The U.S. Senate Judiciary Committee, after a three-hour hearing Thursday, sent a bill aimed at cracking down on so-called patent “trolls” to the Senate floor.
Members of the panel voted 16-4 in favor of S. 1137, otherwise known as the Protecting American Talent and Entrepreneurship, or PATENT, Act.
Sens. Chuck Grassley, R-Iowa; Orrin Hatch, R-Utah; Jeff Sessions, R-Ala.; Lindsey Graham, R-S.C.; John Cornyn, R-Texas; Mike Lee, R-Utah; Jeff Flake, R-Ariz.; David Perdue, R-Ga.; Thomas Tillis, R-N.C.; Patrick Leahy, D-Vt.; Dianne Feinstein, D-Calif; Chuck Schumer, D-N.Y.; Sheldon Whitehouse, D-R.I.; Amy Klobuchar, D-Minn.; Al Franken, D-Minn.; and Richard Blumenthal, D-Conn., all voted in favor of the bill.
Sens. Ted Cruz, R-Texas; David Vitter, R-La.; Dick Durbin, D-Ill.; and Chris Coons, D-Del., voted against the legislation.
Also Thursday, the panel unanimously passed proposed committee manager’s amendments to the bill that, among other things, add language that changes the procedures for inter partes review, or IPR, and post grant review, or PGR, at the U.S. Patent and Trademark Office.
“This piece is the product of discussions with various industry stakeholders, including the life sciences and tech groups,” said Grassley, the lead sponsor of the bill. “I think that many of us believe that the post grant proceedings at the PTO are working quite well with respect to weeding out poor quality and improperly granted patents. So it was our goal to address concerns, but not derail the very important function that these proceedings have in knocking out weak claims and patents.
“I hope that we’ve succeeded in making limited changes to the PTO processes to address these concerns. I know not everyone is happy, but we really tried to strike the right balance of addressing concerns but not disrupting the PTO proceedings.”
IPR is a procedure for challenging the validity of a patent before the PTO. The procedure, which allows third parties to challenge bad patents, is conducted by the Patent Trial and Appeal Board, or PTAB.
The review was enacted in September 2012 as part of the America Invents Act. The procedure replaced a previous review procedure called inter partes reexamination.
Specifically, the manager’s amendments:
- Require IPR and PGR proceedings to apply the same claim construction standard used in district court and consider district court claim constructions;
- Estop parties from eschewing in later court or PTO proceedings arguments made on claim construction to the office;
- Presume that patents are valid in IPR and PGR proceedings, though retaining the current preponderance of the evidence burden to invalidate a patent in such proceedings;
- Clarify that the PTO director has discretion not to institute an IPR or PGR if doing so would not serve the interests of justice considering factors such as whether the same prior art or arguments were decided in a prior proceeding or the patent is the subject of a current PTO proceeding;
- Allow patent owners to submit evidence in response to a petition to institute an IPR or PGR, and permit petitioners to file a reply to respond to new issues;
- Direct the PTO to modify the IPR and PGR process so that institution and merits decisions are not made by the same panels;
- Direct the PTO to hold a rulemaking on instituting a Fed. R. Civ. P. 11-type obligation in IPR and PGR proceedings;
- Require PTAB decisions to be publicly available and searchable on the web; and
- Remove the ability to join additional claims to a timely-filed IPR after the time for filing has elapsed, except for claims that are newly-served against the petitioner in an amended complaint (which get one year from amendment).
“The fundamentals of this bill are very good, with important, common-sense litigation reforms that include fee shifting, heightened pleading standards, demand letter reforms, and a mechanism to ensure recovery of fees against shell companies,” Hatch said in a statement after the hearing.
“There is still work we must do to strike the right balance on IPR reform, and I am committed to work through all remaining issues to ensure that innovators in every sector and industry are protected from patent trolls.”
Cornyn agreed, saying the legislation will protect entrepreneurs and innovators from abusive patent assertion practices that have “burdened” the nation’s private sector for “far too long.”
“These sensible reforms are the best way to protect access to justice for plaintiffs with legitimate claims of infringement, and to deter those who seek to game the system,” he said.
Under a separate amendment brought by Cornyn, passed by unanimous consent, certain higher education institutions and employees are permitted to qualify for micro entity status when applying for patents and, in turn, will pay lower patent application fees.
Also approved, on a voice vote, was an amendment brought by Feinstein that changes PATENT’s provisions governing pre-suit notification of infringement by patentees to accused infringers. Basically, demand letters cannot contain a specific monetary amount.
Durbin and Coons, who have introduced a separate patent reofrm bill, brought various amendments to the legislation, none of which were approved by the judiciary committee.
The panel’s approval mostly was met with applause.
The Coalition for 21st Century Patent Reform, also known as 21C, thanked lawmakers for moving the “important bill” forward.
“The overwhelming, bipartisan support for the bill reflects the widespread consensus that effective, meaningful and comprehensive reforms to strengthen our patent system must address both litigation abuses, in a measured and balanced fashion; as well as provisions designed to ensure that the PTO’s IPR/PGR proceedings are fair to both sides in any patent challenge,” said Kevin Rhodes, chairman of 21C and chief intellectual property counsel of the 3M Company.
The coalition includes many of the nation’s leading manufacturers and researchers. Among its steering committee: 3M, Bristol-Myers Squibb, Caterpillar, ExxonMobil, General Electric, Procter & Gamble, Johnson & Johnson and Eli Lilly.
Gary Shapiro, president and CEO of the Consumer Electronics Association, called the bill “comprehensive,” “fair” and “common-sense.”
“Patent trolls bleed $1.5 billion a week from the U.S. economy — that’s almost $120 billion since the House passed a patent reform bill in December of 2013,” Shapiro said. “The money that a business must spend on legal bills to fight off trolls is funding it can’t invest in developing new products or creating new jobs.
“But the PATENT Act will stop this legalized extortion of American innovators and free our small businesses from the burden of bogus lawsuits.”
The CEA, a technology trade association representing the nation’s consumer electronics industry, wants a floor vote taken as soon as possible.
“American innovation can’t afford the tidal wave of trolls’ demand letters, threats and lawsuits,” Shapiro said.
The non-profit Application Developers Alliance also thanked committee members for their efforts, saying PATENT will “substantially improve today’s imbalance in litigation burdens.”
In particular, the group said it supports provisions in the legislation that will protect small innovators and entrepreneurs, including a stay provision that would protect consumers while manufacturers litigate infringement claims associated with products.
“We are concerned, however, that the bill’s once-robust demand letter provision may be weakened by Sen. Feinstein’s amendment to prohibit specific dollar amounts in patent claimants’ initial demand letters,” it said.
“The Alliance supports more, not less, specificity in every demand letter sent, so that recipients can more quickly determine the validity of the claim and the asserting party’s credibility.”
But some stakeholders still want more.
Brian Pomper, executive director of Innovation Alliance, a group made up of research and development-focused companies, argues that “significant” work remains on the bill before it can be widely supported.
“Concerns remain on the potential for abuse of the customer stay provision as currently drafted, the overbreadth of the pleadings and discovery provisions, and the need to adopt measures to address ongoing abuse in the inter partes review system,” he said.
“The Innovation Alliance will continue to advocate for common sense improvements to these provisions to ensure that the PATENT Act targets the existing abuse by some patent plaintiffs without creating new avenues for abuse by patent defendants in the future.
“We can strengthen our patent laws without undermining intellectual property rights and crippling a system that is so important to incentivizing innovation and job creation in our country.”
It is expected that members of judiciary committee will make revisions to certain provisions of the bill before it heads to the full Senate for a vote.