Protecting American Talent and Entrepreneurship (PATENT) Act

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S.1137: Protecting American Talent and Entrepreneurship (PATENT) Act (2015) (Congress)

The PATENT Act was introduced on April 29, 2015 by Senator Chuck Grassley (R-IA) and referred to the Senate Committee on the Judiciary. On September 8, 2015, the bill was placed on the Senate Legislative Calendar under General Orders. Currently the bill has 6 cosponsors (3 Republicans and 3 Democrats). The full title of the bill is "A bill to amend title 35, United States Code, and the Leahy-Smith America Invents Act to make improvements and technical corrections, and for other purposes."

GovTrack predicts the PATENT Act has a 36% chance of being enacted. (GovTrack)

The House Innovation Act and Senate Patent Act are very similar; both acts address abusive litigation through “increased transparency, more limited discovery, heightened pleading standards, and ‘loser pays’ fee shifting”. However, there has been a delay in the passing of the bills because of controversy surrounging the shifting of attorney fees. Fee shifting was originally suggested as a way to incentivize small firms and businesses that were being unfairly accused of patent infringement to bring the case to court, so that they would not have to pay their attorney fees. However, there have been arguments stating that fee shifting would actually increase the settlement rate of small businesses being accused of patent infringement, because they don’t want to take the risk of losing and paying for the winner’s attorneys’ fees, in addition to their own. (Bloomberg BNA)

Summary

Pleading and early disclosure

The PATENT Act requires patent owners to identify each claim of each patent allegedly infringed and which products or processes are infringing. If the details are not available, the patent owner must explain why.

Customer stay

The act allows cases against consumers to be stayed while the manufacturer litigates the alleged patent infringement if the manufacturer is involved in a similar case in the United States. This stay is only for consumers at the end of the supply chain who are using the product in its final form without material modifications.

Discovery limits

The PATENT Act requires a court to stay expensive discovery pending the resolution of preliminary motions, such as the dismissal of a case, a change of venue, of the severance of accused infringers.

Fees and recovery

The act provides that reasonable attorney fees will be awarded if the court finds that the non-prevailing party was not objectively reasonable. This prevents patent trolls from extorting their targets into settling for thousands of dollars rather than spending millions of dollars in legal battles. Universities are exempt from this fee-recovery provision. In the case that an entity is unable to pay the fee, fees may be recovered from third parties that have a "substantial financial interest" in the patent.

Disclosure of patent ownership

The PATENT Act requires patent holders to disclose to the Patent and Trademark Office (PTO) whenever there is an assignment of interest in the patent that results in a change of ultimate parent entity. This transparency allows defendants to who has a stake in the case, as well as if the patent has been litigated before.

Small business provisions

The act directs the PTO to develop educational resources for businesses targeted by patent suits and to create a list of pending patent cases on its website.

Analysis

According to the drafters of the PATENT Act, the proposed legislation aims to "stop abusive patent litigation practices" and prevent "bad actors," namely patent trolls, "from undermining the patent system." (Baker Botts)

A 2015 study from PriceWaterhouseCoopers on patent litigation shows that 2014 saw a 13 percent decrease in the amount of patent lawsuits filed, contrary to the average 20 to 30 percent increases seen since 2009.

One of the major criticisms of the PATENT Act is against its "customer stay" provision. Making manufacturers instead end users responsible allows for a loophole in which many manufacturers could qualify as customers because they buy or import components of products. {IP Watchdog)

The PATENT Act is strongly supported by Microsoft (Microsoft) and the National Retail Federation. (NRF)

Organizations like the Innovation Alliance (IA) and National Venture Capital Association (NVCA) have spoken out against various provisions of the bill. The NVCA states that the PATENT Act, as well as the Innovation Act (H.R.9) will increase the risk of patent litigation for startups by creating an overly broad fee shifting standard that gives a significant advantage to large incumbent companies and even large patent trolls that have the financial resources to engage in litigation in ways startups simply can’t match.