The Innovation Alliance on Patent Legislation Proposals

Tuesday, Nov 12th, 2013

The Innovation Alliance, a coalition of R&D-based technology companies, supports measures to improve patent quality and curb excessive litigation costs for all users of the patent system. Certain reform proposals recently circulated by the White House and in Congress, however, would unfairly diminish the value and enforceability of patents. A recent study by the Government Accountability Office found that patent assertion entities are not driving patent litigation and that broad new legislation aimed at constraining them is unnecessary.

Given that the American Invents Act of 2011 has only been implemented for a brief time, we urge the Administration and Congress to proceed with caution and ensure that any changes support America’s innovation economy. To the extent that certain litigation abuses truly require a recalibration of existing laws, legislative changes should be carefully tailored to address a proven problem. Toward that end, the Innovation Alliance will work constructively with the Administration, Congress, and other stakeholders to find common-ground approaches that support innovation and job creation.

ANALYSIS OF PATENT LEGISLATION PROPOSALS

The Innovation Alliance supports certain reform proposals, but others would unnecessarily undermine the enforceability of all patent rights, no matter how valuable the patent, and thus potentially incentivize infringement. Below is a summary of our views:

Heightened pleading standards. Form 18 of the Federal Rules of Civil Procedure does not require plaintiffs in patent cases to plead specific claims or how these claims relate to the features of the device or instrumentality alleged to infringe the patent. Innovation Alliance favors elimination of Form 18 but opposes overly burdensome statutory pleading requirements.

Heightened pleading standards. Form 18 of the Federal Rules of Civil Procedure does not require plaintiffs in patent cases to plead specific claims or how these claims relate to the features of the device or instrumentality alleged to infringe the patent. Innovation Alliance favors elimination of Form 18 but opposes overly burdensome statutory pleading requirements.

Change in patent claim construction standards. Currently, the USPTO construes patent claims in post-grant and inter partes review proceedings using the “broadest reasonable interpretation” (BRI) standard, which differs from the patent claim construction standard applied in a civil action. USPTO’s continued use of the BRI standard in PGR and IPR proceedings is inconsistent with the purpose of these new administrative review proceedings -- namely, to serve as a quality check to determine whether the USPTO is granting patents with claims that will stand up in court. Innovation Alliance supports proposals that would require USPTO to apply the same claim construction standard in PGR and IPR proceedings that applies in civil actions.

Exemption of USPTO funding from sequestration. Currently, the presidential sequestration order issued on March 1, 2013 subjects the USPTO’s fees to sequester, denying the USPTO access to all the funds it collects from applicants and owners of patents and trademarks -- and thus the resources it needs to tackle its patent backlog. Innovation Alliance opposes the sequestration of the USPTO’s resources and supports legislation that exempts these resources from the March 1, 2013 order and future sequestration orders.

Balanced fee shifting. Federal courts should have appropriate discretion to award attorney’s fees to prevailing parties in patent cases, without privileging one litigant over the other. However, mandatory or discriminatory fee shifting proposals have the potential to unfairly privilege or punish particular litigants. Innovation Alliance supports adoption of an enhanced fee-shifting regime similar to the legal standard that applies to copyright infringement, but opposes proposals that mandate enhanced fee-shifting and/or discriminate against patent owners.

Balanced fee shifting. Federal courts should have appropriate discretion to award attorney’s fees to prevailing parties in patent cases, without privileging one litigant over the other. However, mandatory or discriminatory fee shifting proposals have the potential to unfairly privilege or punish particular litigants. Innovation Alliance supports adoption of an enhanced fee-shifting regime similar to the legal standard that applies to copyright infringement, but opposes proposals that mandate enhanced fee-shifting and/or discriminate against patent owners.

Stay of judicial proceedings. Several proposals contain provisions that direct courts to stay judicial proceedings against vendors, manufacturers, and end-users of a product when an infringement suit has also been brought against a retailer or manufacturer further “upstream” in the distribution chain of the product or component covered by the patent. Innocent end-users of technology, such as mom-and-pop businesses that have purchased a generally available consumer product, should not be the subject of infringement litigation. However, these stay proposals are drafted much too broadly and are open to abuse by infringers "downstream," who could postpone a judgment for years, thereby gaining increased market share over legitimate licensees and denying fair compensation for patent owners. Innovation Alliance supports measures that encourage judicial stays against innocent consumers of end products where a stay would promote fair and efficient resolution of a patent suit, but strongly opposes expansive proposals that would effectively mandate stays against all downstream implementers and users of patented technologies.

Business method patent proposals. The America Invents Act authorized a transitional program so the USPTO can undertake post-grant review of certain “covered business method patents” used in “the practice, administration, or management of a financial product or service.” Several bills propose to make the temporary program permanent and expand it to include a much broader range of patents, including software patents. Innovation Alliance opposes expanding and making permanent the post-grant review program for covered business method patents. Doing so would unnecessarily subject many patents to additional costly administrative proceedings in the USPTO and potentially subject their owners to serial validity challenges.

“Could have raised” estoppel. Under existing law, a party challenging the validity of a patent “may not assert . . . in a civil action . . . that the [patent] claim is invalid on any ground that the petitioner raised or reasonably could have raised during that post-grant review.” A recent proposal strikes the phrase “or reasonably could have raised.” Innovation Alliance opposes this change to our patent laws, which gives accused infringers that should have raised all arguments administratively more options in court to challenge patent validity, unfairly discriminating against patent holders and increasing the complexity of litigation.

ITC “injunctions.” The White House proposes to apply the test for obtaining an injunction in federal district court—outlined by the Supreme Court in eBay Inc. v. MercExchange LLC—to the issuance of exclusion orders in the ITC. Extending the eBay test to the ITC would fundamentally alter the standards applicable to exclusion orders, making it harder for the ITC to issue exclusion orders barring patent-infringing products from importation into this country. IP theft has been identified as a major threat to the U.S. economy and national security. ITC exclusion orders are an effective tool for protecting domestic industries from imported products that amount to foreign theft of American intellectual property and should remain an available remedy. Innovation Alliance strongly opposes this unnecessary and unwarranted proposal, which would significantly undermine the effectiveness of Section 337 remedies against foreign infringers.