Innovation Act

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H.R.9: Innovation Act (2015) (Congress)

The Innovation Act was introduced on February 5, 2015, by Representative Bob Goodlatte (R-VA). The bill was referred to the House Committee on the Judiciary and Subcommittee on the Courts, Intellectual Property, and the Internet, and was placed on the Union Calendar on July 29, 2015. Currently the bill has 27 cosponsors.

The Innovation Act was previously introduced in 2013, but the Senate did not respond with the introduction of a similar bill. In 2015, the House reintroduced the Innovation Act, and the Senate also introduced the similar PATENT Act. The full title of the bill is "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 that the Innovation Act has a 36% chance of being enacted.

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 surrounding 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

Heightened pleading requirements

The Innovation Act requires patent owners to show how each limitation of each asserted claim in each asserted patent is found within each alleged infringement.

Presumption of attorney fees

The act encourages judges to make a party pay attorney fees if the lawsuit or claim is deemed frivolous.

Transparency of ownership

The Innovation Act requires plaintiffs to disclose the owner of the patent in question so the identity of the real parties behind the litigation is clear. This will ensure that patent trolls cannot hide behind a web of shell companies to avoid accountability for bringing frivolous litigation.

Discovery limits

The act would limit discovery in litigation until after a claim construction ruling. This provision is aimed at reducing the costs of litigation.

Analysis Notes (not organized yet)

Before: The court may conclude that the patent claim is not valid if it is shown that the claimed invention was disclosed in a prior patent or patents, a book, a magazine, a newspaper, a television show or movie, a webpage or other published work before the date of the claimed invention.

After: Innovation Act removes a provision that prohibits a patent from being deemed invalid based on novelty, prior art, or nonobvious subject matter solely because a defense is raised or established based on prior commercial use.

Findings from Katznelson Study [1] Historically, as a fraction of issued patents, reported litigation rates in the first part of the 19th century exceeded that of the last two decades by about a factor of five. Patent litigation intensities in recent years had not exceeded those experienced during the 20th century. Rather , patent litigation surges are consistent with major shifts in technological developments, which introduce novel terms and uncertainty in patent claims and require infrimgement analysis of novel and less understood products.

NPEs vs PAEs [2] We need to make a distinction between NPEs and PAEs (otherwise known as patent trolls). These terms are often used interchangeably but universities and startups are included under the definition of a non-practicing entity. If you define a Practicing Assertion Entity (PAE) as a company that asserts patents on existing products as a business model, then you separate universities and startups from PAEs, inventor monetizers, and special purpose patent monetizers.

Current Patent System [3]

American Intellectual Property Law Association reported in 2009 that the median cost of a patent infringement suit was 650,000 if less than 1 mil was at risk; 2.5 million if 1 mil to 25 mil at risk; 5.5 million if more than 25 mil at risk.

• More than 95% of patent cases resolved before trial

“Typical patent infringement lawsuit begins with complaint filed by patent owner in a US district court. Complaint identified alleged infringers, and the US patent or patents alleged to be infringed.”

• Usually includes a brief statement of the alleged infringing act
• Doesn’t identify specific products or processes that are accused of infringement
• Average time from filing a case to judgement is 33 months, or 2 years 9 months

Some districts (northern district of CA, Eastern district of TX) have local patent rules that require plaintiffs to identify the specific claims being asserted, and specify where each limitation of each asserted claim is found in each accused product.

A sizable majority of patent troll lawsuits (some say as high as 90%) involve patents on software the problem to patents of low quality having “unclear property rights, overly broad claims, or both.” The problem is inherent in software because, unlike a mechanical device, it is intangible and difficult to clearly define.[4]

Issues/cricism of the innovation act [5]:

• Apparent automatic fee-shifting in lawsuits
• Heightened pleading standard
• Discovery stay
• Broad ‘customer stay’ provision could shield retailers/importers from infringement claims
• Pierce corporate veil with “ownership transparency”

Indirect infringement:

• Someone who has contributed to the infringement of a patent is liable
• Can only arise when the indirect infringer has some knowledge and intent regarding the patent and infringement
• ex. someone who actively induces infringement of patent by encouraging, aiding, or causing another person to infringe a patent. Inducer must be aware of patent and intend for their actions to result in third party infringing that patent
• Contributory infringement: seller provides part of component that itself does not infringe on a patent, but has a particular use as a part of some other machine that is covered by a patent

Detailed Summary of the Bill

Section 3

Pleading Requirements

The party alleging patent infringement must include in the initial complaint (unless the information is not reasonably accessible to such party):

• Identification of each patent allegedly infringed
• All claims (heart of the patent, defines the limits of exactly what the patent does) necessary to produce the identification of each process, machine, manufacture, or composition of matter (accused instrumentalities) that infringe the patent
• The name, model number, description of each AI
• How each limitation of each claim is met by the AI
• For indiret infringement, the acts of the infringer that are inducing a direct infringement
• Authority of the party to assert each patent

TL;DR If you believe your patent has been infringed on, you must write in your initial complaint letter VERY SPECIFIC information regarding exactly which parts of your patents have been violated and by what model/device.

Fees and Other Expenses

"Requires courts to award prevailing parties reasonable fees and other expenses incurred in connection with such actions, unless: (1) the position and conduct of the nonprevailing party was reasonably justified in law and fact; or (2) special circumstances, such as severe economic hardship to a named inventor, make an award unjust. Directs courts, upon a motion of a party, to require another party to certify whether it will be able to pay any award of such fees and expenses. Allows the court, if a nonprevailing party is unable to pay such a fee, to make a joined party liable for the unsatisfied portion.

Subjects a party claiming a patent in a civil action who subsequently unilaterally seeks dismissal of the action without consent of the other party, and who extends to such other party a covenant not to sue for infringement, to a motion for attorney's fees as if it were a nonprevailing party, unless: (1) the party asserting such claim would have been entitled, at the time that such covenant was extended, to dismiss voluntarily the action without a court order; or (2) the interests of justice require otherwise.

Removes a provision that prohibits a patent from being deemed invalid based on novelty, prior art, or nonobvious subject matter solely because a defense is raised or established based on prior commercial use."[6]

TL;DR Encourages courts to make the losers pay for the winner’s court fees/associated fees

Joinder of Interested Parties

• If the prevailing party is the side defending against an allegation of infringement, and the nonprevailing party can’t pay the award of fees and expenses, then the prevailing party can signal a motion to have a joinder of interested parties, if they show that the nonprevailing party has no substantial interest in the subject matter
  • Substantial interest is defined as interest if the party invented the subject matter or commercially practices, made substantial preparations directed particularly to commercially practicing, or is engaged in R&D in the subject matter

Discovery Stay

"Establishes procedures to stay discovery pending a preliminary motion, subject to exceptions for: (1) motions to sever, drop a party, dismiss, or transfer; (2) actions in which a patentee is granted a preliminary injunction to prevent competitive harm; (3) consent of the parties; or (4) certain drug and biological product applications."[7]

Demand Letters

“The bill precludes a plaintiff from relying on pre-suit demand letters to establish willful infringement if the letters do not specify the asserted patent, the accused product, the plaintiff’s ultimate parent entity, and the grounds for the alleged infringement” [8]

Venue

Amends the federal judicial code to restrict the venues where patent actions may be brought to judicial districts where: the defendant has its principal place of business or is incorporated, has committed an act of infringement and has a regular and established physical facility that gives rise to the act of infringement, or has agreed or consented to be sued in the instant action; an inventor named on the patent conducted research or development; or a party has a regular and established physical facility and has managed significant research and development for the invention claimed in the patent, has manufactured a tangible product alleged to embody that invention, or has implemented a manufacturing process for a tangible good in which the process is alleged to embody the invention.[9]