district
“reasonably could have raised” during the
construction standard
courts
PGR
used by district courts
Narrows the estoppel effect arising
Provides a presumption
from a PGR by allowing a PGR
of validity to a
petitioner to raise in a later civil
previously issued claim
action issues (with respect to the
that is challenged
validity of a patent claim) that they
during an IPR or PGR
“reasonably could have raised” during
proceeding
the PGR
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
Elimination of n/a n/a
Establishes
a
revolving
n/a n/a
USPTO Fee
fund in which fees
Diversion
col ected by USPTO
would be deposited;
such fees would be
available to USPTO
until expended
c11173008
.
H.R. 1896
S. 632
Demand Letter
H.R. 9
S. 1137
STRONG Patents
Transparency
H.R. 2045
Innovation Act
PATENT Act
Act
Act
TROL ACT
Small
Requires USPTO director to develop
Requires USPTO director to develop
Requires Small Business n/a n/a
Business
educational resources for small
educational resources for small businesses
Administration to
businesses with respect to their
with respect to their “concerns arising
produce a report
“concerns arising from patent
from patent infringement”
analyzing the impact of
infringement”
patent ownership by
Requires USPTO to create and maintain a
small businesses and
Requires USPTO and other federal
“user-friendly” section of its website in
patent infringement
agencies to provide, through existing
which the public may find information
actions against small
small business outreach programs,
about filed patent cases and the patents at
businesses
education and awareness on abusive
issue in those cases
litigation practices
Requires Director of
the Administrative
Requires USPTO to create and
Office to designate at
maintain a “user-friendly” section of
least six district courts
its website in which the public may
to address special
find information about filed patent
issues raised in patent
cases and the patents at issue in those
infringement suits
cases
against individuals or
Requires USPTO director to conduct
small business
a study examining the economic
concerns; such courts
impact of the Innovation Act on the
would be required to
ability of individuals and small
expedite cases in which
businesses owned by women,
an individual or small
veterans, and minorities to enforce
business concern is
their patent rights
accused of patent
infringement
Source: Congressional Research Service.
c11173008
.
Patent Litigation Reform Legislation in the 114th Congress
Author Contact Information
Brian T. Yeh
Emily M. Lanza
Legislative Attorney
Legislative Attorney
byeh@crs.loc.gov, 7-5182
elanza@crs.loc.gov, 7-6508
Congressional Research Service
40
c11173008