On December 5, a bill aimed at curbing patent trolls passed the House of Representatives. If it makes it through the Senate and is signed by President Obama, the Innovation Act would be the most significant legislative reform to patent law since the Leahy-Smith America Invents Act became law in 2011.
Congressman Bob Goodlatte is the Innovation Act’s primary sponsor. In his remarks on the floor of the House, Representative Goodlatte explained that the bill is designed to prevent “abusive patent litigation.” Congressman Goodlatte put patent trolls on notice. Citing the “abusive behavior” of trolls, he complained about patent infringement lawsuits that “target a settlement just under what it would cost for litigation, knowing that these businesses will want to avoid costly litigation and probably pay up.” “The patent system was never intended to be a playgrond for litigation extortion and frivolous claims,” he said.
The Innovation Act certainly targets trolls. It mandates disclosure of the ultimate entity that owns the asserted patents and limits a patent troll’s ability to target consumers with a patent infringement suit. But the bill does not stop with patent trolls. It has significant implications for patent litigation. Here are a few of the key provisions.
Changing the Standard for Pleading Patent Infringement—Infringement Contentions at the Outset. Under current law, a plaintiff need only meet the vague pleading standard set out in Form 18 of the Federal Rules of Civil Procedure to state a claim for patent infringement. Form 18 requires a simple, conclusory statement that the defendant is “making, using, and selling [products] that embody the patented invention.” No specific product names or model numbers are necessary. No explanation of how the products infringe is necessary.
The Innovation Act would change that. So long as the information is “reasonably accessible,” a patentee would be required to plead as part of its complaint the infringement contentions most judicial districts require as part of their Local Patent Rules. This means a patentee would have to specifically identify which of the accused infringer’s products infringe by product name and model number at the outset of the case. The patentee would also have to identify on an element-by-element basis which claims are present in the accused product. Interestingly, the Innovation Act exempts Hatch-Waxman litigation from the heightened pleading standard it would establish.
Moving Toward “Loser Pays” in Patent Litigation. The Innovation Act would establish a type of “loser pays” system for patent litigation. The Act mandates that a “court shall award, to a prevailing party, reasonable fees and other expenses incurred by that party” in the litigation. The Act gives a court discretion to decline to award fees if “the position and conduct of the nonprevailing party or parties were reasonably justified in law and fact” or if “special circumstances”—i.e., if the award would cause “severe economic hardship to a named inventor”—would “make an award unjust.” The current Patent Act has a fee-shifting provision, but like the Copyright Act and the Lanham Act, attorney’s fees awards are left entirely to the discretion of the court.
Changing Discovery in Patent Litigation. The Innovation Act would limit the amount of discovery a litigant could conduct prior to the court issuing a claim construction order “to information necessary for the court to determine the meaning of the terms used in the patent claim.” The exception to this limitation would be discovery necessary to resolve properly raised, pre-Markman order motions such as a motion to dismiss for lack of personal jurisdiction, actions seeking a preliminary injunction, and other special circumstances a court may find.
Demand Letters and Willful Infringement. Taking aim at “evasive demand letters,” the Innovation Act would prevent patentees from using demand letters as evidence of willful infringement unless the letter sets out with particularity which patents are infringed, who owns the asserted patents, and how the letter’s recipient is infringing the patents.