[House Report 114-235]
[From the U.S. Government Publishing Office]
114th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 114-235
======================================================================
INNOVATION ACT
_______
July 29, 2015.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Goodlatte, from the Committee on the Judiciary, submitted the
following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 9]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the
bill (H.R. 9) to amend title 35, United States Code, and the
Leahy-Smith America Invents Act to make improvements and
technical corrections, and for other purposes, having
considered the same, reports favorably thereon with an
amendment and recommends that the bill as amended do pass.
CONTENTS
Page
The Amendment.................................................... 2
Purpose and Summary.............................................. 21
Background and Need for the Legislation.......................... 23
Hearings......................................................... 53
Committee Consideration.......................................... 54
Committee Votes.................................................. 54
Committee Oversight Findings..................................... 58
New Budget Authority and Tax Expenditures........................ 58
Congressional Budget Office Cost Estimate........................ 58
Duplication of Federal Programs.................................. 60
Disclosure of Directed Rule Makings.............................. 60
Performance Goals and Objectives................................. 60
Advisory on Earmarks............................................. 61
Section-by-Section Analysis...................................... 61
Agency Views..................................................... 81
Changes in Existing Law Made by the Bill, as Reported............ 89
Dissenting Views................................................. 167
The Amendment
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Innovation Act''.
(b) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; table of contents.
Sec. 2. Definitions.
Sec. 3. Patent infringement actions.
Sec. 4. Transparency of patent ownership.
Sec. 5. Customer-suit exception.
Sec. 6. Procedures and practices to implement recommendations of the
Judicial Conference.
Sec. 7. Small business education, outreach, and information access.
Sec. 8. Studies on patent transactions, quality, and examination.
Sec. 9. Improvements and technical corrections to the Leahy-Smith
America Invents Act.
Sec. 10. Effective date.
SEC. 2. DEFINITIONS.
In this Act:
(1) Director.--The term ``Director'' means the Under
Secretary of Commerce for Intellectual Property and Director of
the United States Patent and Trademark Office.
(2) Office.--The term ``Office'' means the United States
Patent and Trademark Office.
SEC. 3. PATENT INFRINGEMENT ACTIONS.
(a) Pleading Requirements.--
(1) Amendment.--Chapter 29 of title 35, United States Code,
is amended by inserting after section 281 the following:
``Sec. 281A. Pleading requirements for patent infringement actions
``(a) Pleading Requirements.--Except as provided in subsection (b),
in a civil action in which a party asserts a claim for relief arising
under any Act of Congress relating to patents, a party alleging
infringement shall include in the initial complaint, counterclaim, or
cross-claim for patent infringement, unless the information is not
reasonably accessible to such party, the following:
``(1) An identification of each patent allegedly infringed.
``(2) An identification of all claims necessary to produce
the identification (under paragraph (3)) of each process,
machine, manufacture, or composition of matter (referred to in
this section as an `accused instrumentality') that is alleged
to infringe any claim of each patent that is identified under
paragraph (1).
``(3) For each claim identified under paragraph (2), an
identification of each accused instrumentality alleged to
infringe the claim.
``(4) For each accused instrumentality identified under
paragraph (3), an identification with particularity, if known,
of--
``(A) the name or model number (or a representative
model number) of each accused instrumentality; or
``(B) if there is no name or model number, a
description of each accused instrumentality.
``(5) For each accused instrumentality identified under
paragraph (3), a clear and concise statement of--
``(A) where each element of each claim identified
under paragraph (2) is found within the accused
instrumentality; and
``(B) with detailed specificity, how each limitation
of each claim identified under paragraph (2) is met by
the accused instrumentality.
``(6) For each claim of indirect infringement, a description
of the acts of the alleged indirect infringer that contribute
to or are inducing the direct infringement.
``(7) A description of the authority of the party alleging
infringement to assert each patent identified under paragraph
(1) and of the grounds for the court's jurisdiction.
``(b) Information Not Readily Accessible.--If information required to
be disclosed under subsection (a) is not readily accessible to a party
after an inquiry reasonable under the circumstances, as required by
Rule 11 of the Federal Rules of Civil Procedure, that information may
instead be generally described, along with an explanation of why such
undisclosed information was not readily accessible, and of any efforts
made by such party to access such information.
``(c) Amendment of Pleadings.--Nothing in this section shall be
construed to affect a party's ability to amend pleadings as specified
in the Federal Rules of Civil Procedure. Amendments permitted by the
court are subject to the pleading requirements set forth in this
section.
``(d) Confidential Information.--A party required to disclose
information described under subsection (a) may file, under seal,
information believed to be confidential, with a motion setting forth
good cause for such sealing. If such motion is denied by the court, the
party may seek to file an amended complaint.
``(e) Exemption.--A civil action that includes a claim for relief
arising under section 271(e)(2) shall not be subject to the
requirements of subsection (a).''.
(2) Conforming amendment.--The table of sections for chapter
29 of title 35, United States Code, is amended by inserting
after the item relating to section 281 the following new item:
``281A. Pleading requirements for patent infringement
actions.''.
(b) Fees and Other Expenses.--
(1) Amendment.--Section 285 of title 35, United States Code,
is amended to read as follows:
``Sec. 285. Fees and other expenses
``(a) Award.--The court shall award, to a prevailing party,
reasonable fees and other expenses incurred by that party in connection
with a civil action in which any party asserts a claim for relief
arising under any Act of Congress relating to patents, unless the court
finds that the position and conduct of the nonprevailing party or
parties were reasonably justified in law and fact or that special
circumstances (such as severe economic hardship to a named inventor)
make an award unjust.
``(b) Certification and Recovery.--Upon motion of any party to the
action, the court shall require another party to the action to certify
whether or not the other party will be able to pay an award of fees and
other expenses if such an award is made under subsection (a). If a
nonprevailing party is unable to pay an award that is made against it
under subsection (a), the court may make a party that has been joined
under section 299(d) with respect to such party liable for the
unsatisfied portion of the award.
``(c) Covenant Not to Sue.--A party to a civil action who asserts a
claim for relief arising under any Act of Congress relating to patents
against another party, and who subsequently unilaterally (i) seeks
dismissal of the action without consent of the other party and (ii)
extends to such other party a covenant not to sue for infringement with
respect to the patent or patents at issue, may be the subject of a
motion for attorneys fees under subsection (a) as if it were a non-
prevailing party, unless 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 under Rule 41 of the
Federal Rules of Civil Procedure, or the interests of justice require
otherwise.''.
(2) Conforming amendment and amendment.--
(A) Conforming amendment.--The item relating to
section 285 of the table of sections for chapter 29 of
title 35, United States Code, is amended to read as
follows:
``285. Fees and other expenses.''.
(B) Amendment.--Section 273 of title 35, United
States Code, is amended by striking subsection (f).
(C) Amendment.--
(i) In general.--Section 273 of title 35,
United States Code, as amended by subparagraph
(B), is further amended by striking subsection
(g).
(ii) Effective date.--The amendment made by
this subparagraph shall be effective as if
included in the amendment made by section
3(b)(1) of the Leahy-Smith America Invents Act
(Public Law 112-29).
(3) Effective date.--Except as otherwise provided in this
subsection, the amendments made by this subsection shall take
effect on the date of the enactment of this Act and shall apply
to any action for which a complaint is filed on or after the
first day of the 6-month period ending on that effective date.
(c) Joinder of Interested Parties.--Section 299 of title 35, United
States Code, is amended by adding at the end the following new
subsection:
``(d) Joinder of Interested Parties.--
``(1) Joinder.--Except as otherwise provided under this
subsection, in a civil action arising under any Act of Congress
relating to patents in which fees and other expenses have been
awarded under section 285 to a prevailing party defending
against an allegation of infringement of a patent claim, and in
which the nonprevailing party alleging infringement is unable
to pay the award of fees and other expenses, the court shall
grant a motion by the prevailing party to join an interested
party if such prevailing party shows that the nonprevailing
party has no substantial interest in the subject matter at
issue other than asserting such patent claim in litigation.
``(2) Limitation on joinder.--
``(A) Discretionary denial of motion.--The court may
deny a motion to join an interested party under
paragraph (1) if--
``(i) the interested party is not subject to
service of process; or
``(ii) joinder under paragraph (1) would
deprive the court of subject matter
jurisdiction or make venue improper.
``(B) Required denial of motion.--The court shall
deny a motion to join an interested party under
paragraph (1) if--
``(i) the interested party did not timely
receive the notice required by paragraph (3);
or
``(ii) within 30 days after receiving the
notice required by paragraph (3), the
interested party renounces, in writing and with
notice to the court and the parties to the
action, any ownership, right, or direct
financial interest (as described in paragraph
(4)) that the interested party has in the
patent or patents at issue.
``(3) Notice requirement.--An interested party may not be
joined under paragraph (1) unless it has been provided actual
notice, within 30 days after the expiration of the time period
during which a certification under paragraph (4)(B) is required
to be filed, that the interested party has been identified in
the initial disclosure under section 290(b) and that such party
may therefore be an interested party subject to joinder under
this subsection. Such notice shall be provided by the party who
subsequently moves to join the interested party under paragraph
(1), and shall include language that--
``(A) identifies the action, the parties thereto, the
patent or patents at issue, and the pleading or other
paper that identified the party under section 290(b);
and
``(B) informs the party that it may be joined in the
action and made subject to paying an award of fees and
other expenses under section 285(b) if--
``(i) fees and other expenses are awarded in
the action against the party alleging
infringement of the patent or patents at issue
under section 285(a);
``(ii) the party alleging infringement is
unable to pay the award of fees and other
expenses;
``(iii) the party receiving notice under this
paragraph is determined by the court to be an
interested party; and
``(iv) the party receiving notice under this
paragraph has not, within 30 days after
receiving such notice, renounced in writing,
and with notice to the court and the parties to
the action, any ownership, right, or direct
financial interest (as described in paragraph
(4)) that the interested party has in the
patent or patents at issue.
``(4) Additional requirements for joinder.--
``(A) Initial statement.--This subsection shall not
apply to an action unless a party defending against an
allegation of infringement of a patent claim files, not
later than 14 days before the date on which a
scheduling conference is held or the date on which a
scheduling order is due under Rule 16(b) of the Federal
Rules of Civil Procedure, a statement that such party
holds a good faith belief, based on publicly available
information and any other information known to such
party, that the party alleging infringement has no
substantial interest in the subject matter at issue
other than asserting the patent in litigation.
``(B) Certification.--This subsection shall not apply
to an action if the party alleging infringement files,
not later than 45 days after the date on which such
party is served with the initial statement described
under subparagraph (A), a certification that--
``(i) establishes and certifies to the court,
under oath, that such party will have
sufficient funds available to satisfy any award
of reasonable attorney's fees and expenses
under section 285 if an award is assessed;
``(ii) demonstrates that such party has a
substantial interest in the subject matter at
issue other than asserting the patent in
litigation; or
``(iii) is made under oath that there are no
other interested parties.
``(5) Exception for university technology transfer
organizations.--This subsection shall not apply to a technology
transfer organization whose primary purpose is to facilitate
the commercialization of technologies developed by one or more
institutions of higher education (as defined in section 101(a)
of the Higher Education Act of 1965 (20 U.S.C. 1001(a))) if
such technology transfer organization is alleging infringement
on behalf of an entity that would not be subject to this
subsection.
``(6) Interested party defined.--In this subsection, the term
`interested party' means a person, other than the party
alleging infringement, that--
``(A) is an assignee of the patent or patents at
issue;
``(B) has a right, including a contingent right, to
enforce or sublicense the patent or patents at issue;
or
``(C) has a direct financial interest in the patent
or patents at issue, including the right to any part of
an award of damages or any part of licensing revenue,
except that a person with a direct financial interest
does not include--
``(i) an employee of the party alleging
infringement--
``(I) whose principal source of
income or employment is employment with
the party alleging infringement; or
``(II) whose sole financial interest
in the patent or patents at issue is a
salary or hourly wage paid by the party
alleging infringement;
``(ii) an attorney or law firm providing
legal representation in the civil action
described in paragraph (1) if the sole basis
for the financial interest of the attorney or
law firm in the patent or patents at issue
arises from the attorney or law firm's receipt
of compensation reasonably related to the
provision of the legal representation; or
``(iii) a person whose sole financial
interest in the patent or patents at issue is
ownership of an equity or security interest in
the party alleging infringement, unless such
person also has the right or ability to direct
or control (membership on the board of
directors alone is not sufficient to
demonstrate such right or ability) the civil
action.
``(7) Substantial interest.--In this subsection, the term
`substantial interest' includes an interest in the subject
matter of a patent at issue if the party--
``(A) invented the subject matter; or
``(B) commercially practices or implements, made
substantial preparations directed particularly to
commercially practicing or implementing, or is engaged
in research and development in, technology in the field
of the subject matter.''.
(d) Discovery Stay.--
(1) Amendment.--Chapter 29 of title 35, United States Code,
as amended by subsection (a), is further amended by inserting
after section 281A (as added by such subsection) the following
new section:
``Sec. 281B. Stay of discovery pending a preliminary motion.
``(a) In General.--Except as provided in subsection (d), in an action
for patent infringement under section 271 or an action for a
declaratory judgement that a patent is invalid or not infringed,
discovery shall be stayed if--
``(1) the defendant moves to--
``(A) sever a claim or drop a party for misjoinder
under Rule 21 of the Federal Rules of Civil Procedure;
``(B) transfer the action under section 1404(a) of
title 28;
``(C) transfer or dismiss the action under section
1406(a) of title 28; or
``(D) dismiss the action pursuant to Federal Rule of
Civil Procedure 12(b); and
``(2) such motion is filed within 90 days after service of
the complaint and includes a declaration or other evidence in
support of the motion.
``(b) Expiration of Stay.--A stay entered under subsection (a) shall
expire when all motions that are the basis for the stay are decided by
the court.
``(c) Priority of Decision.--In an action described in subsection
(a), the court shall decide a motion to sever a claim or drop a party
for misjoinder under Rule 21 of the Federal Rules of Civil Procedure,
to transfer under section 1404(a) to title 28, to transfer or dismiss
under 1406(a) of title 28, or to dismiss the action pursuant to Federal
Rule of Civil Procedure 12(b) before the earlier of the date on which
the court--
``(1) decides any other substantive motion, provided however
that the court may decide a question of its own jurisdiction at
any time; or
``(2) issues a scheduling order under Rule 16(b) of the
Federal Rules of Civil Procedure.
``(d) Exception.--
``(1) Discovery necessary to decide motion.--Notwithstanding
subsection (a), the court may allow such discovery as the court
determines to be necessary to decide a motion to sever, drop a
party, dismiss, or transfer.
``(2) Competitive harm.--Subsections (a) and (c) shall not
apply to an action in which the patentee is granted a
preliminary injunction to prevent harm arising from the
manufacture, use, sale, offer for sale, or importation of an
allegedly infringing product or process that competes with a
product or process made, sold, or offered for sale by the
patentee.
``(3) Consent of the parties.--The patentee and an opposing
party shall be excluded, in whole or in part, from the
limitations of subsections (a) and (c) upon such parties'
filing with the court a signed stipulation agreeing to such
exclusion.
``(4) FDA and biological product application.--Subsections
(a) and (c) shall not apply to an action that includes a cause
of action described under section 271(e)(2).''.
(2) Conforming amendment.--The table of sections for chapter
29 of title 35, United States Code, is amended by inserting
after the item relating to section 281A, as added by subsection
(a), the following new item:
``281B. Stay of discovery pending a preliminary motion.''.
(e) Sense of Congress.--It is the sense of Congress that it is an
abuse of the patent system and against public policy for a party to
send out purposely evasive demand letters to end users alleging patent
infringement. Demand letters sent should, at the least, include basic
information about the patent in question, what is being infringed, and
how it is being infringed. Any actions or litigation that stem from
these types of purposely evasive demand letters to end users should be
considered a fraudulent or deceptive practice and an exceptional
circumstance when considering whether the litigation is abusive.
(f) Demand Letters.--Section 284 of title 35, United States Code, is
amended--
(1) in the first undesignated paragraph, by striking ``Upon
finding'' and inserting ``(a) In General.--Upon finding'';
(2) in the second undesignated paragraph, by striking ``When
the damages'' and inserting ``(b) Assessment by Court; Treble
Damages.--When the damages'';
(3) by inserting after subsection (b), as designated by
paragraph (2) of this subsection, the following:
``(c) Willful Infringement.--A claimant seeking to establish willful
infringement may not rely on evidence of pre-suit notification of
infringement unless that notification identifies with particularity the
asserted patent, identifies the product or process accused, identifies
the ultimate parent entity of the claimant, and explains with
particularity, to the extent possible following a reasonable
investigation or inquiry, how the product or process infringes one or
more claims of the patent.''; and
(4) in the last undesignated paragraph, by striking ``The
court'' and inserting ``(d) Expert Testimony.--The court''.
(g) Venue.--
(1) Amendment.--Subsection (b) of section 1400 of title 28,
United States Code, is amended to read as follows:
``(b) Venue for Action Relating to Patents.--Notwithstanding
subsections (b) and (c) of section 1391 of this title, any civil action
for patent infringement or any action for a declaratory judgment that a
patent is invalid or not infringed may be brought only in a judicial
district--
``(1) where the defendant has its principal place of business
or is incorporated;
``(2) where the defendant has committed an act of
infringement of a patent in suit and has a regular and
established physical facility that gives rise to the act of
infringement;
``(3) where the defendant has agreed or consented to be sued
in the instant action;
``(4) where an inventor named on the patent in suit conducted
research or development that led to the application for the
patent in suit;
``(5) where a party has a regular and established physical
facility that such party controls and operates, not primarily
for the purpose of creating venue, and has--
``(A) engaged in management of significant research
and development of an invention claimed in a patent in
suit prior to the effective filing date of the patent;
``(B) manufactured a tangible product that is alleged
to embody an invention claimed in a patent in suit; or
``(C) implemented a manufacturing process for a
tangible good in which the process is alleged to embody
an invention claimed in a patent in suit; or
``(6) for foreign defendants that do not meet the
requirements of paragraphs (1) or (2), according to section
1391(d) of this title.''.
(2) Mandamus relief.--For the purpose of determining whether
relief may issue under section 1651 of title 28, United States
Code, a clearly and indisputably erroneous denial of a motion
under section 1406(a) of such title to dismiss or transfer a
case on the basis of section 1400(b) of such title shall be
deemed to cause irremediable interim harm.
(3) Retailers not eligible for customer stay.--If a defendant
does not meet the definition of a retailer under section
296(a)(6) of title 35, United States Code, as added by section
5, solely because the defendant manufacturers or causes the
manufacture of the covered product or process in suit, the
retail facilities of such defendant shall not constitute a
regular and established physical facility for purposes of
section 1400(b)(2) of title 28, United Code, as added by
paragraph (1).
(4) Teleworkers.--The dwelling or residence of an employee or
contractor of a defendant who works at such dwelling or
residence shall not constitute a regular and established
physical facility of the defendant for purposes of section
1400(b)(2) of title 28, United Code, as added by paragraph (1).
(h) Effective Date.--Except as otherwise provided in this section,
the amendments made by this section shall take effect on the date of
the enactment of this Act and shall apply to any action for which a
complaint is filed on or after that date.
SEC. 4. TRANSPARENCY OF PATENT OWNERSHIP.
(a) Amendments.--Section 290 of title 35, United States Code, is
amended--
(1) in the heading, by striking ``suits'' and inserting
``suits; disclosure of interests'';
(2) by striking ``The clerks'' and inserting ``(a) Notice of
Patent Suits.--The clerks''; and
(3) by adding at the end the following new subsections:
``(b) Initial Disclosure.--
``(1) In general.--Except as provided in paragraph (2), upon
the filing of an initial complaint for patent infringement, the
plaintiff shall disclose to the Patent and Trademark Office,
the court, and each adverse party the identity of each of the
following:
``(A) The assignee of the patent or patents at issue.
``(B) Any entity with a right to sublicense or
enforce the patent or patents at issue.
``(C) Any entity, other than the plaintiff, that the
plaintiff knows to have a financial interest in the
patent or patents at issue or the plaintiff.
``(D) The ultimate parent entity of any assignee
identified under subparagraph (A) and any entity
identified under subparagraph (B) or (C).
``(E) A clear and concise description of the
principal business, if any, of the party alleging
infringement.
``(F) A list of each complaint filed, of which the
party alleging infringement has knowledge, that asserts
or asserted any of the patents identified under
subparagraph (A).
``(G) For each patent identified under subparagraph
(A), whether a standard-setting body has specifically
declared such patent to be essential, potentially
essential, or having potential to become essential to
that standard-setting body, and whether the United
States Government or a foreign government has imposed
specific licensing requirements with respect to such
patent.
``(2) Exemption.--The requirements of paragraph (1) shall not
apply with respect to a civil action filed under subsection (a)
that includes a cause of action described under section
271(e)(2).
``(c) Disclosure Compliance.--
``(1) Publicly traded.--For purposes of subsection (b)(1)(C),
if the financial interest is held by a corporation traded on a
public stock exchange, an identification of the name of the
corporation and the public exchange listing shall satisfy the
disclosure requirement.
``(2) Not publicly traded.--For purposes of subsection
(b)(1)(C), if the financial interest is not held by a publicly
traded corporation, the disclosure shall satisfy the disclosure
requirement if the information identifies--
``(A) in the case of a partnership, the name of the
partnership and the name and correspondence address of
each partner or other entity that holds more than a 5-
percent share of that partnership;
``(B) in the case of a corporation, the name of the
corporation, the location of incorporation, the address
of the principal place of business, and the name of
each officer of the corporation; and
``(C) for each individual, the name and
correspondence address of that individual.
``(d) Ongoing Duty of Disclosure to the Patent and Trademark
Office.--
``(1) In general.--A plaintiff required to submit information
under subsection (b) or a subsequent owner of the patent or
patents at issue shall, not later than 90 days after any change
in the assignee of the patent or patents at issue or an entity
described under subparagraph (B) or (D) of subsection (b)(1),
submit to the Patent and Trademark Office the updated
identification of such assignee or entity.
``(2) Failure to comply.--With respect to a patent for which
the requirement of paragraph (1) has not been met--
``(A) the plaintiff or subsequent owner shall not be
entitled to recover reasonable fees and other expenses
under section 285 or increased damages under section
284 with respect to infringing activities taking place
during any period of noncompliance with paragraph (1),
unless the denial of such damages or fees would be
manifestly unjust; and
``(B) the court shall award to a prevailing party
accused of infringement reasonable fees and other
expenses under section 285 that are incurred to
discover the updated assignee or entity described under
paragraph (1), unless such sanctions would be unjust.
``(e) Definitions.--In this section:
``(1) Financial interest.--The term `financial interest'--
``(A) means--
``(i) with regard to a patent or patents, the
right of a person to receive proceeds related
to the assertion of the patent or patents,
including a fixed or variable portion of such
proceeds; and
``(ii) with regard to the plaintiff, direct
or indirect ownership or control by a person of
more than 5 percent of such plaintiff; and
``(B) does not mean--
``(i) ownership of shares or other interests
in a mutual or common investment fund, unless
the owner of such interest participates in the
management of such fund; or
``(ii) the proprietary interest of a
policyholder in a mutual insurance company or
of a depositor in a mutual savings association,
or a similar proprietary interest, unless the
outcome of the proceeding could substantially
affect the value of such interest.
``(2) Proceeding.--The term `proceeding' means all stages of
a civil action, including pretrial and trial proceedings and
appellate review.
``(3) Ultimate parent entity.--
``(A) In general.--Except as provided in subparagraph
(B), the term `ultimate parent entity' has the meaning
given such term in section 801.1(a)(3) of title 16,
Code of Federal Regulations, or any successor
regulation.
``(B) Modification of definition.--The Director may
modify the definition of `ultimate parent entity' by
regulation.''.
(b) Technical and Conforming Amendment.--The item relating to section
290 in the table of sections for chapter 29 of title 35, United States
Code, is amended to read as follows:
``290. Notice of patent suits; disclosure of interests.''.
(c) Regulations.--The Director may promulgate such regulations as are
necessary to establish a registration fee in an amount sufficient to
recover the estimated costs of administering subsections (b) through
(e) of section 290 of title 35, United States Code, as added by
subsection (a), to facilitate the collection and maintenance of the
information required by such subsections, and to ensure the timely
disclosure of such information to the public.
(d) Effective Date.--The amendments made by this section shall take
effect upon the expiration of the 6-month period beginning on the date
of the enactment of this Act and shall apply to any action for which a
complaint is filed on or after such effective date.
SEC. 5. CUSTOMER-SUIT EXCEPTION.
(a) Amendment.--Section 296 of title 35, United States Code, is
amended to read as follows:
``Sec. 296. Stay of action against customer
``(a) Definitions.--In this section:
``(1) Covered customer.--The term `covered customer' means a
retailer or end user that is accused of infringing a patent or
patents in dispute based on--
``(A) the sale, or offer for sale, of a covered
product or covered process without material
modification of the product or process in a manner that
is alleged to infringe a patent or patents in dispute;
or
``(B) the use by such retailer, the retailer's end
user customer, or an end user of a covered product or
covered process without material modification of the
product or process in a manner that is alleged to
infringe a patent or patents in dispute.
``(2) Covered manufacturer.--The term `covered manufacturer'
means a person that manufactures or supplies, or causes the
manufacture or supply of, a covered product or covered process,
or a relevant part thereof.
``(3) Covered process.--The term `covered process' means a
process, method, or a relevant part thereof, that is alleged to
infringe a patent or patents in dispute where such process,
method, or relevant part thereof is implemented by an
apparatus, material, system, software, or other instrumentality
that is provided by the covered manufacturer.
``(4) Covered product.--The term `covered product' means a
product, system, service, component, material, or apparatus, or
relevant part thereof, that--
``(A) is alleged to infringe a patent or patents in
dispute; or
``(B) implements a process alleged to infringe the
patent or patents in dispute.
``(5) End user.--The term `end user' includes an affiliate of
an end user, but does not include an entity that manufacturers
or causes the manufacture of a covered product or covered
process, or a relevant part thereof.
``(6) Retailer.--The term `retailer' means an entity that
generates revenues predominately through the sale to the public
of consumer goods or services, or an affiliate of such entity,
but does not include an entity that manufacturers or causes the
manufacturer of a covered product or covered process, or a
relevant part thereof.
``(b) Stay of Action Against Customer.--Except as provided in
subsection (d), in any civil action in which a party asserts a claim
for relief arising under any Act of Congress relating to patents, the
court shall grant a motion to stay at least the portion of the action
against a covered customer related to infringement of a patent
involving a covered product or covered process if the following
requirements are met:
``(1) Party to the action.--The covered manufacturer is a
party to the action or to a separate action (in which a party
asserts a claim for relief arising under any Act of Congress
relating to patents) involving the same patent or patents
related to the same covered product or covered process.
``(2) Agreement to be bound by issues determined.--The
covered customer agrees to be bound as to issues determined in
an action described in paragraph (1) without a full and fair
opportunity to separately litigate any such issue, but only as
to those issues for which all other elements of the common law
doctrine of issue preclusion are met.
``(3) Deadline to file motion.--The motion is filed after the
first pleading in the action but not later than the later of--
``(A) the 120th day after the date on which the first
pleading or paper in the action is served that
specifically identifies the covered product or covered
process as a basis for the covered customer's alleged
infringement of the patent and that specifically
identifies how the covered product or covered process
is alleged to infringe the patent; or
``(B) the date on which the first scheduling order in
the case is entered.
``(4) Manufacturer consent in certain cases.--In a case in
which the covered manufacturer has been made a party to the
action on motion by the covered customer, the covered
manufacturer and the covered customer consent in writing to the
stay.
``(c) Lift of Stay.--
``(1) In general.--A stay entered under this section may be
lifted upon grant of a motion based on a showing that--
``(A) the action involving the covered manufacturer
will not resolve a major issue in the suit against the
covered customer (such as a covered product or covered
process identified in the motion to lift the stay is
not a material part of the claimed invention or
inventions in the patent or patents in dispute); or
``(B) the stay unreasonably prejudices or would be
manifestly unjust to the party seeking to lift the
stay.
``(2) Separate manufacturer action involved.--In the case of
a stay entered under this section based on the participation of
the covered manufacturer in a separate action described in
subsection (b)(1), a motion under paragraph (1) may only be
granted if the court in such separate action determines that
the showing required under paragraph (1) has been made.
``(d) Exemption.--This section shall not apply to an action that
includes a cause of action described under section 271(e)(2).
``(e) Waiver of Estoppel Effect.--The court may, upon motion,
determine that a consent judgment or an unappealed final order shall
not be binding on the covered customer with respect to one or more of
the issues that gave rise to the stay based on a showing that such
consent judgment or unappealed final order would unreasonably prejudice
or be manifestly unjust to the covered customer in light of the
circumstances of the case if, following the grant of a motion to stay
under this section, the covered manufacturer described in subsection
(b)(1)--
``(1) obtains or consents to entry of a consent judgment
relating to such issue that gave rise to the stay; or
``(2) fails to prosecute to a final, non-appealable judgment
such issue that gave rise to the stay.
``(f) Rule of Construction.--Nothing in this section shall be
construed to limit the ability of a court to grant any stay, expand any
stay granted under this section, or grant any motion to intervene, if
otherwise permitted by law.''.
(b) Conforming Amendment.--The table of sections for chapter 29 of
title 35, United States Code, is amended by striking the item relating
to section 296 and inserting the following:
``296. Stay of action against customer.''.
(c) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act and shall apply to any
action for which a complaint is filed on or after the first day of the
30-day period that ends on that date.
SEC. 6. PROCEDURES AND PRACTICES TO IMPLEMENT RECOMMENDATIONS OF THE
JUDICIAL CONFERENCE.
(a) Pilot Program for Rules and Procedures on Discovery Burdens and
Costs and Case Management.--
(1) Definitions.--In this subsection, the term ``electronic
communication'' means any form of electronic communication,
including email, text message, and instant message.
(2) Development of rules and procedures.--Not later than 3
months after the date of the enactment of this Act, the
Director of the Administrative Office of the United States
Courts shall designate not fewer than 6 of the district courts
of the United States that are participating in the patent cases
pilot program established under section 1 of Public Law 111-349
(28 U.S.C.137 note) to develop rules and procedures to
implement the proposals described in paragraphs (3) through (5)
to address the asymmetries in discovery burdens and costs, and
to establish case management procedures, in any civil action
arising under any Act of Congress relating to patents.
(3) Types of discovery rules and procedures to be
considered.--The discovery rules and procedures required under
paragraph (2) shall address each of the following:
(A) Discovery of core documentary evidence.--Whether
and to what extent each party to the action is entitled
to receive core documentary evidence and should be
responsible for the costs of producing core documentary
evidence within the possession or control of each such
party, and whether and to what extent each party may
seek non-core documentary discovery as otherwise
provided in the Federal Rules of Civil Procedure.
(B) Electronic communication.--If the parties request
discovery of electronic communication, how such
discovery should be phased to occur relative to the
exchange of initial disclosures and core documentary
evidence, and appropriate limitations to apply to such
discovery.
(C) Scope of documentary evidence.--The kinds of
evidence that should constitute ``core documentary
evidence''.
(4) Specific discovery rules and procedures to be considered
for additional document discovery.--The discovery rules and
procedures required under paragraph (2) shall address whether
the following provisions, or variations on the following
provisions, should apply:
(A) In general.--Whether each party to the action may
seek any additional document discovery otherwise
permitted under the Federal Rules of Civil Procedure
beyond core documentary evidence, if such party bears
the reasonable costs, including reasonable attorney's
fees, of the additional document discovery.
(B) Requirements for additional document discovery.--
Whether, unless the parties mutually agree otherwise,
no party may be permitted additional document discovery
unless such a party posts a bond, or provides other
security, in an amount sufficient to cover the expected
costs of such additional document discovery, or makes a
showing to the court that such party has the financial
capacity to pay the costs of such additional document
discovery.
(C) Good cause modification.--Whether a court, upon
motion and for good cause shown, may modify the
requirements of subparagraphs (A) and (B) and any
definition of core documentary evidence.
(D) Computer code.--Whether a court, upon motion and
for good cause shown, may determine that computer code
should be included in the discovery of core documentary
evidence, and whether the discovery of computer code
shall occur after the parties have exchanged initial
disclosures and other core documentary evidence.
(E) Discovery sequence and scope.--Whether the
parties shall discuss and address in the written report
filed pursuant to rule 26(f) of the Federal Rules of
Civil Procedure the views and proposals of each party
on the following:
(i) When the discovery of core documentary
evidence should be completed.
(ii) Whether additional document discovery
described in subparagraphs (A) and (B) will be
sought.
(iii) Any issues about infringement,
invalidity, or damages that, if resolved before
the additional document discovery described in
subparagraphs (A) and (B) commences, might
simplify or streamline the case.
(5) Case management rules and procedures to be considered.--
The rules and procedures required under paragraph (2) shall
also address case management procedures for any civil action
arising under any Act of Congress relating to patents,
including initial disclosure and early case management
conference practices that--
(A) will identify any potential dispositive issues of
the case; and
(B) focus on early summary judgment motions when
resolution of issues may lead to expedited disposition
of the case.
(b) Implementation of Rules and Procedures.--Within 18 months after
the designation by the Director of the Administrative Office of the 6
district courts to develop the rules and procedures pursuant to
subsection (a), the 6 district courts shall complete the development of
the rules and procedures, and begin to implement them.
(c) Expansion of Pilot Program for Rules and Procedures on Discovery
Burdens and Costs and Case Management.--After the rules and procedures
developed by the pilot program pursuant to subsection (a) have been in
effect for at least 2 years, the Judicial Conference of the United
States, using existing resources, may expand the application of some or
all of those rules and procedures to be implemented by all the district
courts, and the United States Court of Federal Claims, for any civil
action arising under any Act of Congress relating to patents.
(d) Revision of Form for Patent Infringement.--
(1) Elimination of form.--The Supreme Court, using existing
resources, shall eliminate Form 18 in the Appendix to the
Federal Rules of Civil Procedure (relating to Complaint for
Patent Infringement), effective on the date of the enactment of
this Act.
(2) Revised form.--The Supreme Court may prescribe a new form
or forms setting out model allegations of patent infringement
that, at a minimum, notify accused infringers of the asserted
claim or claims, the products or services accused of
infringement, and the plaintiff's theory for how each accused
product or service meets each limitation of each asserted
claim. The Judicial Conference should exercise the authority
under section 2073 of title 28, United States Code, to make
recommendations with respect to such new form or forms.
(e) Protection of Intellectual-Property Licenses in Bankruptcy.--
(1) In general.--Section 1522 of title 11, United States
Code, is amended by adding at the end the following:
``(e) Section 365(n) shall apply to cases under this chapter. If the
foreign representative rejects or repudiates a contract under which the
debtor is a licensor of intellectual property, the licensee under such
contract shall be entitled to make the election and exercise the rights
described in section 365(n).''.
(2) Trademarks.--
(A) In general.--Section 101(35A) of title 11, United
States Code, is amended--
(i) in subparagraph (E), by striking ``or'';
(ii) in subparagraph (F), by striking ``title
17;'' and inserting ``title 17; or''; and
(iii) by adding after subparagraph (F) the
following new subparagraph:
``(G) a trademark, service mark, or trade name, as
those terms are defined in section 45 of the Act of
July 5, 1946 (commonly referred to as the `Trademark
Act of 1946') (15 U.S.C. 1127);''.
(B) Conforming amendment.--Section 365(n)(2) of title
11, United States Code, is amended--
(i) in subparagraph (B)--
(I) by striking ``royalty payments''
and inserting ``royalty or other
payments''; and
(II) by striking ``and'' after the
semicolon;
(ii) in subparagraph (C), by striking the
period at the end of clause (ii) and inserting
``; and''; and
(iii) by adding at the end the following new
subparagraph:
``(D) in the case of a trademark, service mark, or
trade name, the licensee shall not be relieved of any
of its obligations to maintain the quality of the
products and services offered under or in connection
with the licensed trademark, service mark, or trade
name, and the trustee shall retain the right to oversee
and enforce quality control for such products or
services, or both.''.
(3) Effective date.--The amendments made by this subsection
shall take effect on the date of the enactment of this Act and
shall apply to any case that is pending on, or for which a
petition or complaint is filed on or after, such date of
enactment.
(f) In General.--Not later than 12 months after the date of the
enactment of this Act, the Judicial Conference of the United States,
with the assistance of the Director of the Federal Judicial Center and
the Director of the Administrative Office of the United States Courts,
shall prepare and transmit to the Committees on the Judiciary of the
Senate and the House of Representatives a report on discovery
proceedings in cases pertaining to litigation involving patent laws of
the United States. The report shall contain, after looking at data
compiled for the previous two years before the date of the enactment of
this Act, the following:
(1) The percentage of courts that have distinct phases of
discovery in the court rules.
(2) A description of at least two of the definitions of such
phases.
(3) Identify by name any court that does not have such
distinct phases and a description of why such courts have not
implemented such phases.
(4) With regard to proceedings in courts that have phases, in
the case of a discovery proceeding that extends beyond the core
documents phase, a description of--
(A) what additional discovery was requested and any
consistent pattern or trend in the reasons or
justifications for the request;
(B) how much longer, on average, the proceedings
lasted than those settled within the first phase; and
(C) any patterns for the courts that repeatedly have
extended requests.
(5) Looking at proceedings in the courts that do not have
phase rules, a description of--
(A) how long, on average, the discovery proceedings
last; and
(B) the scope of the requests.
SEC. 7. SMALL BUSINESS EDUCATION, OUTREACH, AND INFORMATION ACCESS.
(a) Small Business Education and Outreach.--
(1) Resources for small business.--Using existing resources,
the Director shall develop educational resources for small
businesses to address concerns arising from patent
infringement.
(2) Small business patent outreach.--The existing small
business patent outreach programs of the Office, and the
relevant offices at the Small Business Administration and the
Minority Business Development Agency, shall provide education
and awareness on abusive patent litigation practices. The
Director may give special consideration to the unique needs of
small firms owned by disabled veterans, service-disabled
veterans, women, and minority entrepreneurs in planning and
executing the outreach efforts by the Office.
(b) Improving Information Transparency for Small Business and the
United States Patent and Trademark Office Users.--
(1) Web site.--Using existing resources, the Director shall
create a user-friendly section on the official Web site of the
Office to notify the public when a patent case is brought in
Federal court and, with respect to each patent at issue in such
case, the Director shall include--
(A) information disclosed under subsections (b) and
(d) of section 290 of title 35, United States Code, as
added by section 4(a) of this Act; and
(B) any other information the Director determines to
be relevant.
(2) Format.--In order to promote accessibility for the
public, the information described in paragraph (1) shall be
searchable by patent number, patent art area, and entity.
SEC. 8. STUDIES ON PATENT TRANSACTIONS, QUALITY, AND EXAMINATION.
(a) Study on Secondary Market Oversight for Patent Transactions To
Promote Transparency and Ethical Business Practices.--
(1) Study required.--The Director, in consultation with the
Secretary of Commerce, the Secretary of the Treasury, the
Chairman of the Securities and Exchange Commission, the heads
of other relevant agencies, and interested parties, shall,
using existing resources of the Office, conduct a study--
(A) to develop legislative recommendations to ensure
greater transparency and accountability in patent
transactions occurring on the secondary market;
(B) to examine the economic impact that the patent
secondary market has on the United States;
(C) to examine licensing and other oversight
requirements that may be placed on the patent secondary
market, including on the participants in such markets,
to ensure that the market is a level playing field and
that brokers in the market have the requisite expertise
and adhere to ethical business practices; and
(D) to examine the requirements placed on other
markets.
(2) Report on study.--Not later than 18 months after the date
of the enactment of this Act, the Director shall submit a
report to the Committee on the Judiciary of the House of
Representatives and the Committee on the Judiciary of the
Senate on the findings and recommendations of the Director from
the study required under paragraph (1).
(b) Study on Patents Owned by the United States Government.--
(1) Study required.--The Director, in consultation with the
heads of relevant agencies and interested parties, shall, using
existing resources of the Office, conduct a study on patents
owned by the United States Government that--
(A) examines how such patents are licensed and sold,
and any litigation relating to the licensing or sale of
such patents;
(B) provides legislative and administrative
recommendations on whether there should be restrictions
placed on patents acquired from the United States
Government;
(C) examines whether or not each relevant agency
maintains adequate records on the patents owned by such
agency, specifically whether such agency addresses
licensing, assignment, and Government grants for
technology related to such patents; and
(D) provides recommendations to ensure that each
relevant agency has an adequate point of contact that
is responsible for managing the patent portfolio of the
agency.
(2) Report on study.--Not later than 1 year after the date of
the enactment of this Act, the Director shall submit to the
Committee on the Judiciary of the House of Representatives and
the Committee on the Judiciary of the Senate a report on the
findings and recommendations of the Director from the study
required under paragraph (1).
(c) Study on Patent Quality and Access to the Best Information During
Examination.--
(1) GAO study.--The Comptroller General of the United States
shall, using existing resources, conduct a study on patent
examination at the Office and the technologies available to
improve examination and improve patent quality.
(2) Contents of the study.--The study required under
paragraph (1) shall include the following:
(A) An examination of patent quality at the Office.
(B) An examination of ways to improve patent quality,
specifically through technology, that shall include
examining best practices at foreign patent offices and
the use of existing off-the-shelf technologies to
improve patent examination.
(C) A description of how patents are classified.
(D) An examination of procedures in place to prevent
double patenting through filing by applicants in
multiple art areas.
(E) An examination of the types of off-the-shelf
prior art databases and search software used by foreign
patent offices and governments, particularly in Europe
and Asia, and whether those databases and search tools
could be used by the Office to improve patent
examination.
(F) An examination of any other areas the Comptroller
General determines to be relevant.
(3) Report on study.--Not later than 1 year after the date of
the enactment of this Act, the Comptroller General shall submit
to the Committee on the Judiciary of the House of
Representatives and the Committee on the Judiciary of the
Senate a report on the findings and recommendations from the
study required by this subsection, including recommendations
for any changes to laws and regulations that will improve the
examination of patent applications and patent quality.
(d) Study on Patent Small Claims Court.--
(1) Study required.--
(A) In general.--The Director of the Administrative
Office of the United States Courts, in consultation
with the Director of the Federal Judicial Center and
the United States Patent and Trademark Office, shall,
using existing resources, conduct a study to examine
the idea of developing a pilot program for patent small
claims procedures in certain judicial districts within
the existing patent pilot program mandated by Public
Law 111-349.
(B) Contents of study.--The study under subparagraph
(A) shall examine--
(i) the necessary criteria for using small
claims procedures;
(ii) the costs that would be incurred for
establishing, maintaining, and operating such a
pilot program; and
(iii) the steps that would be taken to ensure
that the procedures used in the pilot program
are not misused for abusive patent litigation.
(2) Report on study.--Not later than 1 year after the date of
the enactment of this Act, the Director of the Administrative
Office of the United States Courts shall submit a report to the
Committee on the Judiciary of the House of Representatives and
the Committee on the Judiciary of the Senate on the findings
and recommendations of the Director of the Administrative
Office from the study required under paragraph (1).
(e) Study on Demand Letters.--
(1) Study.--The Director, in consultation with the heads of
other appropriate agencies, shall, using existing resources,
conduct a study of the prevalence of the practice of sending
patent demand letters in bad faith and the extent to which that
practice may, through fraudulent or deceptive practices, impose
a negative impact on the marketplace.
(2) Report to congress.--Not later than 1 year after the date
of the enactment of this Act, the Director shall submit a
report to the Committee on the Judiciary of the House of
Representatives and the Committee on the Judiciary of the
Senate on the findings and recommendations of the Director from
the study required under paragraph (1).
(3) Patent demand letter defined.--In this subsection, the
term ``patent demand letter'' means a written communication
relating to a patent that states or indicates, directly or
indirectly, that the recipient or anyone affiliated with the
recipient is or may be infringing the patent.
(f) Study on Business Method Patent Quality.--
(1) GAO study.--The Comptroller General of the United States
shall, using existing resources, conduct a study on the volume
and nature of litigation involving business method patents.
(2) Contents of study.--The study required under paragraph
(1) shall focus on examining the quality of business method
patents asserted in suits alleging patent infringement, and may
include an examination of any other areas that the Comptroller
General determines to be relevant.
(3) Report to congress.--Not later than 1 year after the date
of the enactment of this Act, the Comptroller General shall
submit to the Committee on the Judiciary of the House of
Representatives and the Committee on the Judiciary of the
Senate a report on the findings and recommendations from the
study required by this subsection, including recommendations
for any changes to laws or regulations that the Comptroller
General considers appropriate on the basis of the study.
(g) Study on Impact of Legislation on Ability of Individuals and
Small Businesses To Protect Exclusive Rights to Inventions and
Discoveries.--
(1) Study required.--The Director, in consultation with the
Secretary of Commerce, the Director of the Administrative
Office of the United States Courts, the Director of the Federal
Judicial Center, the heads of other relevant agencies, and
interested parties, shall, using existing resources of the
Office, conduct a study to examine the economic impact of
sections 3, 4, and 5 of this Act, and any amendments made by
such sections, on the ability of individuals and small
businesses owned by women, veterans, and minorities to assert,
secure, and vindicate the constitutionally guaranteed exclusive
right to inventions and discoveries by such individuals and
small business.
(2) Report on study.--Not later than 2 years after the date
of the enactment of this Act, the Director shall submit to the
Committee on the Judiciary of the House of Representatives and
the Committee on the Judiciary of the Senate a report on the
findings and recommendations of the Director from the study
required under paragraph (1).
SEC. 9. IMPROVEMENTS AND TECHNICAL CORRECTIONS TO THE LEAHY-SMITH
AMERICA INVENTS ACT.
(a) Post-Grant Review Amendment.--Section 325(e)(2) of title 35,
United States Code is amended by striking ``or reasonably could have
raised''.
(b) Reform of Patent Trial and Appeal Board Proceedings.--
(1) Inter partes review.--Section 316(a) of title 35, United
States Code, is amended--
(A) in paragraph (12), by striking ``; and'' and
inserting a semicolon;
(B) in paragraph (13), by striking the period at the
end and inserting a semicolon; and
(C) by adding at the end the following new
paragraphs:
``(14) providing that for all purposes under this chapter--
``(A) each claim of a patent shall be construed as
such claim would be in a civil action to invalidate a
patent under section 282(b), including construing each
claim of the patent in accordance with the ordinary and
customary meaning of such claim as understood by one of
ordinary skill in the art and the prosecution history
pertaining to the patent; and
``(B) if a court has previously construed the claim
or a claim term in a civil action in which the patent
owner was a party, the Office shall consider such claim
construction; and
``(15) providing that a review may not be instituted unless
the petitioner certifies that the petitioner and the real
parties in interest of the petitioner--
``(A) do not own and will not acquire a financial
instrument (including a prepaid variable forward
contract, equity swap, collar, or exchange fund) that
is designed to hedge or offset any decrease in the
market value of an equity security of the patent owner
or an affiliate of the patent owner, during a period
following the filing of the petition to be determined
by the Director; and
``(B) have not demanded payment, monetary or
otherwise, from the patent owner or an affiliate of the
patent owner in exchange for a commitment not to file a
petition under section 311 with respect to the patent
that is the subject of the petition, unless the
petitioner or the real party in interest of the
petitioner has been sued for or charged with
infringement of the patent, during a period to be
determined by the Director.''.
(2) Post-grant review.--Section 326(a) of title 35, United
States Code, is amended--
(A) in paragraph (11), by striking ``; and'' and
inserting a semicolon;
(B) in paragraph (12), by striking the period at the
end and inserting a semicolon; and
(C) by adding at the end the following new
paragraphs:
``(13) providing that for all purposes under this chapter--
``(A) each claim of a patent shall be construed as
such claim would be in a civil action to invalidate a
patent under section 282(b), including construing each
claim of the patent in accordance with the ordinary and
customary meaning of such claim as understood by one of
ordinary skill in the art and the prosecution history
pertaining to the patent; and
``(B) if a court has previously construed the claim
or a claim term in a civil action in which the patent
owner was a party, the Office shall consider such claim
construction; and
``(14) providing that a review may not be instituted unless
the petitioner certifies that the petitioner and the real
parties in interest of the petitioner--
``(A) do not own and will not acquire a financial
instrument (including a prepaid variable forward
contract, equity swap, collar, or exchange fund) that
is designed to hedge or offset any decrease in the
market value of an equity security of the patent owner
or an affiliate of the patent owner, during a period
following the filing of the petition to be determined
by the Director; and
``(B) have not demanded payment, monetary or
otherwise, from the patent owner or an affiliate of the
patent owner in exchange for a commitment not to file a
petition under section 311 with respect to the patent
that is the subject of the petition, unless the
petitioner or the real party in interest of the
petitioner has been sued for or charged with
infringement of the patent, during a period to be
determined by the Director.''.
(3) Technical and conforming amendment.--Section 18(a)(1)(A)
of the Leahy-Smith America Invents Act (Public Law 112-29; 126
Stat. 329; 35 U.S.C. 321 note) is amended by striking ``Section
321(c)'' and inserting ``Sections 321(c) and 326(a)(13)''.
(4) Declaration evidence.--
(A) Preliminary response to petition for inter partes
review.--Section 313 of title 35, United States Code,
is amended by striking the period at the end and
inserting ``, including affidavits or declarations of
supporting evidence and opinions.''.
(B) Preliminary response to petition for post-grant
review.--Section 323 of title 35, United States Code,
is amended by striking the period at the end and
inserting ``, including affidavits or declarations of
supporting evidence and opinions.''.
(5) Right of due process.--
(A) Inter partes review.--Section 316(b) of title 35,
United States Code, is amended by striking ``and the
ability'' and inserting ``the rights to due process of
the patent owner and the petitioner, and the ability''.
(B) Post-grant review.--Section 326(b) of title 35,
United States Code, is amended by striking ``and the
ability'' and inserting ``the rights to due process of
the patent owner and the petitioner, and the ability''.
(6) Serial or redundant petitions.--The Director shall
designate as precedential (and may change the designation as
the Director determines to be appropriate), with respect to the
application of subsections (d) and (e) of section 325 of title
35, United States Code, the decisions of the Patent Trial and
Appeal Board in each of the following decisions:
(A) Dell Inc. v. Electronics and Telecomms. Research
Inst., IPR2015-00549, Paper 10 (PTAB Mar. 26, 2015).
(B) Zimmer Holdings, Inc. v. Bonutti Skeletal
Innovations LLC, IPR2014-01080, Paper 17 (PTAB Oct. 31,
2014).
(C) Prism Pharma Co., Ltd. v. Choongwae Pharma Corp.,
IPR2014-00315, Paper 14 (PTAB July 8, 2014).
(D) Unilever, Inc. v. The Procter & Gamble Co.,
IPR2014-00506, Paper 17 (PTAB July 7, 2014).
(7) Preliminary response to inter partes review amendment.--
(A) Amendment.--Section 313 of title 35, United
States Code, is amended by adding at the end the
following new sentence: ``The Director may accept a
reply by the petitioner to new issues raised in the
preliminary response, upon request by the petitioner to
file such reply, within a time period set by the
Director.''
(B) Conforming amendments.--Section 314 of title 35,
United States Code, is amended--
(i) in subsection (a), by striking ``any
response'' and inserting ``any response or
reply''; and
(ii) in subsection (b)--
(I) in paragraph (1), by striking
``receiving a preliminary response to
the petition'' and inserting
``receiving the later of a preliminary
response to the petition or a reply to
such preliminary response''; and
(II) by amending paragraph (2) to
read as follows:
``(2) if--
``(A) no such preliminary response is filed, the last
date on which such response may be filed; and
``(B) such preliminary response is filed and no such
reply is requested, the last day on which such reply
may be requested.''.
(8) Effective date, regulations, and transition for short
sales.--
(A) Effective date.--Sections 316(a)(15) and
326(a)(14) of title 35, United States Code, as added by
paragraphs (1) and (2) shall take effect on the date of
the enactment of this Act.
(B) Regulations required.--Not later than one year
after the date of the enactment of this Act, the
Director shall issue regulations to carry out sections
316(a)(15) and 326(a)(14) of title 35, United States
Code, as added by paragraphs (1) and (2).
(C) Transition.--During the period that begins on the
date of the enactment of this Act and ends on the date
of the issuance of the regulations required pursuant to
subparagraph (B), a petition filed under chapter 31 or
32 of title 35, United States Code, on or after the
date of the enactment of this Act may not be instituted
unless the petitioner certifies that the petitioner and
the real parties in interest of such petitioner--
(i) do not own a financial instrument
described in sections 316(a)(15) and 326(a)(14)
of title 35, United States Code, as added by
paragraphs (1) and (2), during the one-week
period following the date on which the petition
is filed; and
(ii) have not demanded anything of value from
the patent owner or an affiliate of the patent
owner during the period between September 16,
2012, and the date of the filing of the
petition.
(9) Effective date.--Except as otherwise provided, the
amendments made by this subsection shall take effect upon the
expiration of the 90-day period beginning on the date of the
enactment of this Act, and shall apply to any proceeding under
chapter 31 or 32 of title 35, United States Code, as the case
may be, for which the petition for review is filed on or after
such effective date.
(c) Codification of the Double-patenting Doctrine.--
(1) Amendments.--
(A) Conditions for patentability; novelty.--Section
102 of title 35, United States Code, is amended by
inserting at the end the following new subsection:
``(e) Double-patenting Prior Art.--If a first claimed invention in a
first patent was effectively filed on or before the effective filing
date of a second claimed invention in a second patent or in the
application on which the second patent issues, and the first claimed
invention is not otherwise prior art to the second claimed invention
under this section, then the first claimed invention shall,
notwithstanding the other subsections of this section, constitute prior
art to the second claimed invention under this subsection unless--
``(1) the second claimed invention is consonant with a
requirement for restriction under the first sentence of section
121 with respect to the claims issued in the first patent; or
``(2) an election has been recorded in the Office by the
owner of the second patent or the application on which the
second patent issues disclaiming the right to bring or maintain
a civil action under section 281 to enforce the second patent,
except that such disclaimer shall not apply if--
``(A) the relief being sought in the civil action
would not constitute a cause of action barred by res
judicata had the asserted claims of the second patent
been issued in the first patent; and
``(B) the owner of the first patent or the
application on which the first patent issues has
recorded an election limiting the enforcement of the
first patent relative to the second patent in the
manner described in this paragraph, the owner of the
first patent is a party to the civil action, or a
separate action under section 281 to enforce the first
patent can no longer be brought or maintained.''.
(B) Divisional applications.--Section 121 of title
35, United States Code, is amended by striking the
third sentence.
(C) Limitations.--Paragraph (2) of section 154(b) of
title 35, United States Code, is amended by inserting
at the end the following new subparagraph:
``(D) Patents subject to election.--If a patent is
subject to an election as described in section
102(e)(2) with respect to one or more other patents,
the adjusted term of the patent under this subsection
may not exceed a period of 17 years from the date of
issuance of any of such other patents and the portion
of any adjustment of the term of the patent under this
subsection that extends beyond the expiration of such
17-year period years shall be void.''.
(2) Effective date, implementation, and other transition
provisions.--
(A) In general.--The amendments made by paragraph (1)
shall be effective as if included in the amendment made
by section 3(b)(1) of the Leahy-Smith America Invents
Act (Public Law 112-29).
(B) Savings clause.--If a second claimed invention in
a second patent issued before the date of the enactment
of this Act is subject to the amendments made by
paragraph (1) and would not have been invalid had the
amendments made by paragraph (1) and the provisions of
this paragraph not been enacted, then, notwithstanding
section 102(e) of title 35, United States Code, as
added by paragraph (1), prior art under such section
102(e) may not be considered in determining the
validity of such second claimed invention.
(C) Provisional rejections to continue.--If a first
claimed invention in a first application for patent
subject to the amendments under paragraph (1) would, if
issued as a patent, constitute prior art under section
102(e) of title 35, United States Code, as added by
paragraph (1), with respect to a second claimed
invention in a second application, the first claimed
invention may be provisionally cited by the Office as
prior art in a notice under section 132 of title 35,
United States Code, in connection with the examination
of the second claimed invention.
(D) Patent term; rule of construction.--
(i) In general.--If the term of a patent is
based upon the amendments made to subsection
(a) of section 154, title 35, United States
Code, by the Uruguay Round Agreements Act
(Public Law 103-465; 108 Stat. 4809)--
(I) the patent term as provided under
subsection (a) of such section 154, any
adjustment to said term as provided
under subsection (b) of such section
154, and any extension of such term as
provided under section 156 of title 35,
United States Code, shall not
constitute, nor be deemed by the Office
or the courts to constitute, an
unjustified period of protection under
the patent or an unjustified extension
of the right to exclude under the
patent relative to an earlier-expiring
patent;
(II) the Office shall not condition
the issuance of such a patent on a
disclaimer of any portion of the term
of the patent; and
(III) the Office may condition the
issuance of such a patent on the making
of an election as described in section
102(e)(2) of title 35, United States
Code, as added by paragraph (1) in lieu
of the filing of a disclaimer with
respect to the ownership or separate
enforcement of the patent that would
otherwise be required by the Office in
cases of non-statutory double
patenting.
(ii) Disclaimers in pending applications.--A
terminal disclaimer made in connection with an
application for patent with respect to one or
more other applications or patents shall be
given no effect and shall be treated as having
never been made if--
(I) within one year after the date of
the enactment of this Act, an election
as described in section 102(e)(2) of
title 35, United State Code, as added
by paragraph (1), has been made in
connection with the application or any
patent issuing thereon and has effect
with respect to each such other
application or patent with respect to
which the disclaimer was made;
(II) the application was pending
before the Office on or after July 1,
2015; and
(III) the term of a patent issued on
the application would be based upon the
amendments made to subsection (a) of
section 154 of title 35, United States
Code, by the Uruguay Round Agreements
Act.
(iii) Disclaimers otherwise unaffected.--
Except as provided in clause (ii), nothing in
this subsection shall be construed to negate
the effect of a terminal disclaimer limiting
the enforcement of a patent issued on or before
the date of the enactment of this Act.
(iv) Terminal disclaimer defined.--In this
subparagraph, the term ``terminal disclaimer''
has the meaning as such term is described in
section 1.321 of title 37, Code of Federal
Regulations.
(E) Exclusive rules.--
(i) First-inventor-to-file patents.--A
claimed invention of a patent described in
section 3(n)(1) of the Leahy-Smith America
Invents Act (35 U.S.C. 100 note) and issued
before, on, or after the date of the enactment
of this Act may not be held invalid on any
nonstatutory double-patenting ground.
(ii) First-to-invent patents.--A claimed
invention of a patent not described in section
3(n)(1) of the Leahy-Smith America Invents Act
and issued before, on, or after the date of the
enactment of this Act may not be held invalid
with respect to a claimed invention of another
patent based on any nonstatutory double
patenting ground if one of the claimed
inventions is prior art to the other claimed
invention under section 102 of title 35, United
States Code, as in effect on the day prior to
the effective date of the amendments made by
section 3(b)(1) of the Leahy-Smith America
Invents Act.
(F) Effect of rule of construction and exclusive
rules.--Subparagraphs (D) and (E) shall take effect on
the date of the enactment of this Act, except that they
shall not apply to any defense raised in a civil action
brought before such date.
(d) PTO Patent Reviews.--
(1) Clarification.--
(A) Scope of prior art.--Section 18(a)(1)(C)(i) of
the Leahy-Smith America Invents Act (35 U.S.C. 321
note) is amended by striking ``section 102(a)'' and
inserting ``subsection (a) or (e) of section 102''.
(B) Effective date.--The amendment made by
subparagraph (A) shall take effect on the date of the
enactment of this Act and shall apply to any proceeding
pending on, or filed on or after, such date of
enactment.
(2) Authority to waive fee.--Subject to available resources,
the Director may waive payment of a filing fee for a
transitional proceeding described under section 18(a) of the
Leahy-Smith America Invents Act (35 U.S.C. 321 note).
(3) Proceeding consolidation clarification.--Section 315(c)
of title 35, United States Code, is amended to read as follows:
``(c) Joinder.--
``(1) Joinder of party.--If the Director institutes an inter
partes review, the Director, in his or her discretion, may join
as a party to that inter partes review any person who meets the
requirement of properly filing a petition under section 311
that the Director, after receiving a preliminary response under
section 313 or the expiration of the time for filing such a
response, determines warrants the institution of an inter
partes review under section 314.
``(2) Joinder of later filed petition.--For good cause shown,
the Director may allow a party who files a petition that meets
the requirement described in paragraph (1) and concerns the
patent of a pending inter partes review to join the petition to
the pending review.''.
(e) Clarification of Jurisdiction.--
(1) In general.--An action or claim arises under an Act of
Congress relating to patents if such action or claim--
(A) necessarily requires resolution of a disputed
question as to the validity of a patent or the scope of
a patent claim; or
(B) is an action or claim for legal malpractice that
arises from an attorney's conduct in relation to an
action or claim arising under an Act of Congress
relating to patents (including as described in
paragraph (1)).
(2) Applicability.--Paragraph (1)--
(A) shall apply to all cases filed on or after, or
pending on, the date of the enactment of this Act; and
(B) shall not apply to a case in which a Federal
court has issued a ruling on whether the case or a
claim arises under any Act of Congress relating to
patents or plant variety protection before the date of
the enactment of this Act.
(f) Patent Pilot Program in Certain District Courts Duration.--
(1) Duration.--Section 1(c) of Public Law 111-349 (124 Stat.
3674; 28 U.S.C. 137 note) is amended to read as follows:
``(c) Duration.--The program established under subsection (a) shall
be maintained using existing resources, and shall terminate 20 years
after the end of the 6-month period described in subsection (b).''.
(2) Effective date.--The amendment made by paragraph (1)
shall take effect on the date of the enactment of this Act.
(g) Management of the United States Patent and Trademark Office.--
(1) In general.--Section 3(b)(1) of title 35, United States
Code, is amended in the first sentence--
(A) by striking ``be vested with the authority to act
in the capacity of the'' and inserting ``serve as
Acting,''; and
(B) by inserting before the period ``or in the event
of a vacancy in the office of the Director''.
(2) Effective date.--The amendments made by paragraph (1)
shall take effect on the date of the enactment of this Act and
shall apply with respect to appointments and vacancies
occurring before, on, or after the date of the enactment of
this Act.
(h) Technical Corrections.--
(1) Novelty.--
(A) Amendment.--Section 102(b)(1)(A) of title 35,
United States Code, is amended by striking ``the
inventor or joint inventor or by another'' and
inserting ``the inventor or a joint inventor or
another''.
(B) Effective date.--The amendment made by
subparagraph (A) shall be effective as if included in
the amendment made by section 3(b)(1) of the Leahy-
Smith America Invents Act (Public Law 112-29).
(2) Inventor's oath or declaration.--
(A) Amendment.--The second sentence of section 115(a)
of title 35, United States Code, is amended by striking
``shall execute'' and inserting ``may be required to
execute''.
(B) Effective date.--The amendment made by
subparagraph (A) shall be effective as if included in
the amendment made by section 4(a)(1) of the Leahy-
Smith America Invents Act (Public Law 112-29).
(3) Assignee filers.--
(A) Benefit of earlier filing date; right of
priority.--Section 119(e)(1) of title 35, United States
Code, is amended, in the first sentence, by striking
``by an inventor or inventors named'' and inserting
``that names the inventor or a joint inventor''.
(B) Benefit of earlier filing date in the united
states.--Section 120 of title 35, United States Code,
is amended, in the first sentence, by striking ``names
an inventor or joint inventor'' and inserting ``names
the inventor or a joint inventor''.
(C) Effective date.--The amendments made by this
paragraph shall take effect on the date of the
enactment of this Act and shall apply to any patent
application, and any patent issuing from such
application, that is filed on or after September 16,
2012.
(4) Derived patents.--
(A) Amendment.--Section 291(b) of title 35, United
States Code, is amended by striking ``or joint
inventor'' and inserting ``or a joint inventor''.
(B) Effective date.--The amendment made by
subparagraph (A) shall be effective as if included in
the amendment made by section 3(h)(1) of the Leahy-
Smith America Invents Act (Public Law 112-29).
(5) Specification.--Notwithstanding section 4(e) of the
Leahy-Smith America Invents Act (Public Law 112-29; 125 Stat.
297), the amendments made by subsections (c) and (d) of section
4 of such Act shall apply to any proceeding or matter that is
pending on, or filed on or after, the date of the enactment of
this Act.
(6) Time limit for commencing misconduct proceedings.--
(A) Amendment.--Section 32 of title 35, United States
Code, is amended by striking the fourth sentence and
inserting the following new sentences: ``A proceeding
under this section shall be commenced not later than
the earlier of either the date that is 10 years after
the date on which the misconduct forming the basis for
the proceeding occurred, or 18 months after the date on
which the Director of the Office of Enrollment and
Discipline received a written grievance (as prescribed
in the regulations established under section
2(b)(2)(D)) about a specified individual that describes
the misconduct forming the basis for the proceeding. If
the misconduct that forms the basis for the proceeding
under this section is at issue in a court or
administrative-agency proceeding, the 18-month period
for commencing the proceeding under this section shall
be tolled until the court or agency's decision
regarding the misconduct becomes final and non-
appealable. The 18-month period for commencing a
proceeding under this section also may be tolled by
agreement between the parties.''
(B) Effective date.--The amendment made by this
paragraph shall take effect on the date of the
enactment of this Act and shall apply to any action in
which the Office files a complaint on or after such
date of enactment.
(7) Patent owner response.--
(A) Conduct of inter partes review.--Paragraph (8) of
section 316(a) of title 35, United States Code, is
amended by striking ``the petition under section 313''
and inserting ``the petition under section 311''.
(B) Conduct of post-grant review.--Paragraph (8) of
section 326(a) of title 35, United States Code, is
amended by striking ``the petition under section 323''
and inserting ``the petition under section 321''.
(C) Effective date.--The amendments made by this
paragraph shall take effect on the date of the
enactment of this Act.
(8) International applications.--
(A) Amendments.--Section 202(b) of the Patent Law
Treaties Implementation Act of 2012 (Public Law 112-
211; 126 Stat. 1536) is amended--
(i) by striking paragraph (7); and
(ii) by redesignating paragraphs (8) and (9)
as paragraphs (7) and (8), respectively.
(B) Effective date.--The amendments made by
subparagraph (A) shall be effective as if included in
title II of the Patent Law Treaties Implementation Act
of 2012 (Public Law 112-21).
(9) Global worksharing.--
(A) Amendment.--Section 122 of title 35, United
States Code, is amended by adding at the end the
following new subsection:
``(f) Foreign or International Filing.--
``(1) Provision of information.--The Director may provide
information concerning an application for patent to a foreign
or international intellectual property office if a
corresponding application is filed with such foreign or
international intellectual property office. If the
corresponding application is an international application, such
information may also be provided to an International Searching
Authority, an International Preliminary Examining Authority, or
the International Bureau.
``(2) Definitions.--For purposes of this subsection, the
terms `international application', `International Searching
Authority', `International Preliminary Examining Authority',
and `International Bureau' have the same meaning given those
terms under section 351.''.
(B) Conforming amendment.--Section 122(a) of title
35, United States Code, is amended by striking
``subsection (b)'' and inserting ``subsections (b) and
(f)''.
(C) Effective date.--The amendments made by this
paragraph shall take effect on the date of the
enactment of this Act and shall apply to applications
for patent that are pending on, or filed on or after,
such effective date.
(10) Jurisdiction for appeals of trademark cases.--
(A) Court of appeals.--Section 1295(a)(4)(C) of title
28, United States Code, is amended by striking ``title
35'' and inserting ``title 35 or section 21(b) of the
Act of July 5, 1946 (commonly referred to as the
`Trademark Act of 1946') (15 U.S.C. 1071(b))'';
(B) Conforming amendment.--Section 39(a) of the Act
of July 5, 1946 (commonly referred to as the
``Trademark Act of 1946'') (15 U.S.C. 1121(a)) is
amended by striking ``under this Act'' and inserting
``under this Act (except as provided in section
1295(a)(4) of title 28, United States Code)''.
(C) Effective date.--The amendment made by
subparagraph (A) shall apply in any case in which a
final judgment is entered by the district court on or
after the date of enactment of this Act.
(11) Officers and employees amendment.--
(A) Amendment.--Section 3(b)(3)(A) of title 35,
United States Code, is amended by striking ``appoint''
and inserting ``appoint, or nominate for appointment by
the Secretary of Commerce,''.
(B) Applicability.--Section 3(b)(3)(B) of title 35,
United States Code, as added by subparagraph (A) shall
apply to all officers nominated for appointment by the
Secretary of Commerce before, on, or after the date of
the enactment of this Act.
(i) Extension of Fee-setting Authority.--Section 10(i)(2) of the
Leahy-Smith America Invents Act (Public Law 112-29; 125 Stat. 319; 35
U.S.C. 41 note) is amended by striking ``7-year'' and inserting ``17-
year''.
SEC. 10. EFFECTIVE DATE.
Except as otherwise provided in this Act, the provisions of this Act
shall take effect on the date of the enactment of this Act, and shall
apply to any patent issued, or any action filed, on or after that date.
Purpose and Summary
The Leahy-Smith America Invents Act (``AIA''), signed into
law just over 3\1/2\ years ago, was a landmark Act that made
fundamental changes to American patent law. Its principal
provisions, such as its adoption of the first-inventor-to-file
system of establishing a patent's priority date, its simplified
definition of prior art, and its creation of a limited prior
user right, are reforms that were literally decades in the
making. Other provisions, such as the AIA's revision of
existing administrative proceedings for post-issuance review of
patents, and its creation of several new administrative
proceedings, will ensure that such proceedings are efficient
alternatives to civil litigation that are fair to both patent
owners and accused infringers.
Despite the breadth and depth of the AIA's reforms,
however, it was apparent even before the Act was signed into
law that further legislative work remained to be done. The harm
inflicted on American innovation and manufacturing by various
abusive patent-enforcement practices has been widely known and
acknowledged for most of the last decade. Some of these
problems clearly have grown worse even since the AIA's
enactment. What has been absent in the past, however, is a
consensus among different American industrial and technological
sectors as to how to cure these abuses without undermining the
patent system's purpose of encouraging research and innovation.
The present bill--the Innovation Act--represents the
emergence of a new consensus. As reflected in hearings held in
the House and Senate during this and the previous Congress,\1\
industry leaders from different sectors have reached broad
agreement on a common set of reforms that will address the most
serious abuses currently afflicting the patent-enforcement
system. Some of these reforms reflect new thinking about ways
of addressing the burden and expense of litigation. Others are
variants of proposals that were included in preliminary
versions of the AIA itself or its various precursors, but which
were omitted from the final public law. Still others address
problems that have arisen only in the time since the AIA's
enactment. Finally, the Innovation Act corrects several
important technical problems that have become apparent during
the course of the implementation of the AIA.
---------------------------------------------------------------------------
\1\See Abusive Patent Litigation: The Impact on American Innovation
and Jobs, and Potential Solutions: Hearing Before the Subcomm. on
Courts, Intellectual Property, and the Internet of the H. Comm. on the
Judiciary, 113th Cong. (2013) [hereinafter March 2013 hearing]; Abusive
Patent Litigation: The Issues Impacting American Competitiveness and
Job Creation at the International Trade Commission and Beyond: Hearing
Before the Subcomm. on Courts, Intellectual Property, and the Internet
of the H. Comm. on the Judiciary, 113th Cong. (2013) [hereinafter April
2013 hearing]; H.R. 3309: Improving the Patent System to Promote
American Innovation and Competitiveness: Hearing Before the H. Comm. on
the Judiciary, 113th Cong. (2013) [hereinafter October 2013 hearing];
Protecting Small Businesses and Promoting Innovation by Limiting Patent
Troll Abuse: Hearing Before the S. Comm. on the Judiciary, 113th Cong.
(2013); Examining Recent Supreme Court Cases in the Patent Arena:
Hearing Before the Subcomm. on Courts, Intellectual Property, and the
Internet of the H. Comm. on the Judiciary, 114th Cong. (2015)
[hereinafter February 2015 hearing]; The Impact of Abusive Patent
Litigation Practices on the American Economy: Hearing Before the S.
Comm. on the Judiciary, 114th Cong. (2015); Patent Reform: Protecting
American Innovators and Job Creators from Abusive Patent Litigation:
Hearing Before the Subcomm. on Courts, Intellectual Property, and the
Internet of the H. Comm. on the Judiciary, 114th Cong. (2015)
[hereinafter March 2015 hearing]; H.R. 9, the ``Innovation Act:''
Hearing Before the H. Comm. on the Judiciary, 114th Cong. (2015)
[hereinafter April 2015 hearing]; S. 1137, the ``PATENT ACT:'' Finding
Effective Solutions to Address Abusive Patent Practices: Hearing Before
the S. Comm. on the Judiciary, 114th Cong. (2015) [hereinafter May 2015
Senate hearing].
---------------------------------------------------------------------------
Every member of this Committee wishes to see the patent
system fulfill its constitutional mandate to ``promote the
progress of science and the useful arts.'' As one industry
leader noted during the hearings, the proper goal of reform
legislation
is to ensure that the patent system fairly rewards
those who contribute to our society through the
invention and development of new and useful products
and processes. A fair, efficient, and reliable patent
system will continue to stimulate the investment in
innovation that is necessary in today's technologically
complex world to create the new products and processes
that will lead to better lives for Americans and the
rest of the world. In addition, the best promise for
preserving and enhancing our place in an increasingly
competitive global marketplace will be to stimulate
U.S. investment in research by universities and small
and large companies.\2\
---------------------------------------------------------------------------
\2\March 2013 hearing at 61 (Statement of Philip S. Johnson, Chief
Intellectual Property Counsel, Johnson & Johnson, on behalf of the 21st
Century Coalition for Patent Reform); see also April 2015 hearing,
Statement of the Honorable Michelle K. Lee, Under Secretary of Commerce
for Intellectual Property and Director of the United States Patent and
Trademark Office [hereinafter Director Lee's testimony], at *3 (``[A]ny
legislative reform must preserve a patentee's ability to reliably and
efficiently enforce its patent rights. Legislation must achieve a
balance, preventing abuse while ensuring that any patent owner, large
or small, will be able to enforce a patent that is valid and
infringed.'') Because the record of the April 14, 2015 hearing has not
been published as of the filing of this report, citations to the
testimony in that record are to the material as submitted, rather than
to the pages of the GPO print, and are identified by asterisks.
Director Lee's responses to questions posed by members during the
hearing are cited according to the time at which they were made during
the webcast of the hearing. The webcast is available at http://
judiciary.house.gov/index.cfm/2015/4/hearing-hr-9-innovation-act.
While the particular focus of the Innovation Act is to cure
the misuse of various patent-enforcement mechanisms, the
Committee remains mindful of the importance of preserving a
---------------------------------------------------------------------------
strong and efficient patent system. As the same witness noted,
Research based companies are rational decision makers
when it comes to deciding whether and how much to
invest in R&D. . . . In determining the expected return
on investment, a critical element is the likelihood
that meaningful patent protection will be accorded to
deserving inventions resulting from the project, the
degree and duration of exclusivity that resulting
products or processes will enjoy, and the likelihood
that the involved patents will either be respected by
competitors, or can be promptly and successfully
enforced in the event of infringement. When such
projections indicate that the return on investment
exceeds a threshold commensurate with the risk
involved, the investment is, or continues to be, made.
When it does not, the project is not begun, or is
cancelled.\3\
---------------------------------------------------------------------------
\3\Id.; see also February 2015 hearing at 55 (Statement of Robert
P. Taylor, on behalf of National Venture Capital Association) (``For
thousands of . . . companies, . . . patents are the only way to insure
a return on investment sufficient to justify the risks involved.);
March 2013 hearing at 81 (Statement of Dana Rao, Vice President of
Intellectual Property and Litigation, Adobe Systems) (``the patent
system gives us the freedom to invest in R&D, knowing that our key
differentiating innovations can be protected and that the patent system
will be there to help us earn a return on that investment.'').
It is the goal of this Committee to ensure that American
manufacturing, small businesses, and start-up companies are
protected against patent-enforcement abuse, while also ensuring
that the patent system continues to protect and encourage
American ingenuity. The Innovation Act, which has earned the
support of a broad coalition of America's most innovative
companies, recalibrates the Nation's patent-enforcement
mechanisms in a manner that strikes a balance between these
overlapping and sometimes conflicting goals, and that ensures
that the Nation's patent system continues to drive
technological innovation and economic growth.
Background and Need for the Legislation
Testimony before Senate and House Committees has
established that misuse of various patent-enforcement
mechanisms is a serious problem--and one that has grown worse
in recent years. One witness described how the cost of patent
litigation--driven by its technical nature and complexity--can
lead to settlements driven by the economics of litigation
rather than the merits of the case. He noted the ``common
complaint'' that in patent litigation,
too many specious claims or defenses are filed solely
for the purpose of forcing an unjust settlement,
typically at a cost that is less than the cost of
successfully completing the litigation. While this type
of abuse no doubt exists in other types of litigation,
it may be more effective in patent litigation, where
the subject matter is complex, extensive document
discovery is available, a large number of potential
witnesses may be deposed, and expert testimony is a
practical necessity. Coupled with the difficulty in
patent cases of distinguishing specious from
meritorious claims and defenses, many parties choose to
settle rather than litigate to a final conclusion.\4\
---------------------------------------------------------------------------
\4\March 2013 hearing at 64 (Statement of Philip S. Johnson, Chief
Intellectual Property Counsel, Johnson & Johnson, on behalf of the 21st
Century Coalition for Patent Reform).
Another witness described how improper patent litigation
tactics can negatively affect both accused infringers and
---------------------------------------------------------------------------
patent owners:
I have been involved in situations where a simple
reading of a patent was enough to establish an
overwhelming likelihood of ultimate success in
defeating a patent infringement claim, only to see the
accused infringer--sometimes after spending millions of
dollars in attorney fees--make a rational business
decision to abandon its defenses and seek a settlement.
. . . I have also seen patent infringers use litigation
tactics calculated to inflict remarkable pain on patent
holders. Between pleading any conceivable defense to
validity or enforceability--and seeking any and all
possible discovery--the patent owner's time and expense
to vindication of its valid patent rights can be so
great that the patent owner can be forced to consider
stepping away from the fight and offering a settlement
that greatly undervalues the patent's intrinsic worth.
Litigation burdens can put the inventor holding a
strong patent in a weak position--just as litigation
burdens can convert a weak patent--or a portfolio of
weak patents--into an overvalued asset.\5\
---------------------------------------------------------------------------
\5\April 2015 hearing, Statement of Robert A. Armitage, Former
General Counsel, Eli Lilly & Co., at *4.
This witness concluded by noting that ``it cannot be a good
sign for any property rights system if the litigation/
enforcement regime often operates to weaken the strongest
property rights and strengthen the negotiating hand of those
holding the least meritorious property claims.''\6\
---------------------------------------------------------------------------
\6\Id.
---------------------------------------------------------------------------
Other witnesses noted that the volume and character of
patent litigation has grown worse in the last several years.
One witness described his company's recent experience:
Growing and systematic abuse has led to increasing
waste, inefficiency, and unfairness. The historical
trend of litigation illustrates the problem well. . . .
[F]rom 1995, when Yahoo was founded, through 2006,
Yahoo had between two to four defensive patent cases on
its active docket at any given time. In stark contrast,
since the beginning of 2007, Yahoo has had between 20
to 25 cases on its active docket at any given time.
That is a tenfold increase in patent litigation.\7\
---------------------------------------------------------------------------
\7\October 2013 hearing at 27 (Statement of Kevin Kramer, Vice
President and Deputy General Counsel for Intellectual Property, Yahoo!
Inc.); see also id. at 28 (``Along with the increase in numbers, Yahoo
has seen a decrease in the substantive merits of the cases filed
against it.'').
Similarly, a witness testifying on behalf of a major
retailer described the growth in patent litigation and misuse
---------------------------------------------------------------------------
that her company has seen:
When I joined the company 4 years ago, JCPenney had no
patent cases. Over the last 4 years, the company has
had to defend or settle over two dozen patent
infringement lawsuits that have nothing to do with the
products JCPenney actually sells. . . . [T]his number
does not include those claims that are settled upon
receipt of demand letters.\8\
---------------------------------------------------------------------------
\8\March 2013 hearing at 39 (statement of Janet L. Dhillon,
Executive Vice President, General Counsel and Corporate Secretary, J.C.
Penney).
The fact that a representative of a major retailer
testified before a congressional Committee about patent-
litigation abuses is illustrative of another recent phenomenon:
problems with the patent-enforcement system have reached beyond
the industrial sectors that are directly involved in
technological innovation. Increasingly, patent lawsuits have
affected businesses that one ordinarily would not expect to be
involved with the patent system. Concerns about abusive
litigation practices have been expressed to this Committee by
constituencies as diverse as the National Retail Federation,\9\
the Food Marketing Institute (which conducts programs on food
safety for food retailers and wholesalers),\10\ the National
Association of Realtors,\11\ and the American Bankers
Association.\12\
---------------------------------------------------------------------------
\9\Id. at 122 (``In recent years, over 200 retailers have contacted
NRF about this issue because they have been, or are currently, the
target of patent trolls' abusive practices.'').
\10\Id. at 163.
\11\March 2013 hearing at 160.
\12\Id. at 220-221.
---------------------------------------------------------------------------
During her recent testimony before the Committee, USPTO
Director Michelle Lee confirmed the existence of problems with
the current patent-enforcement system:
the past several years have seen the growth of patent
litigation practices which have the potential to hurt
innovation. These abusive litigation practices can be
particularly harmful to new and small businesses, which
often lack the resources to defend themselves in these
often highly complex and expensive cases. There have
been reports of widespread mailing of ``demand
letters'' with vague allegations of patent infringement
to people otherwise unfamiliar with patents and patent
law. In addition, there is a continuing need to find
ways to strengthen the patent system by leveling the
playing field for innovators and increasing the
transparency of patent ownership information.\13\
---------------------------------------------------------------------------
\13\Director Lee's testimony at *2; see also id. at 2:21:05
(colloquy with Ms. DelBene).
Other witnesses who appeared before the Committee also
described how recent trends in patent litigation have
---------------------------------------------------------------------------
negatively affected small businesses:
In response to the wave of patent troll cases, we have
changed our business practices. [F]or example, in the
past, . . . we might have considered licensing
technology from a small inventor, . . . [a] few guys in
a garage who are putting together a very exciting idea
about technology. . . . [But now,] we are taking a
second look at that. . . . [W]e [often] do not license
that technology because we are concerned that that
young inventor, that startup, may not have the
wherewithal to defend and indemnify us in a patent
troll case. And I think that that is a very unfortunate
thing for innovation in general.\14\
---------------------------------------------------------------------------
\14\March 2013 hearing at 140-141 (statement of Janet L. Dhillon,
Executive Vice President, General Counsel and Corporate Secretary,
jcpenney); see also April 2013 hearing at 46 (Statement of Colleen V.
Chien, Assistant Professor, Santa Clara University Law School)
(``Allowing suits against customers as we currently do puts small
suppliers in a difficult position-- . . . they make small suppliers
unattractive, because of their inability to indemnify large
companies.'').
Similarly, other witnesses have noted that ``[c]ompanies
that make $10 million or less in revenue are the majority of
unique defendants''--and that ``[s]tartups are particularly
vulnerable. Although startups are a crucial source of new jobs,
[patent-troll] demands have impacted their ability to hire and
meet other milestones, caused them to change their products,
and shut down lines of business.''\15\
---------------------------------------------------------------------------
\15\April 2013 hearing at 42 (Statement of Colleen V. Chien,
Assistant Professor, Santa Clara University Law School); see also
February 2015 hearing at 30, 32 (Statement of Krish Gupta, Senior Vice
President and Deputy General Counsel, EMC Corporation).
---------------------------------------------------------------------------
Director Lee also addressed the argument made by some
opponents of the Innovation Act that recent events have
obviated the need for legislative reform. Director Lee
acknowledged that ``[s]ince December 2013, when the House of
Representatives passed the Innovation Act, H.R. 3309, . . .
there have been a number of changes to the patent
landscape.''\16\ She described actions undertaken by the USPTO,
the courts, and others, but went on to note:
---------------------------------------------------------------------------
\16\Director Lee's testimony at *2.
Many of these actions have made progress in clarifying
patent rights and curtailing some patent litigation
abuses, but they are not a complete solution. The
recent judicial decisions are limited in their effect
because of the limitations of the statutes that those
cases interpret. And other actions--particularly the
passage of some state laws--have added to the need for
Federal legislation that provides a uniform national
approach. The USPTO also believes that legislation
remains necessary to realize the full potential of the
changes enacted in the AIA. Although the AIA made a
large number of important reforms to the patent system,
that law did not address all currently outstanding
problems--some of which have become more apparent since
the AIA's enactment.\17\
---------------------------------------------------------------------------
\17\Id. at *2-3.
Director Lee concluded that ``the USPTO believes that
legislation to curtail abusive patent litigation is necessary
and appropriate at this time.''\18\
---------------------------------------------------------------------------
\18\Id. at *3.
---------------------------------------------------------------------------
Finally, one witness with deep experience with the patent
system offered the following stark warning about the risks
posed by litigation abuses to the system as a whole:
Absent resolution, the concerns over the existing
patent litigation rules and procedures--producing
litigation consequences that often bedevil both
plaintiffs and defendants alike--seem certain to doom
the broad public support for the patent system.\19\
---------------------------------------------------------------------------
\19\October 2013 hearing at 61 (Statement of Robert A. Armitage,
Former General Counsel, Eli Lilly & Co.).
The inefficiencies and inequities currently afflicting the
Nation's patent-enforcement system are a problem that calls for
this Committee's attention.
I. PATENT INFRINGEMENT ACTIONS
1. Attorney's Fees
Witnesses who appeared before the Committee have repeatedly
described how the high cost of mounting a defense to a
complaint of patent infringement can force a defendant to
settle the case and pay the plaintiff--even when the defendant
has good reason to believe that it would have prevailed at
trial on a defense of noninfringement or invalidity. Witnesses
also predicted that allowing more liberal shifting of
attorney's fees against losing parties would reduce the
frequency of such nuisance settlements, and would allow more
defendants to challenge patents that are invalid or that have
been asserted beyond what their claims reasonably allow. As one
witness stated at a March 14, 2013 hearing:
Given that it costs $5 million to defend [against] a
patent through trial, and the average settlement demand
is less than $1 million, the [patent-assertion
entities] have an economic advantage over the targeted
defendants. If, however, the PAEs faced the real
possibility that the $5 million would be shifted to
them if they were unsuccessful, I believe they would
think twice about bringing lawsuits based on meritless
patents. And it would just take one defendant out of
the hundreds of targets to challenge them to take the
profit out of the aggressive litigation model.\20\
---------------------------------------------------------------------------
\20\March 2013 hearing at 89 (Statement of Dana Rao, Vice President
of Intellectual Property and Litigation, Adobe Systems); see also
October 2013 hearing at 31 (Statement of Kevin Kramer, Vice President
and Deputy General Counsel for Intellectual Property, Yahoo! Inc.)
(``Without that threat of fees, there is no disincentive for plaintiffs
to file weak cases or, worse yet, bring weak cases to trial. Congress's
providing clarity as to when courts should shift fees will force patent
plaintiffs to act more responsibly during litigation and when
contemplating whether to file suit at all.''); March 2013 hearing at
105 (Statement of John Boswell, Senior Vice President and General
Counsel, SAS) (``If Congress did something to [expand the availability
of fee awards], then we would have less incentive to settle. We would
be inclined to take the cases until you got a decision. As soon as you
do that, the entire business model of the patent trolls changes,
because they use early settlements to fund litigation. And as soon as
people stop settling, the whole paradigm shifts.''); April 2015
hearing, Statement of Robert A. Armitage, Former General Counsel, Eli
Lilly & Co., at *5 (``[Default fee shifting] could further discourage
procuring bundles of low-quality patents--they would no longer be
valued based upon the cost of defense if each accused infringer had a
reasonable certainty of recovering defense costs. At its opposite pole,
it could assure a well-conceived, high-quality patent would garner
respect--and serve as a rock-solid asset for attracting investments to
proceed with development and commercialization of the new technology it
protects.''); id. at *4 (``[A] more uniformly applied ``loser-pays''
system for civil actions involving patents could be the single most
important patent litigation reform that this Congress might enact at
the present time.'').
Witnesses also urged that any new fee-shifting standard be
applied evenhandedly to plaintiffs and defendants, and
recommended that the law not attempt to discriminate among
patent business models. As one witness noted, ``non-meritorious
litigation positions are no more acceptable coming in the form
of specious infringement defenses or counterclaims pled by an
accused infringer, and no more acceptable coming from a patent
owner that practices its patent than from a non-practicing
entity.''\21\
---------------------------------------------------------------------------
\21\April 2013 hearing at 14 (Statement of Kevin H. Rhodes, Vice
President and Chief Intellectual Property Counsel of 3M Company); see
also March 2013 hearing at 74 (Statement of Philip S. Johnson, Chief
Intellectual Property Counsel, Johnson & Johnson, on behalf of the 21st
Century Coalition for Patent Reform) (``abusive litigation behavior
should be targeted regardless of the party that engages in it. With
respect to patent owners, there is no basis to single out [non-
practicing entities] for special treatment as opposed to patent owners
who practice their inventions--if either type of patent owner takes an
unjustified litigation position, fee shifting is warranted.'').
---------------------------------------------------------------------------
Another industry witness has urged the Committee to adopt a
clear standard for fee awards, rather than leaving such matters
to the whim of district judges. He noted that ``patent trolls
file cases in jurisdictions where judges are disinclined to
award attorney fees. Providing greater discretion to judges who
are not using the discretion they currently have does not seem
to be particularly helpful.''\22\
---------------------------------------------------------------------------
\22\March 2013 hearing at 241 (Answer of John G. Boswell, Senior
Vice President, Chief Legal Officer, and Corporate Secretary, SAS, to
Questions for the Record from Ranking Member Melvin Watt). Such
concerns militate against adoption of the standard employed by the
Copyright Act, which one Court of Appeals has interpreted to provide
that ``[a] district court has discretion to decline to award attorney's
fees even when the plaintiff's copyright infringement case is quite
weak.'' Airframe Sys., Inc. v. L-3 Commc'ns, 658 F.3d 100, 109 (1st
Cir. 2011).
---------------------------------------------------------------------------
One leading industry coalition urged the Committee to enact
a rule that shifts fees and costs to the losing party unless
its litigation position was ``substantially justified'' or
special circumstances would make a fee award unjust.\23\ This
is the standard that is employed by the Equal Access to Justice
Act,\24\ which has been applied since 1980 to allow awards of
attorney's fees against the Federal Government.
---------------------------------------------------------------------------
\23\March 2013 hearing at 74 (Statement of Philip S. Johnson, Chief
Intellectual Property Counsel, Johnson & Johnson, on behalf of the 21st
Century Coalition for Patent Reform) (``[S]ince 2006, the 21st Century
Coalition has supported amending 35 U.S.C Sec. 285 to require fee
awards to prevailing parties, unless the court makes a finding that the
losing party's position was `substantially justified' or that `special
circumstances' make the fee award `unjust.' Similar language to amend
35 U.S.C Sec. 285 was proposed first in the Patent Reform Act of 2006,
S. 3818, 109th Cong., 2d Sess. (introduced August 3, 2006).''); see
also April 2015 hearing, Statement of Hans Sauer, Ph.D., Deputy General
Counsel for Intellectual Property, Biotechnology Industry Organization,
at *9-10.
\24\28 U.S.C. sec. 2412(d).
---------------------------------------------------------------------------
Finally, the Committee is pleased to note that USPTO
Director Michelle Lee testified at the April 14 hearing that
``[t]he USPTO generally supports the approach taken in
Sec. 3(b) of H.R. 9.''\25\ As Director Lee noted:
---------------------------------------------------------------------------
\25\Director Lee's testimony at *3.
This proposal would create a fault-based standard under
which fees and expenses would be awarded in appropriate
cases but would not be automatic. Rather, an award
would be made only if the court finds that the non-
prevailing party's litigation position was one that no
reasonable litigant would have believed would succeed,
or that the non-prevailing party's conduct was
otherwise unreasonable.\26\
---------------------------------------------------------------------------
\26\Id. The Committee is aware that legislation that was introduced
in the Senate recently includes a provision that is similar to
Sec. 3(b), but that would award fees on the basis of whether the losing
party's conduct was ``objectively reasonable.'' See S. 1137, 114th
Cong., Sec. 7(b). The Committee perceives no reason to adopt this
approach, given that there is no substantive difference between
``objectively reasonable'' and the standard imposed by EAJA. See Pierce
v. Underwood, 487 U.S. 552, 565 (1988) (holding that a litigation
position is substantially justified if it ``justified to a degree that
could satisfy a reasonable person'') (citation omitted); Aqua Shield v.
Inter Pool Cover Team, 774 F.3d 766, 774 (Fed. Cir. 2014) (holding that
litigation positions are ``objectively unreasonable'' if ``no
reasonable litigant could realistically expect them to succeed'')
(citation omitted).
Director Lee noted that Sec. 3(b)'s test ``is generally
consistent with that already being applied in at least some
district courts pursuant to the Supreme Court's recent decision
in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S.
Ct. 1749 (April 29, 2014).''\27\ These courts ``have awarded
fees on the basis that the non-prevailing litigant advanced
legal and factual theories that no reasonable litigant would
advance or that otherwise lacked a reasonable basis, or engaged
in unreasonable litigation tactics and conduct.''\28\
---------------------------------------------------------------------------
\27\Director Lee's testimony at *3.
\28\Director Lee's testimony at *3; see, e.g., Home Gambling
Network, Inc. v. Piche, No. 2:05-CV-610-DAE (D. Nev. May 22, 2014)
(patentee's legal theory was clearly precluded by controlling law and
his theory of infringement was based on claim scope that was clearly
disclaimed during prosecution); Lumen View Tech., LLC v.
Findthebest.com, Inc., No. 13 CIV. 3599 (DLC) (S.D.N.Y. May 30, 2014)
(even under patentee's claim construction, no reasonable defendant
would have found infringement); Kilopass Tech. Inc. v. Sidense Corp.,
No. 3:10-cv-02066-SI (N.D. Cal. Aug. 12, 2014) (patentee's doctrine-of-
equivalents theory was not supported by pre-suit investigation and
lacked a reasonable basis); LendingTree, LLC v. Zillow, Inc., No. 3:10-
cv-00439-FDW-DCK (W.D.N.C. Oct. 9, 2014) (``The Court cannot help but
construe LendingTree's pursuit of this case against NexTag after
producing and reviewing the electronic discovery and witness testimony
as an indication of at least a moderate level of unreasonableness.'');
IPVX Patent Holdings, Inc. v. Voxernet LLC, Case No. 5:13-cv-01708 HRL
(N.D. Cal. Nov. 5, 2014) (``It was unreasonable of IPVX to assert
literal infringement without comparing the elements of the claim to the
accused product in more than a wholly conclusory fashion.''); Bayer
CropScience AG et al., v. Dow AgroSciences LLC, Civil No. 12-256 (RMB/
JS) (D. Del. Jan. 5, 2015) (patentee's suit was precluded by a license
that was susceptible to only one reasonable interpretation); Lugus IP,
LLC v. Volvo Car Corp., Civil Action No. 12-2906 (JEI/JS) (D.N.J. March
26, 2015) (patentee's case was objectively unreasonable because ``the
prosecution history of the patent . . . specifically distinguished [the
patentee's] product from prior art . . . [that was] similar to
Defendant's product''); Brilliant Optical Solutions, LLC v. Comcast
Corp., Civil Action No. 13-cv-00886-REB (D. Colo. March 27, 2015) (``A
careful reading of [the] agreement demonstrates that Comcast had a
license to use the covered device. . . . Prosecution of an infringement
claim in the fact of such a license is objectively unreasonable.'');
Cognex Corp. v. Microscan Sys., Inc., No. 13-cv-2027 (JSR) (S.D.N.Y.
June 30, 2014) (defenses offered were particularly weak and lacked
support in the evidence, and defendant engaged in unreasonable
litigation tactics).
---------------------------------------------------------------------------
Director Lee emphasized that:
under the current statutory regime as interpreted by
the Supreme Court, district courts retain wide
discretion to determine whether a case is exceptional.
In particular, district courts have discretion to deny
a fee award even after finding that a case is
exceptional. Accordingly, some courts may decline to
award fees in circumstances when other courts would do
so. This uncertainty makes it more difficult for
parties to decide whether to vindicate their rights
through to a final decision in cases where the other
side's position appears indefensible. Section 3(b) of
H.R. 9 would help bring consistency and predictability
to this area of the law by codifying a standard (namely
unreasonable conduct or unreasonable positions) for
when courts would be required to award fees.\29\
---------------------------------------------------------------------------
\29\Id.; see also February 2015 hearing at 13 (Statement of Herbert
C. Wamsley, Executive Director, Intellectual Property Owners
Association) (``[Despite Octane and Highmark,] we conclude that
legislation is still needed. The existing statute still requires a case
to be `exceptional' for an attorney fee award. Octane fails to provide
a clear, objective test for lower courts to apply. . . . Some judges
will not be inclined to award fees despite this lower standard.''); id.
at 39 (Statement of Dana Rao, Vice President of Intellectual Property
and Litigation, Adobe Systems) (``[Under Octane], much is left to the
discretion of district courts--discretion that is exercised very
differently be different judges.'').
Director Lee concluded by noting that ``[t]he USPTO . . .
believes that the approach taken along the lines of Sec. 3(b)
of H.R. 9 is needed and would help curtail litigation abuses
committed by plaintiffs and defendants because it would
encourage each side to prepare and analyze their cases
responsibly.''\30\
---------------------------------------------------------------------------
\30\Director Lee's testimony at *4; see also id. at 2:23:15
(colloquy with Mr. Gohmert) (noting that fault-based fee shifting will
lead to ``heightened discipline'' among the attorneys litigating patent
cases).
---------------------------------------------------------------------------
2. Heightened Pleading Standards
An industry witness described the burdens placed on patent-
infringement defendants by vague, uninformative complaints:
Faced with a boilerplate pleading, the defendant has no
way of knowing which of potentially hundreds of claims
in the patent it is allegedly infringing. It will not
know which features among thousands of product features
in its offerings are alleged to infringe those claims.
And until the court forces the plaintiff to identify
which patent claims are infringed and why they are
infringed, the defendant will have no idea how the
plaintiff is construing the claims to read on the
accused products. As a result, the defendant upon being
served has to place expensive document retention holds
on employees relating to products that ultimately will
not be in the lawsuit, interview engineers and
scientists about products that will ultimately not be
in the lawsuit and search for prior art on patent
claims that will never be in the lawsuit. This only
serves to contribute to the already absurdly high cost
of defending a patent litigation.\31\
---------------------------------------------------------------------------
\31\April 2015 hearing, Statement of David M. Simon, Senior Vice
President of Intellectual Property, Salesforce.com, Inc., at *3; see
also id., Statement of Kevin Kramer, Vice President and Deputy General
Counsel for Intellectual Property, Yahoo! Inc., at *5; October 2013
hearing at 32-33 (Statement of Kevin Kramer, Vice President and Deputy
General Counsel for Intellectual Property, Yahoo! Inc.); March 2015
hearing at 14 (Statement of Mark Griffin, General Counsel,
Overstock.com, Inc.) (``Currently, courts do not require that a patent
holder explain how a patent is infringed, or even identify the product
involved, which makes it nearly impossible for someone who has been
sued to evaluate the case and decide how to respond.'').
The same witness cited as an example a recent patent
complaint that had been filed against 132 different defendants
and that broadly alleges that, ``alone and in conjunction with
others, the defendant has in the past and continues to infringe
and/or induce infringement of the `606 patent by using traffic
information systems, software, products and/or services
(`Accused Products') that alone or in combination with other
devices or products are covered by at least one claim of the
---------------------------------------------------------------------------
'606 patent.'' The witness noted:
[T]he 132 hapless defendants--who include computer
companies, insurance companies, hotels, coffee shops,
pharmacies and banks--do not know which claims are
infringed. Nor do they know whether their ``Accused
Products'' infringe. They do not know if the
infringement is alone or in combination with a third
party product. And if a third party product is
involved, they do not know which third party is
involved. Nor do they know which third party's products
are involved so they cannot determine if they have the
right to an indemnity.\32\
---------------------------------------------------------------------------
\32\April 2015 hearing, Statement of David M. Simon, Senior Vice
President of Intellectual Property, Salesforce.com, Inc., at *3.
The witness concluded by stating that ``[s]uch clear
absence of notice pleading is to my knowledge not tolerated in
any other area of the law.''\33\
---------------------------------------------------------------------------
\33\Id. The Committee is aware that some have questioned Congress's
authority to prescribe pleading standards and other aspects of Federal
judicial procedure. The Committee notes, however, that ``[f]rom almost
the founding days of this country, it has been firmly established that
Congress, acting pursuant to its authority to make all laws `necessary
and proper' to the[] establishment [of the lower Federal courts], also
may enact laws regulating the conduct of those courts and the means by
which their judgments are enforced.'' Willy v. Coastal Corp., 503 U.S.
131, 136 (1992); see also Sibbach v. Wilson & Co., 312 U.S. 1, 9 (1941)
(``Congress has undoubted power to regulate the practice and procedure
of Federal courts . . .''); Paul Taylor, Congress's Power to Regulate
the Federal Judiciary: What the First Congress and the First Federal
Courts Can Teach Today's Congress and Courts, 37 Pepp. L. Rev. 847
(2010).
---------------------------------------------------------------------------
Another industry witness explained that enhanced pleading
standards will not impose a greater burden on patent plaintiffs
than that already created by the duty to conduct an
investigation and develop a reasonable, good-faith case before
filing a complaint for infringement:
While current law does not require the disclosure of
infringement theories in a plaintiff's complaint, Rule
11 does require that the plaintiff have conducted due
diligence and arrived at a tenable, good-faith theory
of infringement before filing suit. The bill's
heightened pleading requirement, therefore, imposes no
new burden on diligent plaintiffs; they merely need to
disclose the results of their required analysis. But
[proposed Sec. 281A] will have a real effect on those
plaintiffs who are not as diligent, barring them at the
outset from filing suit where they have conducted no
proper due diligence and ensuring that the plaintiff
has in fact conducted an analysis, and that the
plaintiff has a real basis for filing suit.\34\
---------------------------------------------------------------------------
\34\October 2013 hearing at 20 (Statement of Krish Gupta, Senior
Vice President and Deputy General Counsel, EMC Corporation); see also
April 2015 hearing, Statement of David M. Simon, Senior Vice President
of Intellectual Property, Salesforce.com, Inc., at *4 (``[S]ection 281A
would for the first time permit defendants who make complex products
with billions of lines of computer software or billions of parts such
as advanced semiconductors to be able to determine what portion of
their offerings are infringed from the complaint. It is a question of
due process. None of these requirements is unfair because the plaintiff
would have to provide this information anyway to prove its case.'').
Another witness described the expected ``salutary effects''
---------------------------------------------------------------------------
of proposed Sec. 281A's heightened pleading standards:
Defendants would know which features of which offerings
are being accused and know what documents they need to
retain. They would not search for prior art needlessly
for hundreds of claims that will not be asserted. They
would not waste valuable engineers and scientists time
discussing products that are not actually in the
lawsuit.
Also, Main Street customers who are often the target of
[abusive] lawsuits would know whether they have an
indemnity claim against their technology purveyors.
Providers of technology would know whether they owe a
duty to defend at the start of the litigation because
the complaint would make that readily apparent. Thus,
the providers would know whether they should intervene
in the lawsuit and not have to turn down claims until
after the patentee finally makes its infringement
allegations which could be years later. This benefits
both large and small defendants.\35\
---------------------------------------------------------------------------
\35\April 2015 hearing, Statement of David M. Simon, Senior Vice
President of Intellectual Property, Salesforce.com, Inc., at *4; see
also Director Lee's testimony at *4 (``The USPTO supports heightening
pleading requirements in patent infringement cases beyond what is
currently required to ensure that defendants have--as soon as the case
is filed in court--a basic understanding of why they are allegedly
infringing a patent. Thus, the USPTO generally supports the requirement
in Sec. 3(a) of H.R. 9 that a complaint explain how each element of a
patent claim is met by an accused product or process, or address why
such information is not readily accessible.'').
The Committee is mindful that some witnesses, though
generally supportive of Sec. 3(a)'s heightened pleading
requirements, have noted that different claims in a patent may
be substantially similar, and have questioned the utility of
requiring heightened pleading of all such claims that infringe
only the same accused products and processes.\36\ These
concerns have been addressed in an amendment that was adopted
during the Committee's executive session.
---------------------------------------------------------------------------
\36\See, e.g., Director Lee's testimony at *4 (``Any requirement to
plead additional claims in a patent at this early stage of litigation
should be considered in light of the burdens that it would place on the
patent owner, the potential that it creates for procedural motions that
do not materially advance the case, and the incentive that it creates
to `overplead' marginally relevant patent claims.''); id. at 1:07:50
(colloquy with Mr. Nadler) (noting that in cases ``with multiple
patents, . . . sometimes there are tens or hundreds of claims. That
would be a voluminous complaint if you are going element by
element.''); April 2015 hearing, Statement of Hans Sauer, Ph.D., Deputy
General Counsel for Intellectual Property, Biotechnology Industry
Organization, at *8-9 (``There is no need to additionally require the
inclusion within the initial complaint itself of dozens of alternative
grounds, or to litigate the sufficiency of such alternative grounds,
when it is already clear that there is `enough' for a lawsuit to
proceed.''); id., Statement of Robert A. Armitage, Former General
Counsel, Eli Lilly & Co., at *11.
---------------------------------------------------------------------------
3. Joinder of Interested Parties
A witness testifying before the Committee described how
abusive litigants' ability to operate through limited-liability
entities could undermine the effectiveness of the Innovation
Act's fee-shifting provisions. He noted that such litigants
often operate through a shell corporation whose only asset is
the patent that was asserted--and if an award has been made
against that litigant under Sec. 285, ``that sole asset
[necessarily] has . . . been established to either not be
infringed or to be invalid.'' \37\ As a result, an award of
attorney's fees ``is truly a pyrrhic victory'' for the
prevailing party.\38\ The witness went on to note that
Sec. 3(c) of the Innovation Act:
---------------------------------------------------------------------------
\37\April 2015 hearing, Statement of David M. Simon, Senior Vice
President of Intellectual Property, Salesforce.com, Inc., at *5.
\38\Id.
would provide a new joinder process that permits
trolls' financiers to be put in harm's way for the
first time. Those who want to profit from patent
litigation would be joined to the litigation after a
defendant prevails and the court determines attorney's
fees are appropriate. The financiers of this
unjustified litigation could avoid this liability by
renouncing their financial interest. They will have
notice and an opportunity to determine whether they
really want to be at financial risk for those shell
entities who cannot pay for their litigation. If they
disclaim their interest, they suffer no harm. If they
decide to keep their interest and the defendant
ultimately establishes that the patentee's position is
unjustified, the defendant can be effectively
compensated.\39\
---------------------------------------------------------------------------
\39\Id.
Section 3(c) of the Innovation Act provides courts with a
limited ability to pierce the corporate veil and assign
liability for attorney's-fee awards to financiers who seek to
profit from abusive patent litigation. The Committee
acknowledges that the provision has been the subject of
criticism. Some have suggested that it would apply to start-up
companies, and thus would deter investment in such
companies.\40\ Others have suggested that the provision would
also assign personal liability to the employees of a start-up
company.\41\ And it has been proposed that the provision be
clarified to more clearly protect passive investors in an
enterprise.\42\ It is not the intent of the Committee to allow
proposed Sec. 299(d) to operate against start-up companies, or
to ever extend personal liability to bona fide employees or
passive investors in or lenders to an enterprise. Section 3(c)
has been clarified in the Committee's executive session to
address these and other concerns, and to ensure that the
provision does not deter investment in small technology
companies.
---------------------------------------------------------------------------
\40\See Director Lee's testimony at *7 (``Overriding [the limited
liability of corporate employees and shareholders] may serve as a
substantial deterrent to investment in new enterprises and potentially
job creation, particularly in a number of high-growth sectors.
Individual investors, for example, may not be willing to invest in a
start-up company if the risks of doing so included not just the loss of
their initial investment, but also personal liability to the investor
for the company's subsequent patent litigation decisions.''); April
2015 hearing, Statement of Hans Sauer, Ph.D., Deputy General Counsel
for Intellectual Property, Biotechnology Industry Organization, at *13
(asserting that proposed Sec. 299(d) limitations ``do[] not clearly
limit the provision to litigation that was brought by patent assertion
entities, but could capture R&D businesses that have to enforce patents
they were not yet able to develop or commercialize.''); id. at *14
(``the joinder provisions . . . have the potential for significant
negative business impact on investment-intensive innovation, especially
for smaller companies and non-profit and academic innovators.''); March
2015 hearing at 38 (Statement of Bryan Pate, Co-Founder and CEO,
ElliptiGO, Inc.) (``It's one thing to lose $50,000 in an investment.
It's another thing to be on the hook personally for over a million
dollars in legal fees. That's a huge shift in the risk profile of an
already risky investment. There are many safer places to put that money
and I doubt we would have landed our initial investors under those
conditions.'').
\41\March 2015 hearing at 38 (Statement of Bryan Pate, Co-Founder
and CEO, ElliptiGO, Inc.) (``[O]ne of the first employees we hired had
recently earned her MBA from Stanford's Graduate School of Business.
She could have worked for any number of great companies. If she knew
that one of the many risks of working for ElliptiGO included the
potential loss of her house from a failed patent enforcement action, I
doubt she would have come onboard.'').
\42\Director Lee's testimony at *7 (``[T]o help ensure that the
prospect of joinder does not chill investment in new companies,
Sec. 3(c) should include . . . [a] clear exemption for passive
investors--those who lack the ability to direct or control a company's
litigation. Such an exemption would better allow an investor to know
whether investing in a company may subject her to personal
liability.''); id. at 1:03:02 (colloquy with Mr. Goodlatte), 1:23:05
(colloquy with Mr. Conyers), 2:15:50 (colloquy with Mr. Deutch); April
2015 hearing, Statement of Hans Sauer, Ph.D., Deputy General Counsel
for Intellectual Property, Biotechnology Industry Organization, at *14
(``Business partners, patent owners, financing companies, and others
who engage only in arm's length business with the patentee should not
be subjected to potential liability or forced to renounce all of their
rights in a patent. . . . On the other hand, with proper safeguards it
may be fair to permit liability of entities that directly benefit from
and have the right to control the patentee's litigation conduct.'').
---------------------------------------------------------------------------
4. Venue
During the Committee's April 14 hearing, several witnesses
recommended that the Committee consider proposals to stay
discovery in patent cases during the pendency of a motion to
transfer venue, and suggested that current law's restrictions
on venue for patent cases be clarified. In response to a
question from Mr. Farenthold, USPTO Director Michelle Lee
stated that staying discovery pending a motion to transfer
venue:
[Is] an idea worthy of consideration. . . . A motion to
transfer occurs early in a patent case. Often, it
doesn't take long for a judge to rule on it. And it
doesn't involve extensive discovery [on the merits of
the case]. . . . [Instead, the issue will be] where is
the [defendant's] principal place of business, do [the
parties] have an R&D center [in the district], do they
have ties to the area? Staying discovery pending a
motion to transfer venue, in combination with [tighter]
venue restrictions, . . . will improve the system.\43\
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\43\Director Lee's testimony, at 1:47:55; see also id. at 1:04:56
(colloquy with Mr. Goodlatte); id. at 2:28:27 (colloquy with Mr.
Jeffries); id. at 2:33:55 (colloquy with Mr. Cicilline) (``[T]ightening
venue requirements, . . . in combination with a stay of discovery
pending a ruling on a motion to transfer, would encourage judges to
rule quickly and promptly [on the motion and] get the litigation in the
proper district.'').
A leading industry witness also noted that the non-
enforcement of current law's venue restrictions allows
litigants to file a large number of cases in particular
districts, thereby ``plac[ing] undue burdens on those courts''
and the residents of those districts.\44\ Another witness noted
that:
---------------------------------------------------------------------------
\44\April 2015 hearing, Statement of David M. Simon, Senior Vice
President of Intellectual Property, Salesforce.com, Inc., at *11.
[A] mandatory discovery stay pending the resolution of
a venue transfer motion can be particularly important
in situations where the discovery burdens that might be
imposed on a defendant can render its continued patent
defense problematic. Since venue moves are done for
good reason--often convenience and availability of
evidence factors--they play into easing the burdens
that might otherwise impair the ability to defend.\45\
---------------------------------------------------------------------------
\45\April 2015 hearing, Statement of Robert A. Armitage, Former
General Counsel, Eli Lilly & Co., at *8-10.
The Committee notes that existing statutory provisions
already restrict the venue where a patent-infringement action
may be brought. Indeed, such statutory limits have been in
place since 1897. These limits were designed to protect parties
from the burden and inconvenience of litigating patent actions
in districts that are remote from any of the underlying events
in the case. The 1897 Act is now codified at Sec. 1400(b) of
title 28--it has never been repealed. In 1990, however, the
U.S. Court of Appeals for the Federal Circuit ``reinterpreted''
the statute in a way that robbed it of all effect. In its
infamous decision in VE Holding Corp. v. Johnson Gas Appliance
Co.,\46\ the court construed Sec. 1400 to allow venue for a
corporate defendant wherever personal jurisdiction is proper.
In effect, the Federal Circuit collapsed the tests for personal
jurisdiction and venue, rendering Sec. 1400 a nullity. It is
long past time for Congress to restore Sec. 1400 to its role of
protecting patent owners and accused infringers from the burden
of being forced to litigate in remote locations, and ensuring
that patent lawsuits do not unfairly burden particular courts.
Congress must correct the Federal Circuit's mistake, and
clarify that patent lawsuits may only be brought in districts
with some reasonable connection to the dispute.
---------------------------------------------------------------------------
\46\917 F.2d 1574 (Fed. Cir. 1990).
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II. TRANSPARENCY OF PATENT OWNERSHIP
A Committee witness catalogued the reasons why the patent
law should require greater disclosure as to who owns or has a
financial interest in a patent. The witness explained that
greater transparency would allow a party seeking to practice a
technology to more readily and completely determine whether
other patents also need to be evaluated and possibly licensed,
and noted that such ownership information would aid in
identifying relevant prior art:
There are many costs associated with an incomplete
ownership record, as well as benefits associated with a
complete ownership record. First, the lack of
transparency throughout the life of the patent hinders
the public's ability to accurately assess the risk of
entering into a new technology market and increases the
cost of performing patent clearance analyses. Second,
parties may not necessarily achieve a meaningful
``patent peace'' in settlements or licenses because
they have no way of double-checking the true extent of
the other party's patent holdings, and therefore might
not negotiate a broad enough license to foreclose
future conflicts. Third, a similar double-checking
problem may occur in the context of standard setting,
where some entities may try to hide standard-essential
patents. Fourth, a complete ownership record would
benefit the USPTO by providing examiners with another
tool to search for prior art, and to make accurate
prior art determinations in the context of the [common-
ownership] exceptions. Finally, having a complete
ownership record would facilitate the use of post-grant
proceedings at the USPTO by giving potential
petitioners more information to assess the benefits or
risks of filing petitions and to locate the most
relevant prior art (which is crucial because of the
estoppel provisions of these proceedings). \47\
---------------------------------------------------------------------------
\47\March 2013 hearing at 98 (Statement of Dana Rao, Vice President
of Intellectual Property and Litigation, Adobe Systems); see also id.
at 99 (``as defendants, we should know who is getting the ultimate
economic benefit from the patents that are being asserted against
us.'').
The same witness also described how some patent owners try
to conceal information about which patents they own or hold a
financial interest in, in order to forestall review of those
---------------------------------------------------------------------------
patents:
[T]he large patent aggregation entities are typically
holding the patents in other names or shell companies,
because they don't want to draw attention to the size
of their portfolio. . . . [T]hey also want to ensure
that . . . declaratory judgment actions and
reexamination proceedings [are not] initiated against
them.\48\
---------------------------------------------------------------------------
\48\Id.
Another Committee witness described the difficulties posed
when ownership and financial-interest information is withheld:
defendants do not know whom they are negotiating with or who
---------------------------------------------------------------------------
has the authority to settle the case.
In most cases, a defendant goes to court knowing who is
on the other side. In stark contrast, the [patent-
assertion entity] model is such that a patent defendant
often does not know, beyond the name of a shell
corporation plaintiff, who has an interest in the
litigation and the patent at issue. Yet this is
knowledge that will inform decisions around every facet
of a case, including key decisions such as when and
whether to settle a case.
[O]ur experience plays a role in our viewpoint on this
issue. In several cases, settlement has been
complicated by the ``investors'' or ``partners'' that
had a financial interest in a litigation. . . . This
often comes to light during mediation or settlement
talks when a plaintiff reveals that it cannot accept a
lower offer because it would not satisfy unnamed
investors in the endeavor. Transparency into the
ownership stakes in a patent or in the plaintiff would
help to avoid these issues and help to ensure that the
parties at the bargaining table are the ones with the
power and authority to settle the litigation.\49\
---------------------------------------------------------------------------
\49\October 2013 hearing at 34 (Statement of Kevin Kramer, Vice
President and Deputy General Counsel for Intellectual Property, Yahoo!
Inc.).
The same witness also emphasized the special obligation of
transparency and disclosure that attends any government-granted
---------------------------------------------------------------------------
property right:
[A] patent is a government grant. Like real property or
any other government grant, it is reasonable to expect
that the government's records disclose who owns that
right. If anything, the expectation [of transparency]
should be greater in patent cases given the ability to
enforce that right through litigation and the strict
liability for infringement.\50\
---------------------------------------------------------------------------
\50\Id.
III. THE CUSTOMER-SUIT EXCEPTION
A leading industry witness described the phenomenon of
patent infringement suits that are filed against the customer
who uses an allegedly infringing product, rather than against
the manufacturer who made the product. The witness noted the
potentially coercive nature of such suits--and their potential
to overcompensate the plaintiff:
A patent litigation practice that has been sharply
criticized is the institution of suits against large
numbers of assemblers, distributors, or retailers
rather than the original manufacturer or provider of
the component or product alleged to infringe. This
tactic takes advantage of the fact that such suits
threaten defendants with the disruption of aspects of
their businesses that are at best tangentially related
to the invention which is the subject of the patent,
and that each individual defendant has less motivation
to litigate the issue to final conclusion that the
manufacturer of the product at issue. The result can be
to collect enormous sums as the result of a very large
number of small settlements whose cumulative value far
exceeds the amount that could have been recovered from
the original manufacturer.\51\
---------------------------------------------------------------------------
\51\March 2013 hearing at 65 (Statement of Philip S. Johnson, Chief
Intellectual Property Counsel, Johnson & Johnson, on behalf of the 21st
Century Coalition for Patent Reform); see also id. at 250 (Answers of
Philip S. Johnson, Chief Intellectual Property Counsel, Johnson &
Johnson, to Questions for the Record from Ranking Member Melvin Watt);
April 2013 hearing at 45 (Statement of Colleen V. Chien, Assistant
Professor, Santa Clara University Law School).
Similarly, another witness described how ``[b]y targeting
multiple customers or end users, a [patent-assertion entity]
may create increased settlement opportunities, particularly
when the customers or end users lack sufficient technical
knowledge of the accused product or sufficient resources to
litigate.''\52\ The same witness noted that current law's
remedies for such abuses have proven inadequate: ``the stay of
a customer suit . . . is not automatic, but rather is committed
to the discretion of the district court. Unfortunately, courts
have been inconsistent in their willingness to stay such
customer suits, thus encouraging their filing.''\53\
---------------------------------------------------------------------------
\52\April 2013 hearing at 36-38 (Statement of Kevin H. Rhodes, Vice
President and Chief Intellectual Property Counsel of 3M Company); see
also March 2013 hearing at 76 (Statement of Philip S. Johnson, Chief
Intellectual Property Counsel, Johnson & Johnson, on behalf of the 21st
Century Coalition for Patent Reform); October 2013 hearing at 21-22
(Statement of Krish Gupta, Senior Vice President and Deputy General
Counsel, EMC Corporation).
\53\April 2013 hearing at 36-38 (Statement of Kevin H. Rhodes, Vice
President and Chief Intellectual Property Counsel of 3M Company).
---------------------------------------------------------------------------
Another witness described the following infamous example of
the abuse of lawsuits against customers. His example involved
infringement actions that have been brought by a patent owner
against small businesses that offer their customers wireless
Internet access:
The [patent-assertion entity's] plan was to assert the
patents against users of equipment that provides a form
of wireless Internet access commonly known as ``Wi-
Fi.'' By the time the patents were assigned to the PAE,
however, the patents had already been broadly cross-
licensed to competitors and were nearing the end of
their patent terms. Additionally, the prior owners [of
the patents] had made binding contractual commitments
to license all comers on fair and reasonable terms.
Its targets--it has sent over 13,000 letters
threatening litigation--often are nonprofits, local and
state governments, and small and medium-sized
businesses including retirement homes, children's
health clinics, coffee shops, cafes, restaurants, and
convenience stores. These entities are targets because
they (like most every modern business) provide Wi-Fi on
their premises, using equipment supplied by Cisco and
other manufacturers. Some of this equipment is already
licensed under the patents-in-suit because of broad
licenses previously granted by the previous owners. But
the PAE doesn't tell their targets this, or that the
patents are subject to commitments to license on a
reasonable and nondiscriminatory basis to all comers.
Instead, the PAE tells these targets, who may have
spent as little as $40 on their wireless equipment,
that, unless they pay at least $2,000 or $3,000 per
location within 2 weeks, they will be sued and have to
engage counsel to review thousands of pages of
documents.\54\
---------------------------------------------------------------------------
\54\March 2013 hearing at 15-16 (Statement of Mark Chandler, Senior
Vice President and General Counsel, Cisco Systems Inc.). Although the
suits described by this witness clearly appear to be abusive, the
Committee recognizes that in some situations, a patent owner will have
legitimate reason to sue users of a product rather than the
manufacturer of the product. For example, as one witness who appeared
before the Subcommittee noted, ``[w]hen a product is made and sold
abroad but then used in the U.S., the downstream user may be the only
entity that is subject to U.S. patent law.'' March 2013 hearing at 244
(Answer of Graham Gerst, Partner, Global IP Law Group, LLC to Questions
for the Record from Ranking Member Melvin Watt). The same witness also
described a scenario in which ``it is clear that the downstream user is
infringing, but there is no way to know who manufactured the device the
downstream user is using. In those cases, the end user is the only one
to sue.'' Id. Another Subcommittee witness explained why the law should
not immunize end users against suits for infringement: ``It may be the
case that, due to the nature of the patented invention, infringement
depends on how a customer uses, installs, or integrates a product with
other products.'' April 2013 hearing at 36-38 (Statement of Kevin H.
Rhodes, Vice President and Chief Intellectual Property Counsel of 3M
Company). The same witness also noted that ``end user immunity might
run the risk that would-be infringers could game the system, with the
manufacturer stopping just short of selling an infringing product so
that the customer who is immune from infringement can complete the
assembly of what would otherwise be an infringing device.'' Id.
Other industry witnesses noted that the phenomenon of
abusive suits brought against customers who use allegedly
infringing products is a problem that has grown worse in recent
---------------------------------------------------------------------------
years:
Increasingly, these suits are directed at our
customers, who in turn look to us to indemnify them of
liability for using our products. Since 2009, Adobe has
received more than 100 such indemnification requests.
In one recent example, hundreds of retailers were sued
by a particular [patent-assertion entity]. Each of
these retailers faced the choice of settling for
relatively low amounts, less than $100,000, or ending
up in expensive protracted litigation costing as much
as $5 million per suit.\55\
---------------------------------------------------------------------------
\55\March 2013 hearing at 86 (Statement of Dana Rao, Vice President
of Intellectual Property and Litigation, Adobe Systems); see also March
2013 hearing at 246 (Answer of Graham Gerst, Partner, Global IP Law
Group, LLC to Questions for the Record from Ranking Member Melvin Watt)
(``[T]he tactic of suing a large number of targets with bogus claims
only became common over the last few years.'').
Despite Federal Circuit precedent recognizing a customer-
suit exception,\56\ a review of recent district court decisions
confirms witnesses' characterization of the courts as
inconsistent in their application of the law. The current
caselaw is a dog's breakfast of overlapping, inconsistent, and
conflicting decisions. Even in the relatively simple scenario
of the customer who uses or sells the manufacturer's product,
and a patent that has claims covering that very product or the
process used to make the product,\57\ courts have refused to
stay an infringement suit against the customer despite the
participation of the manufacturer in a suit involving the same
patent. Some courts have denied a stay in such circumstances on
the ground that the manufacturer has been sued in the same
court as the customer.\58\ Other courts, by contrast, have
denied a stay when the manufacturer files a declaratory-
judgment action challenging the patent in another district.
These courts have held that a stay should be denied if the
manufacturer could have intervened in the suit against the
customer.\59\ Of course, these competing lines of cases could
be alternately applied in every customer case to deny a stay
regardless of whether the manufacturer filed suit in another
district or intervened in the customer action.
---------------------------------------------------------------------------
\56\See Katz v. Lear Siegler, Inc., 909 F.2d 1459 (Fed. Cir. 1990).
\57\The customer is liable for infringement in such a situation
under 35 U.S.C. Sec. 271(g).
\58\See, e.g., Heinz Kettler GmbH & Co. v. Indian Indus., Inc., 575
F. Supp. 2d 728, 730 (E.D. Va. 2008) (``the customer suit exception is
inapplicable in this case . . . [b]ecause plaintiffs have
simultaneously sued both the manufacturer (Escalade) and the customer
(Sears) of the allegedly infringing table-tennis tables'') (emphasis in
original); Alloc, Inc. v. Unilin Decor N.V., No. 02-C-1266, 03-C-342,
04-C-121, at *3 (E.D. Wis. Dec. 15, 2005) (no customer-suit stay
because ``the allegedly infringing manufacturers . . . and the
allegedly infringing customer . . . are defending claims of
infringement in the same consolidated suit in the same jurisdiction'')
(emphasis in original); IP Innovation L.L.C. v. Dell Computer Corp.,
No. 03-C-3245, at *2 (N.D. Ill. Apr. 9, 2004); Watson Indus., Inc. v.
Canon, Inc., No. 03-C-422-C, at *1 (W.D. Wis. Nov. 24, 2003); Beck
Sys., Inc. v. Marimba, Inc., No. 01-C-5207, at *2 (N.D. Ill. Nov. 20,
2001) (``When all parties are joined in one simultaneous action, the
same problems are not presented, and the rationale underlying the
customer suit exception does not apply.''); Bingo Brain, Inc. v.
California Concepts, Inc., No. 99C6139, at *2 (N.D. Ill. May 24, 2000).
Contra, In re Papst Licensing GmbH & Co. KG Litig., 767 F. Supp. 2d 1
(D.D.C. 2011) (allowing a stay despite the manufacturer and customer's
being sued in the same district).
\59\See, e.g., Largan Precision Co., Ltd. v. Fujinon Corp., No. C-
10-1318 SBA (JL), at *5 (N.D. Cal. Mar. 31, 2011); BBC Int'l Ltd. v.
Lumino Designs, Inc., 441 F. Supp. 2d 438, 443 (E.D.N.Y. 2006) (``[T]he
customer suit exception does not apply because BBC could have been sued
for infringement in the Northern District of Illinois.''); Air Prods.
and Chems., Inc. v. MG Nitrogen Servs., Inc., 133 F. Supp.2d 354, 356-
57 (D. Del. 2001); Emerson Elec. Co. v. The Black & Decker Mfg. Co.,
606 F.2d 234, 242 (8th Cir. 1979) (Markey, J).
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Another source of inconsistency in courts' application of
customer-suit stays has been patent infringement actions that
assert only method claims. In this scenario, the customer uses
or sells the manufacturer's product, and that product is
uniquely made to carry out the patented process. For example,
if a patent claims the use of wireless Internet access, and the
product is a router that enables such access, the router itself
does not directly infringe under Sec. 271(a) because the patent
does not claim the product. Instead, it is the customer who
purchases the router and installs it at home who is the only
direct infringer, because he is the one who is `using wireless
Internet access.' The retailer is liable only ``indirectly,''
as a contributory infringer,\60\ because he sells a product
that is specially made or adapted to implement the patented
process and that lacks substantial noninfringing use.
---------------------------------------------------------------------------
\60\See 35 U.S.C. Sec. 271(c).
---------------------------------------------------------------------------
Although a customer who buys and uses a router is the only
direct infringer of a method claim, the true infringer in this
scenario is the manufacturer of the router. Typically, it is
the manufacturer who understands the product and is in the best
position to defend against allegations of infringement.
A number of courts, unfortunately, have held that when the
customer is sued as a direct infringer of a process patent, and
the manufacturer could only be sued as an indirect infringer,
the customer-suit exception is inapplicable and no stay of the
customer suit is permitted. These cases effectively immunize
almost all method patent claims against the customer-suit
exception.\61\ Other courts, by contrast, have recognized that
a customer accused of infringing a method claim by using a
manufacturer's product is still a customer, and that a stay of
the customer suit in favor of an action to which the
manufacturer is a party is appropriate.\62\
---------------------------------------------------------------------------
\61\See, e.g., Lodsys, LLC v. Brother Int'l Corp., No. 2:11-cv-90-
JRG, at *11 (E.D. Tex. Jan. 14, 2013); Teleconference Sys. v. Proctor &
Gamble Pharm., Inc., 676 F. Supp. 2d 321, 327 (D. Del. 2009) (customer-
suit exception inapplicable ``because plaintiff alleges that Cisco's
customer are not mere resellers but are direct infringers''); Privasys,
Inc. v. Visa Int'l, No. C-07-03257 SI, at *4 (N.D. Cal. Nov. 14, 2007)
(agreeing that parties ``are not mere customers'' if they are
``involved in carrying out the infringement of the patented method'');
In re Laughlin Prods., Inc., 265 F. Supp. 2d 525, 537 (E.D. Pa. 2003)
(``[W]here the patentee alleges that the customers themselves have
directly infringed the method or process disclosed in the patent, the
customer suit exception does not apply.''); Air Prods. and Chems., Inc.
v. MG Nitrogen Servs., Inc., 133 F. Supp. 2d 354, 357 (D. Del. 2001)
(denying a stay where the customer's use of a product ``directly
infringes the claims-in-suit, while [the manufacturer's] sale of the
equipment only induces or contributes to infringement''); Am. Acad. of
Sci. v. Novell, Inc., No. C-91-4300 EFL, at *3 (N.D. Cal. July 9, 1992)
(customer-suit exception inapplicable ``where the patent owner seeks to
hold the manufacturer liable solely on a theory of inducement/
contributory infringement, claiming direct infringement only against
the customer'').
\62\See, e.g., Select Retrieval, LLC v. L.L. Bean, Inc., Civil No.
2:12-cv-00003-NT, at *5 (D. Me. Mar. 15, 2013); Thermapure, Inc. v.
Temp-Air, Inc., No. 10-cv-4724, at *9-10 (N.D. Ill. Dec. 22, 2010);
Card Activation Techs. v. Pier 1 Imports, Inc., No. 09-C-2021, at *4
(N.D. Ill. Sep. 14, 2009).
---------------------------------------------------------------------------
Another scenario that has resulted in inconsistent
application of the customer-suit exception involves a component
that causes a larger product to infringe when the component is
incorporated into the product. If patent claims are drafted
broadly to cover the final product ``with'' the component, the
component itself does not directly infringe the patent--only
the final product incorporating the component directly
infringes. Unfortunately, a line of cases holds that even if a
component incorporated into the final product is the principal
cause of infringement, and the manufacturer of the component is
a party to a suit involving the patent, a customer-suit stay
must be denied if the patent's claims are drawn to cover the
larger product.\63\ Other courts, however, have recognized that
a stay remains appropriate in such a scenario.\64\
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\63\See, e.g., GeoTag, Inc. v. Frontier Commc'ns Corp., No. 2:10-
CV-265-JRG, at *2 n.2 (E.D. Tex. Feb. 26, 2013) (customer-suit
exception inapplicable where no evidence that ``Microsoft and Google
supply the entire accused system''); Cadence Design Sys., Inc. v. OEA
Int'l, Inc., No. CV11-0713 SBA, at *2 (N.D. Cal. Sep. 20, 2011) (``The
[customer suit] exception is . . . inapplicable when a manufacturer
makes but a component of an end product, where the end product is
accused of infringement''); Microsoft Corp. v. Commonwealth Scientific
and Indus. Research Org., No. 6:06-CV-549, at *2-3 (E.D. Tex. Dec. 13,
2007) (even though manufacturer's computer chip ``does the `inventive
magic,'' customer-suit stay is denied because chip is ``only a
component of the end product and therefore does not and cannot directly
infringe''); Viking Injector Co., Inc. v. Chemtron, Inc., Civ. A. No.
3:CV-93-0791, at *3 (M.D. Pa. Nov. 9, 1993).
\64\See, e.g., Pragmatus Telecom, LLC v. Advanced Store Co., Inc.,
Civil Action No. 12-088-RGA, at *3-4 (D.Del. July 10, 2012); Honeywell
Int'l Inc. v. Audivox Commc'ns Corp., No. Civ.A. 04-1337-KAJ, at *1, 3
(D. Del. May 18, 2005); Commissariat a L'Energie Atomique v. Dell
Computer Corp., No. Civ.A. 03-484-KAJ (D. Del. May 13, 2004); Ricoh
Co., Ltd. v. Aeroflex Inc., 279 F. Supp. 2d 554 (D. Del. 2003).
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A final circumstance that has bedeviled the district courts
is that of a customer who is also accused of inducement of
infringement. As an illustrative example, consider again the
case of the router and the patent that covers the process of
using wireless Internet access. If the owner of such a patent
sues a retailer under Sec. 271(c) for selling routers that
infringe a claim to using wireless Internet access, the patent
owner also could sue the retailer, per Sec. 271(b), for
inducing infringement by purchasers of the router who install
the router and directly infringe the patent by using wireless
Internet service. Some district courts have held that when such
a retailer-customer provides instructions to downstream
customers (which would normally support an inducement claim),
this creates a ``separate interest'' in proceeding against the
retailer-customer that precludes a customer-suit stay.\65\
Other courts, however, have recognized that adding inducement
claims to an action should not defeat the customer-suit
exception with respect to a party that otherwise qualifies as a
customer.\66\
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\65\See, e.g., Alloc, Inc. v. Unilin Decor N.V., No. 02-C-1266, at
*3 (E.D. Wis. Dec. 15, 2005).
\66\See, e.g., Ultra Prods., Inc. v. Best Buy Co., Inc., Civil
Action No. 09-1095 (MLC), at *4-6 (D.N.J. Sep. 1, 2009); Delphi Corp.
v. Auto. Techs. Int'l, Inc., No. 08-CV-11048, at *5 (E.D. Mich. July
25, 2008); Beck Sys., Inc. v. Marimba, Inc., No. 01-C-5207, at *1 (N.D.
Ill. Nov. 20, 2001) (customer-suit stay denied on other grounds); Tri-
Tronics Co., Inc. v. MacGregor & Co., Inc., No. 90-C-0630, at *3 (N.D.
Ill. July 25, 1990).
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Finally, the Committee notes that although the Innovation
Act's new Sec. 296 only stays, rather than terminates, suits
against customers--and thus contemplates the possibility of
subsequent actions against customers after the manufacturer
suit is concluded--in the vast majority of cases, a suit
involving the manufacturer will eliminate all potential
infringement liability of the customer.
First, if the patent is found invalid or not infringed by
the manufacturer's goods in the suit between the patent owner
and the manufacturer, no further cause of action lies against
the customer with respect to the same patents and goods.\67\ On
the other hand, if the patent is found infringed and not
invalid in the suit between the patent owner and the
manufacturer, a cause of action still lies against the
customer--but in the vast majority of cases, no further damages
can be recovered from the customer. Principles of claim
preclusion do not bar litigating a second action against the
customer.\68\ Rather, while the patent owner who prevails in
his action against the manufacturer may proceed with a suit
against the customer,\69\ any such customer suit is sharply
limited by the single-recovery rule. That rule provides that
while ``a patentee is entitled to full compensation for related
acts of infringement, . . . the patentee, like any tort victim,
is not entitled to multiple recoveries for the same
injury.''\70\ Therefore, ``a patentee may not sue users of an
infringing product for damages if he has collected actual
damages from a manufacturer or seller, and those damages fully
compensate the patentee for infringement by users.''\71\ And in
almost all cases, a successful suit against the manufacturer
will fully compensate the patent owner for infringing activity
by the manufacturer's customers. This is true whether indirect-
infringement claims\72\ or direct-infringement claims were
successfully litigated against the manufacturer.\73\
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\67\See MGA, Inc. v. General Motors Corp., 827 F.2d 729, 734 (Fed.
Cir. 1987) (``The Kessler doctrine bars a patent infringement action
against a customer of a seller who has previously prevailed against the
patentee because of invalidity or noninfringement of the patent'')
(citing Kessler v. Eldred, 206 U.S. 285 (1907)); Blonder-Tongue Labs.,
Inc. v. Univ. of Ill. Found., 402 U.S. 313, 349-50 (1971).
\68\See Transclean Corp. v. Jiffy Lube Int'l, Inc., 474 F.3d 1298,
1306 (Fed. Cir. 2007) (``[A] manufacturer or seller of a product who is
sued for patent infringement typically is not in privity with a party,
otherwise unrelated, who does no more than purchase and use the
product. . . . [and therefore] a patentee's suit against one would
[not] bar a second action against the other under the doctrine of claim
preclusion.'').
\69\See Shockley v. Arcan, Inc., 248 F.3d 1349, 1364 (Fed. Cir.
2001).
\70\Jerry R. Selinger & Jessica W. Young, Suing an Infringing
Competitor's Customers: Or, Life under the Single Recovery Rule, 31 J.
Marshall L.Rev. 19, 29 (1997).
\71\Transclean, 474 F.3d at 1303.
\72\See Glenayre Elecs., Inc. v. Jackson, 443 F.3d 851, 858-59
(Fed. Cir. 2006) (citing Selinger, supra) (``[W]here a patentee alleges
that a manufacturer contributes to and induces infringement by its
customers simply because it sells infringing products to its customers,
damages assessed for indirect infringement normally will be the same as
damages that would be assessed had the patentee sued and obtained a
judgment against the customers.'').
\73\See id. at 872 (``[W]here a patentee has enforced its patent
against a direct infringer and collected damages sufficient to put him
in the same position he would have been in had there not been
infringement, the patentee cannot thereafter collect actual damages
from an alleged indirect infringer.''); see also Selinger, supra, at 52
(``In view of the modern theory of damages, it appears that efforts to
procure recovery from different levels in the distribution (or user)
chain will be difficult to accomplish, so long as the manufacturer is
solvent.''); October 2013 hearing at 66-67 (Statement of Robert A.
Armitage, Former General Counsel, Eli Lilly & Co.) (``In many
situations, the patent owner can be--and ultimately will be--made whole
for any acts of infringement that have taken place, or will take place,
by suing the manufacturer of an accused product. In this and like
situations, separate infringement lawsuits brought against customers
may serve no legitimate purpose--at least where the manufacturer is
willing and able to stand in the shoes of its customers and the
customer agrees that its interests would be served by having the
manufacturer take over the defense of the patent.'').
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Therefore, although Sec. 296 only stays (rather than
terminates) a separate cause of action against the customer,
the Committee anticipates that in almost all cases, resolution
of the manufacturer suit pending the stay will eliminate the
possibility of any further litigation against the customer.
IV. RECOMMENDATIONS TO THE JUDICIAL CONFERENCE
1. Discovery
An industry witness aptly summarized the problems posed by
some discovery requests in patent-infringement litigation. He
noted that plaintiffs who do not practice the claimed invention
often lack reciprocal discovery burdens, and therefore feel
unconstrained in their imposition of such burdens on
defendants:
The costs and burdens of discovery can be enormous in
any patent case. But in cases brought by [patent-
assertion entities], the asymmetry of such costs and
burdens increases the risk of litigation abuse. Such
patent owners typically have few documents and
witnesses, so they may propound extremely burdensome
discovery to corporate defendants without fearing that
they will be on the receiving end of corresponding
burdens. Exacerbating that burden are frequently vague
and overreaching infringement allegations, making it
difficult for a defendant to determine the metes and
bounds of its obligation to preserve evidence and
highly disruptive to comply with that obligation.
Coupled with the growth of electronically stored
information that is an easy target for burdensome
discovery requests, the costs of litigation can
mushroom out of control and force defendants to settle
simply to avoid intrusive discovery.\74\
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\74\April 2013 hearing at 32-33 (Statement of Kevin H. Rhodes, Vice
President and Chief Intellectual Property Counsel of 3M Company).
Another witness described the particular burden imposed by
requests for electronic discovery--and again emphasized the
lack of reciprocal burdens confronted by non-practicing
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plaintiffs:
In the case of my company, it is really not an
overstatement to say that we communicate almost
completely electronically--by email, text, IM, you name
it. So, when, in the context of patent litigation, we
must respond to an electronic discovery request, we are
instantly looking at legal and consulting bills that
will run into the millions of dollars if we choose not
to settle. In contrast, patent trolls have no
witnesses, they have no documents, they have no
evidence to discover. In short, there is an asymmetry
in the patent troll context.\75\ Patent trolls can and
do pursue litigation strategies that make the
litigation as expensive as possible because that same
tactic cannot be used against them. With no documents
to produce and no witnesses to depose, they have very
little cost associated with their obligation to respond
to discovery requests.\76\
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\75\Other witnesses also emphasized the lack of reciprocal burdens
borne by patent plaintiffs who do not practice the claimed technology.
See, e.g., April 2013 hearing at 114 (Statement of Russell W. Binns,
Jr., Associate General Counsel, IP Law & Litigation, Avaya Inc.) (``A
licensing entity typically doesn't have very many employees. It doesn't
have a terribly large number of documents. It usually has all the
documents prepared on a CD before they even start the suit . . .'');
March 2013 hearing at 74-75 (Statement of Philip S. Johnson, Chief
Intellectual Property Counsel, Johnson & Johnson, on behalf of the 21st
Century Coalition for Patent Reform) (``[Patent plaintiffs who do not
practice the invention] typically have few documents and little to
disclose in discovery, so they may propound extremely burdensome
discovery to corporations without fearing that they will be on the
receiving end of corresponding burdens.''); March 2013 hearing at 86
(Statement of Dana Rao, Vice President of Intellectual Property and
Litigation, Adobe Systems) (``Suits by [patent-assertion entities] take
advantage of lopsidedness in our litigation system. . . . PAEs
typically have very little in discovery costs but at the same time they
have the ability to make defendants like Adobe spend a lot of resources
responding to very broad discovery requests.'').
\76\March 2013 hearing at 44-47 (statement of John Boswell, Senior
Vice President and General Counsel, SAS).
The same witness offered the following example of the
massive costs imposed by wasteful and unnecessary discovery in
a particular case--and the Hobson's choice that faces a company
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confronted with such costs:
The number of electronic documents that we had to
collect exceeded 10 million. The cost to collect those
documents, before considering the attorney's fees to
review and make production determinations, was about
$1.5 million. Again, $1.5 million was just the cost to
collect; considering attorney's fees, the cost of the
collection was easily double that amount. Of those
documents, only 1,873 documents, or .000183%, appeared
on an evidence list as possibly being introduced at
trial. These are not documents that were actually used,
and it is debatable whether any of the 10 million
documents collected were even read by the
[plaintiff].\77\
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\77\See also October 2013 hearing at 32 (Statement of Kevin Kramer,
Vice President and Deputy General Counsel for Intellectual Property,
Yahoo! Inc. (``In a typical troll case, we are asked to provide
hundreds of thousands of pages of documents, including emails from
anyone with relevant information, their attachments to those emails,
such as word processing documents, spreadsheets, and presentations. . .
. [I]n my experience, less than 1 percent of the electronic documents
that get produced actually get used at trial.'') (emphasis in
original); April 2015 hearing, Statement of Kevin Kramer, Vice
President and Deputy General Counsel for Intellectual Property, Yahoo!
Inc., at *7 (``In the typical case, what is needed to assess whether a
Yahoo product infringes a patent claim is the source code for the
product or feature at issue. In fact, in each of the three trials we
have had where our infringement was at issue . . . , our source code
was a central part of the case.'').
SAS won summary judgment in this case and it is now on
appeal to the Federal Circuit. So far this case has
cost us in excess of $8 million. If SAS ultimately wins
this case, it will be a Pyrrhic victory at best. We
spent $8 million and huge amounts of developer time and
executive time, for what? This victory does not resolve
the other patent troll cases that we face, or will face
in the future. This $8 million and the millions more
that we are spending on other cases is money that SAS
no longer has to invest in people, facilities,
research, or product development; and we are a
relatively small player in this world. In short, the
cost to us, and to the economy as a whole, is simply
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staggering.
The dilemma here is that when a company like SAS
receives a complaint from a patent troll, it is faced
with a Hobson's choice: defend the litigation, which
will cost literally millions of dollars, or settle, for
a smaller, but not insignificant, amount of money. If
you do settle, then the company develops a reputation
for being an easy target, which just invites more
extortion attempts from the patent-troll community.\78\
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\78\March 2013 hearing at 44-47 (statement of John Boswell, Senior
Vice President and General Counsel, SAS).
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2. Protection of Intellectual Property Licenses in Bankruptcy
Section 365(n) of title 11 prevents a bankruptcy trustee
from terminating licenses to patents and other intellectual
property of the debtor. When the 100th Congress enacted
Sec. 365(n) in 1989, it recognized that allowing patent and
other intellectual property licenses to be revoked in
bankruptcy would be extremely disruptive to the economy and
damaging both to patent owners and licensing manufacturers.
Manufacturers often invest billions of dollars in reliance
on their right to practice a technology pursuant to a license.
Allowing the license to be eliminated in bankruptcy would
create commercial uncertainty and would undermine manufacturing
investment. Also, under such a regime, inventors would be
pressured to transfer their entire interest in a patent, rather
than simply provide a license, because only a complete transfer
would provide a secure right to practice the patented
technology. Use of transfers rather than licensing would both
reduce the inventor's return on a valuable patent, and would
effectively limit who could practice the technology. For all of
these reasons, the 100th Congress concluded that allowing
intellectual property licenses to be voided in bankruptcy ``is
a fundamental threat to the creative process that has nurtured
innovation in the United States,''\79\ and enacted Sec. 365(n)
to put an end to such bankruptcy practices.
---------------------------------------------------------------------------
\79\S. Rep. No. 100-505, at 3 (1989).
---------------------------------------------------------------------------
In recent years, some parties have tried to subvert the
protections of Sec. 365(n) by filing for bankruptcy in a
foreign country, and requesting that U.S. courts extend
``comity'' to the foreign court's termination of licenses to
U.S. intellectual property. Chapter 15 of the Bankruptcy Code
creates procedures for recognizing and extending comity to
foreign bankruptcy proceedings. Foreign trustees have cited the
fact that Chapter 15 does not list Sec. 365(n) among the
mandatory provisions that must apply when a U.S. court
recognizes a foreign proceeding as a reason to deny such
protections to U.S. licensees when a patent owner files for
bankruptcy abroad. They also have argued that Sec. 365(n) does
not fall within Chapter 15's public-policy exception to
recognizing foreign proceedings.\80\ This determination
currently must be litigated on a case-by-case basis, and
district courts are given discretion in applying the public-
policy exception. Such piecemeal litigation and its inherent
risks create uncertainty that undermines intellectual property
licensees' ability to rely on their licenses--and, ultimately,
undermines the fundamental purposes of Sec. 365(n).
---------------------------------------------------------------------------
\80\See 11 U.S.C. Sec. 1506.
---------------------------------------------------------------------------
U.S. law's failure to clearly protect intellectual property
licenses in Chapter 15 proceedings also creates disincentives
for manufacturers to invest in the United States. If the right
to practice a technology under a U.S. patent remains
uncertain--while other Nations provide firm guarantees that
licenses to their patents will be protected in a bankruptcy
proceeding, whether domestic or foreign to such Nation--a
manufacturer contemplating building a fabrication plant would
face powerful incentives to invest his resources overseas
rather than in the United States. U.S. bankruptcy law must not
be permitted to deter investment in plants, equipment, and
manufacturing jobs in the United States.\81\
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\81\Section 6(d) has received the support of the USPTO and industry
leaders. See Director Lee's testimony at *7; April 2015 hearing,
Statement of Robert A. Armitage, Former General Counsel, Eli Lilly &
Co., at *16-17.
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V. CORRECTIONS AND IMPROVEMENTS TO THE AMERICA INVENTS ACT
1. LRepeal of Could-have-raised Estoppel for Civil Actions Following
Post-grant Review
The Committee remains persuaded that the AIA's
authorization of post-grant review of patents should be amended
to limit the estoppel that ensues from those proceedings in
civil litigation to only those issues that were actually raised
and decided in the post-grant review.\82\
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\82\See The Coalition for 21st Century Patent Reform, ```Reasonably
Could Have Raised' Estoppel: A Technical Error that Should Be
Corrected,'' and ``A `Reasonably Could Have Raised' Estoppel in
Litigation Following Post-Grant Review Will Prevent the Envisioned
Benefits of the New Procedure From Being Achieved.'' Both papers are
printed in the record of the October 29 hearing, at pp. 203-211, and
are currently available on the website www.patentsmatter.com.
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First, the overlap in the membership and staffing of this
Committee between the present Congress and the 112th is too
thorough to permit any doubt that the addition of the words
``or reasonably could have raised'' to Sec. 325(e)(2) of title
35, when the House Judiciary Committee-reported bill was
engrossed in June 2011, was, indeed, a mistake.\83\ More
fundamentally, however, the preservation of a civil-litigation
could-have-raised estoppel following post-grant review
threatens to fatally undermine the new proceeding. Unlike an
inter partes review, a post-grant review must be sought within
9 months of when the patent issues, and the proceeding extends
to all potential defenses of invalidity. The issues that a
petitioner ``reasonably could have raised'' in a post-grant
review thus include all challenges to the validity of the
patent (to the extent that they might later be deemed to have
been reasonably accessible to the petitioner). This includes
not only challenges to obviousness based on prior patents and
printed publications, but evidence of uses and sales that made
the invention accessible to the interested public and questions
of the description and enablement of the invention and whether
patentable subject matter has been claimed. Some of these
issues likely will only become apparent with time, and may
require some discovery to develop. But only limited time is
available before a post-grant review petition must be filed,
and petitioners are required to present a preponderance case at
the outset of the proceeding. There is no pre-petition
discovery before, or the opportunity to develop and expand
challenges after, a post-grant review has been instituted.
---------------------------------------------------------------------------
\83\Mr. Lamar Smith and Senator Leahy, the eponymous sponsors of
the Leahy-Smith America Invents Act, each have stated that the addition
of ``reasonably could have raised'' to the Sec. 325(e)(2) estoppel was
an error. See 158 Cong. Rec. H6843 (daily ed. December 18, 2012)
(Statement of Rep. Smith); 158 Cong.Rec. S8517 (daily ed. December 28,
2012) (Statement of Sen. Leahy).
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Applying a litigation could-have-raised estoppel to post-
grant review thus would present petitioners with a daunting
prospect: once such a review is instituted, the petitioner
effectively would be barred from challenging the validity of
the patent on any ground should he later be sued for its
infringement, but he would be required to file his petition
before he had more than a very limited time--and no discovery--
to identify the bases of his petition.
For all these reasons, the Committee concurs with the views
expressed by industry leaders and representatives of patent
professional associations, who have broadly agreed--both during
the development of the AIA and since--that limiting the
litigation estoppel that follows a post-grant review to those
issues that were actually raised and decided in the proceeding
is the approach that ``strike[s] the right balance.''\84\
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\84\Patent Quality Improvement: Post-Grant Opposition: Hearing
before the Subcomm. on Courts, the Internet, and Intellectual Prop. of
the H. Comm. on the Judiciary, 108th Cong. (2004) at 32 (Statement of
Michael Kirk, Executive Director, AIPLA); see also id. at 17 (Statement
of Jeffrey Kushan, Sidley Austin Brown & Wood, on behalf of Genentech,
Inc.); Patent Reform Act of 2007: Hearing on H.R. 1908 Before the
Subcomm. on Courts, the Internet, and Intellectual Prop., 110th Cong.
56 (2007) at 98 (Statement of Anthony Peterman, Director, Patent
Counsel, Dell Inc.); Perspectives on Patents: Post-Grant Review
Procedures and other Litigation Reforms: Hearing before the Subcomm. on
Intellectual Prop. of the S. Comm. on the Judiciary, 109th Cong. (2006)
at 45-46 (Statement of Mark Chandler, Senior Vice President and General
Counsel, Cisco Systems); Director Lee's testimony at *7-8; April 2015
hearing, Statement of Robert A. Armitage, Former General Counsel, Eli
Lilly & Co., at *17-18; March 2013 hearing at 22 (Statement of Mark
Chandler, Senior Vice President and General Counsel, Cisco Systems
Inc.) (``If left uncorrected, this error will unfortunately greatly
limit the utility and use of the new procedure to fulfill its intended
purpose of pruning or narrowing newly issued patents that are in fact
invalid. Because of the broad range of issues available, a potential
patent challenger will have to weigh very heavy risks to later civil
litigation on the same patent.'').
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2. LUse of District Court Claim Construction in Inter Partes and Post-
grant Reviews
In its regulations implementing the AIA's new inter partes
and post-grant reviews, the USPTO instructed the PTAB to read
patent claims for their broadest reasonable interpretation
(``BRI''),\85\ rather than use the district court's Phillips
approach.\86\ The BRI approach is eminently reasonable in
examination and reexamination, where the applicant or patentee
has a broad right to amend after a rejection. In inter partes
and post-grant reviews, however, the right to amend is much
more limited. Also, amendments come at the cost of subjecting
the patent to intervening rights and voidance of years of
accrued damages. Moreover, these reviews can be invoked after
the patent has been in force for years, and when its claims
could be, or even have been, given a more limited construction
in civil litigation.
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\85\See 37 C.F.R. Sec. 42.300(b); see generally SAP America, Inc.
v. Versata Dev. Group, Inc., CBM2012-00001, Paper 70, at 7-19 (June 11,
2013).
\86\See Phillips v. AWH Corp., 415 F.3d 1303, 1328 (Fed. Cir.
2005).
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Use of the BRI approach to claim construction in inter
partes and post-grant review can thus potentially produce
results that are unfair to patent owners. It could subject a
patentee to a review, and even force him to amend his claims,
by construing them to include matter that the claims would not
be construed to include in a civil action. As a practical
matter, however, the patentee has no more patent than what the
courts will enforce. Applying the broadest reasonable
interpretation of claims in inter partes and post-grant reviews
could thus force the patent owner to amend claims to eliminate
claim scope that effectively does not exist.\87\
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\87\An exhaustive explanation of the reasons why use of district
court claim construction is better suited to inter partes and post-
grant review than is the broadest reasonable interpretation of claims
is provided in a paper prepared by The Coalition for 21st Century
Patent Reform, ``Why the PTO's Use of the Broadest Reasonable
Interpretation of Patent Claims in Post-Grant and Inter Partes Review
Is Inappropriate Under the America Invents Act.'' This paper is printed
in the record of the October 29, 2013 hearing, at pp. 212-230, and is
currently available on the website www.patentsmatter.com.
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The Committee acknowledges that, over the course of its
consideration of this issue, it has become increasingly less
apparent how the claim constructions that are produced under
the BRI approach differ from those produced under the Phillips
standard. The original prosecution history of a patent, for
example, may be considered under either approach.\88\ And
despite the fact that over a thousand IPRs have been instituted
since the program was inaugurated in 2012, there is a paucity
of examples where use of the BRI approach rather than district
court claim construction appears to have affected either the
Board's decision to institute or its final written
decision.\89\ The Committee nevertheless concludes that
discontinuation of the use of the BRI approach in AIA trials is
warranted. Adoption of the Phillips standard will, at the
least, protect patentees from attempts to institute review on
the basis of claim constructions that already have been
rejected by the Federal Circuit.\90\ And the Board's claim
interpretations will more readily provide guidance to district
courts if the Board and the courts employ the same approach to
claim construction.
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\88\See Microsoft Corp. v. Proxyconn, Inc., No. 2014-1542 (Fed.
Cir. June 16, 2015) (``The PTO should also consult the patent's
prosecution history in proceedings in which the patent has been brought
back to the agency for a second review''); Tempo Lighting, Inc. v.
Tivoli, LLC, 742 F.3d 973, 977-78 (Fed. Cir. 2014) (applying
prosecution history to construe claims under the BRI approach);
Phillips v. AWH Corp., 415 F.3d 1303, 1317 (``[A] court should also
consider the patent's prosecution history, if it is in evidence.'')
(citation omitted).
\89\See Patents Post-Grant Blog, ``PTAB Finds BRI Claim
Construction No Different Under Phillips,'' July 15, 2014.
\90\See May 2015 Senate hearing, Statement of Kevin H. Rhodes, Vice
President and Chief Intellectual Property Counsel of 3M Company, on
Behalf of the Coalition for 21st Century Patent Reform, at *25
(discussing IPR2015-00858).
---------------------------------------------------------------------------
Finally, although covered business method reviews are a
subspecies of post-grant review, the Committee finds that the
unique nature of those proceedings precludes a need to employ
district court standards of claim construction there. Only
business-method patents are eligible for CBM review. Because
such patents are not directed to the application of scientific
or mathematical principles,\91\ they are generally incapable of
creating reproducible results, and are inherently unpatentably
abstract, as that standard has been clarified in Bilski v.
Kappos\92\ and Alice Corp. Pty. Ltd. v. CLS Bank Int'l.\93\ In
light of these cases' restoration of the historic bar on the
patenting of business methods, the Committee finds it
unnecessary to burden the Board with applying the district
courts' claim-construction approach to define the precise metes
and bounds of the unpatentable subject matter claimed in such
patents.
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\91\The Committee is aware of the Supreme Court's recent
pronouncement that inventions relying on the application natural laws
are unpatentable when ``the relation itself exists in principle apart
from any human action.'' Mayo Collaborative Servs. v. Prometheus Labs.,
Inc., 132 S.Ct. 1289, 1297 (2012). The Court applied the ``laws of
nature'' exception to subject-matter patentability to invalidate a
patent that disclosed determining the appropriate dose of a drug to
treat an autoimmune disease on the basis of measurements of the levels
of metabolites in the patient's blood. See id. at 1295. Mayo poses
several quandaries, however. It is not entirely clear why the Court
concluded that the discovery of a means of determining the amount of a
drug that will cure--rather than kill--the patient is an invention
inherently unworthy of a patent. The Court's reliance on the trio of
Benson, Flook, and Diehr to guide its Sec. 101 analysis--despite the
fact that the latter clearly overruled the first two, and that none of
the three is particularly coherent--does not contribute to clarity in
this area of the law. But most fundamentally, were the Committee to
take seriously the suggestion that an invention is unpatentable if it
adds ``nothing of significance'' to the natural laws that control its
operation, id. at 1302, it must also conclude that the Patent Office
should be deauthorized, for nothing would remain patentable other than
whatever business methods survive Alice. It is thus unsurprising that
the patent bar, particularly in the life sciences, has greeted Mayo as
the jurisprudential equivalent of the bombing of Dresden. The Committee
will continue to monitor developments in this area.
\92\561 U.S. 593 (2010). The respondent in that case, during the
October 29, 2013 hearing, described another problematic aspect of the
patenting of business methods: ``patents covering methods of doing
business . . . inherently cover all technology solving the affected
business problem.'' October 2013 hearing at 43 (Statement of David J.
Kappos, Former Under Secretary of Commerce for Intellectual Property
and Director of the United States Patent and Trademark Office). Such
patents inevitably are parasitic of the hard work and ingenuity of the
inventor of the technological product or feature that implements the
business-method ``invention.''
\93\134 S.Ct. 2347 (June 19, 2014).
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3. Obviousness-type Double Patenting
The double-patenting doctrine was developed by the courts
to control the effects of exceptions to prior art that permit a
patentee to obtain multiple patents for obvious variations of
the same invention.\94\ An inventor can obtain such obvious-
variant patents because his own earlier-filed patent
applications are not prior art to his subsequent applications
until a year after the earlier-filed applications publish. As a
result, absent the double-patenting doctrine, an inventor could
obtain multiple patents for what is basically the same
invention, and then sell those patents to different parties,
requiring others to obtain multiple licenses from multiple
parties in order to practice what is substantially the same
invention.
---------------------------------------------------------------------------
\94\The earliest appearance of the double-patenting doctrine--at
least in the Supreme Court's opinions--appears to be in O'Reilly v.
Morse, 56 U.S. 62 (1853). See id. at 114 (observing that if Morse's
broad claim to ``the use of the motive power of . . . electro-
magnetism, however developed, for making or printing intelligible
characters, letters, or signs, at any distance'' were valid, then a
second, narrower improvement patent would necessarily be ``illegal and
void'' as ``extend[ing] his monopoly beyond the period limited by
law'').
---------------------------------------------------------------------------
Also, under the pre-URAA\95\ system, in which a patent's
term ran 17 years from its issuance, patents could expire 30,
40, or even 50 years after the date that the patent was
originally sought. Inventors, by filing a series of continuing
applications, could delay prosecution. Without double-patenting
rules, patent protection for essentially the same subject
matter could remain in force for decades.
---------------------------------------------------------------------------
\95\The Uruguay Round Agreements Act, Pub. L. No. 103-465, 108
Stat. 4809 (1994).
---------------------------------------------------------------------------
The double-patenting doctrine has historically precluded
such practices by requiring patentees to disclaim the right to
enforce any later-issued obvious-variant patents separately
through a common-ownership requirement, and to disclaim the
right to enforce such later-issued patents beyond the term of
the earliest-issuing (and therefore, earliest expiring)
obvious-variant patent.
As recently as the 1980's, double patenting was a
relatively simple and straightforward doctrine, and was limited
by several key principles. The first among these--which traces
its origins to Judge Taft's 1897 decision in Thomson-Houston
Elec. Co. v. Ohio Brass Co.\96\--is that the double-patenting
bar does not apply to an inventor's patents if the same patents
could have validly issued to separate inventors. Ohio Brass
recognized that if ``the personality of the owner of two
different patents [were to] affect the validity of either, then
the anomalous result would follow that the owner of one patent
would avoid it by acquiring ownership of another.'' \97\ The
court dismissed the notion that such a ``unity of title
avoid[s] the main patent'' as a ``reductio ad absurdum.''\98\
---------------------------------------------------------------------------
\96\80 F. 712 (6th Cir. 1897).
\97\Id. at 727.
\98\Id.
---------------------------------------------------------------------------
Ohio Brass also recognized that it is ``well settled that a
patent may issue for an improvement on an earlier invention
either to the original inventor or a stranger''--and rejected
the notion that ``if, by some chance, the application for the
fundamental patent is delayed in its course through the patent
office until a patent on the avowed improvement has issued,
then the patent on the fundamental invention is void.''\99\
Noting that the ``the course of an application for a generic or
broad invention may legitimately take longer in its course
through the patent office than a comparatively unimportant
improvement,''\100\ Ohio Brass established that the inventor
had the right to rely on the order of invention (i.e., pre-AIA
priority), rather than the order of issuance, to determine if
the later-issued patent should be subject to a double-patenting
limit.
---------------------------------------------------------------------------
\99\Id. at 724.
\100\Id. at 727.
---------------------------------------------------------------------------
A final double-patenting principle, reflected in the PTO's
1967 Official Gazette Notice, is that ``[t]he term `double
patenting' is properly applicable only to cases involving two
or more applications and/or patents of the same inventive
entity.''\101\ The Notice emphasized that in cases involving
different inventors, sections 102 and 103 of title 35 already
operate to prevent the issuance of patents that are the same or
obvious in view of one another, thus precluding the need to
apply double-patenting principles.
---------------------------------------------------------------------------
\101\Double Patenting, 834 O.G. 1615 (Jan. 31, 1967).
---------------------------------------------------------------------------
These three fundamental principles--that double patenting
is not a bar where the patents could have validly issued to
separate inventors, does not apply where Sec. 103 already
operates to prevent the issuance of obvious-variant patents,
and that order of priority (rather than issuance) must be used
to determine which patent is subject to a double-patenting
limit--found expression in a series of the United States Court
of Customs and Patent Appeals (``CCPA'') decisions following
the adoption of the 1952 Act, creating a relatively simple and
rational double-patenting landscape.\102\
---------------------------------------------------------------------------
\102\See Robert A. Armitage, Everything You Ever Wanted to Know
About Double Patenting . . . But Never Realized that You Needed to Ask
(From The Makers Of Prozac), 2001, at *8-17 [hereinafter Armitage ODP
article]. This paper was presented at a conference of the Intellectual
Property Owners Association; a revised and updated version is printed
in the record of the October 29 hearing at pp. 170-202.
---------------------------------------------------------------------------
The Patent Law Amendments Act of 1984,\103\ by enacting the
common-ownership exception to prior art that now appears at
Sec. 102(b)(1)(C), unsettled this landscape by requiring the
courts to expand the double-patenting doctrine to encompass
this new, broader exception to prior art.\104\ This resulted in
a series of court decisions during the 1990's that drastically
restricted access to the ``two-way'' test for double
patenting--and that ultimately congealed into a rule that
violates basic principles of the double-patenting doctrine that
trace their origins to Ohio Brass.\105\
---------------------------------------------------------------------------
\103\Pub. L. No. 98-622 (1984).
\104\See Armitage ODP article at *18-19.
\105\Id. at *19-28.
---------------------------------------------------------------------------
Under the so-called one-way test, an earlier-filed but
later-issuing commonly owned patent or application can be
invalidated for double patenting even if the earlier-issued
patent is nonobvious over the later-issuing patent as prior
art.\106\ In other words, the related inventors of the two
patents are punished for making two separate and nonobvious
inventions that, had they been made separately by unrelated
inventors, would have been entirely valid and separately
enforceable for their full respective terms.
---------------------------------------------------------------------------
\106\See, e.g., Eli Lilly and Co. v. Barr Labs., 251 F.3d 955, 967-
68 (Fed. Cir. 2001). Under the two-way test, the double-patenting bar
does not apply unless the later-filed but earlier-issued patent also is
obvious in view of the earlier-filed but later-issued patent. See In re
Berg, 140 F.3d 1428, 1432 (Fed. Cir. 1998).
---------------------------------------------------------------------------
Under current jurisprudence, the two-way test is available
only in the ``unusual circumstance'' where the USPTO is
``solely responsible for the delay in causing the second-filed
application to issue prior to the first''\107\--it is a
``narrow exception'' that is rendered inapplicable even when
the timing of two applications is driven not by ``nefarious
intent,'' but rather by ordinary business decisions.\108\
---------------------------------------------------------------------------
\107\Lilly v. Barr, 251 F.3d at 968 n.7 (emphasis in original).
\108\In re Fallaux, 564 F.3d 1313, 1317 (Fed. Cir. 2009).
---------------------------------------------------------------------------
By reversing Ohio Brass's allowance of an order-of-priority
test, the recent jurisprudence also abandons the principle that
double-patenting does not apply if the patents could have
validly issued to separate inventors--embracing a principle
that Ohio Brass itself had dismissed as a ``reductio ad
absurdum.'' In addition, a recent decision has also extend the
double-patenting doctrine to cases where the patents did, in
fact, issue to separate inventors, and thus already operated as
prior art against one another.\109\ In re Hubbell applied the
double-patenting doctrine to destroy the earlier-filed
application of a university research team for a broad invention
because two of its joint inventors later participated in
another research team that filed a later, narrow improvement
application that issued before the first application did.\110\
The court reached the absurd result of invalidating the
earlier-sought basic invention because of a later-discovered
improvement that already was required to be nonobvious over the
basic invention.
---------------------------------------------------------------------------
\109\See, e.g., Lilly v. Barr, 251 F.3d 955; In re Hubbell, 709
F.3d 1140, 1146-48 (Fed. Cir. 2013); see also Armitage ODP article at
*27 (``[under these cases,] double patenting would now infect two
patents even if the two patented inventions were patentably distinct
because the non-obviousness test operated, i.e., one of the two
patented inventions was prior art to the other.'').
\110\In re Hubbell, 709 F.3d at 1142-43, 1146-48.
---------------------------------------------------------------------------
In another recent decision--one issued since the House of
Representative's passage of the Innovation Act in the 113th
Congress on December 5, 2013--the Federal Circuit departed from
more than 100 years of consistent jurisprudence that had
applied double patenting consequences solely to invalidate the
later-issuing of two patents granted on different dates. Gilead
Sciences, Inc. v. Natco Pharma Ltd.\111\ determined that the
first-issued patent's later expiration date produced an
unjustified timewise extension of the right to exclude over the
later-issued patent with an earlier expiration date. Where,
however, such a first-issued patent can be valid only if it is
non-obvious as of the filing (or priority) date that is used to
determine its patent term, there is no policy justification for
the application of double patenting principles to that patent.
---------------------------------------------------------------------------
\111\753 F. 3d 1208 (Fed. Cir. 2014).
---------------------------------------------------------------------------
The one-way test, when properly applied, serves the
salutary purpose of allowing the courts to rein in the
potential for abuse of rules that fail to limit the filing of
continuing applications--even decades after an initial patent
on an invention has issued.\112\ Some of the courts' decisions
took note of this special justification for employing the one-
way test, suggesting that this approach might be confined to
the pre-URAA patents.\113\
---------------------------------------------------------------------------
\112\See, e.g., In re Basell Poliolefine Italia, S.P.A., 547 F.3d
1371, 1373-74 (Fed. Cir. 2008) (invalidating for double patenting a
patent that issued in 2002 from an application claiming priority to
1954).
\113\See Takeda Pharm. Co., Ltd. v. Doll, 561 F.3d 1372, 1377 n.1
(Fed. Cir. 2009); Boehringer Ingelheim Int'l GmbH v. Barr Labs., Inc.,
592 F.3d 1340, 1346 (Fed. Cir. 2010).
---------------------------------------------------------------------------
In 2009, however, the Federal Circuit made clear that it
would not ``disregard'' its recent precedents--as opposed to
the logic underpinning the double-patenting doctrine--and would
continue to apply the one-way test's ``ad hoc nullification
machine''\114\ to modern patents that run 20 years from their
filing.\115\
---------------------------------------------------------------------------
\114\Hill v. Colorado, 530 U.S. 703, 742 (2000) (Scalia, J.,
dissenting).
\115\In re Fallaux, 564 F.3d at 1318-1319.
---------------------------------------------------------------------------
The URAA makes it all but impossible for applicants to
obtain the type of pre-URAA patent-term extensions that have
been cited as justifying a liberal application of the one-way
test. Given the unfairness of invalidating an earlier-filed
patent because of a later-filed patent, especially in the case
of first-inventor-to-file patents for which prior art is
dictated by the order of patent filing, it is appropriate to
eliminate continuing application of the one-way test in favor
of a rule of law that is consistent with Ohio Brass and the
double-patenting doctrine's foundational principles.
The Committee has been urged to revisit the provisions of
the Innovation Act relating to double patenting to account for
recent judicial developments. In particular, the Committee was
asked to consider both broadening and simplifying the double-
patenting provisions that appeared in Innovation Act in the
113th Congress.\116\ The amendments in section 9(c) of this
bill reflect these recommendations.
---------------------------------------------------------------------------
\116\See April 2014 Hearing, Statement of Robert A. Armitage,
Former General Counsel, Eli Lilly & Co., at *21 (``I would urge the
Committee to consider a simpler and more comprehensive statutory text .
. . , as well as a separate statutory amendment limiting any `patent
term adjustment' for a patent subject to double patenting constraints
so that the adjusted term of the double patent could not extend the
combined patent life of both patents beyond 17 years.'').
---------------------------------------------------------------------------
4. PTO patent reviews
During the course of the Committee's consideration of the
present bill, a ``technical'' but serious defect in AIA Sec. 18
was brought to the Committee's attention.\117\ AIA
Sec. 18(a)(1)(C) delineates the types of prior art that may be
employed in a covered business method patent review of a first-
to-invent business-method patent. Subparagraph (C) ensures that
the Metallizing Engineering doctrine, and other discovery-
intensive pre-AIA loss-of-right rules, cannot be asserted in a
CBM proceeding. Subparagraph (C) bases its definition of the
prior art that may be cited against a first-to-invent patent on
pre-AIA Sec. 102(a) and (b). The subparagraph neglects,
however, to incorporate pre-AIA Sec. 102(e).
---------------------------------------------------------------------------
\117\See Patents Post-Grant Blog, ``The Statutory Defect That May
Doom Your CBM Petition,'' Sept. 23, 2013.
---------------------------------------------------------------------------
This omission precludes using patents and published
applications in a CBM proceeding as of their effective filing
dates, rather than as of their publication or grant dates. The
word ``patented,'' as used in pre-AIA Sec. 102(a) and (b),
makes a patent effective as prior art only as of its
publication or grant date, and in any event extends only to
issued patents rather than published applications--the former
are mere ``printed publications,'' and thus effective as prior
art only as of their publication dates.\118\ Section 9(e) of
the Innovation Act corrects this legislative oversight,
ensuring that the swarm of business-method patents and
abandoned-but-published applications that followed the Federal
Circuit's State Street decision can serve as prior art in a CBM
proceeding as of the date that they were filed, rather than as
of when they were published.
---------------------------------------------------------------------------
\118\See MPEP Sec. 2126; In re Ekenstam, 256 F.2d 321, 325 (CCPA
1958); 78 FR 11059, 11074 (Feb. 14, 2013).
---------------------------------------------------------------------------
As the Committee noted in its report accompanying the AIA,
a petition to initiate a CBM review may be granted if the
petitioner is either sued for or accused of infringement.\119\
The Committee reaffirms that a demand letter or other pre-
litigation communication suggesting that infringement may have
occurred constitutes an accusation of infringement and
satisfies AIA Sec. 18(a)(1)(B)'s prerequisite for filing a
petition for review.
---------------------------------------------------------------------------
\119\See H.R. Rep. No. 112-98, at 54 (2011).
---------------------------------------------------------------------------
5. ``Arising Under'' Jurisdiction and Gunn v. Minton
Prior to 2013, Federal Circuit and regional circuit caselaw
recognized that certain causes of action, though created by
state law, effectively determine the legal force or effect of
the claims in a patent--and therefore ``arise under'' Federal
patent law and are within the exclusive jurisdiction of the
Federal district courts and the Federal Circuit.
These causes of action include, for example, state-law
actions for breach of a licensing agreement in which liability
turns on whether a party has sold products that infringe a
patent.\120\ Other such causes of action include state-law
actions for business disparagement, unfair competition,
injurious falsehood, or interference with prospective economic
advantage in which liability depends on whether a patent is
infringed by a product or whether the patent is invalid or
unenforceable. Typically in such cases, a competitor sues the
patentee because the patentee has informed the competitor's
customers that the products that they have purchased from the
competitor infringe the patentee's patent.\121\
---------------------------------------------------------------------------
\120\See, e.g. Scherbatskoy v. Halliburton Co., 125 F.3d 288 (5th
Cir. 1997) (transferring appeal to the Federal Circuit); U.S. Valves,
Inc. v. Dray, 190 F.3d 811 (7th Cir. 1999) (same).
\121\See, e.g., Additive Controls & Measurement Sys., Inc. v.
Flowdata, Inc., 986 F.2d 476 (Fed. Cir. 1993); Hunter Douglas, Inc. v.
Harmonic Design, Inc., 153 F.3d 1318 (Fed. Cir. 1998), overruled on
other grounds, Midwest Indus., Inc. v. Karavan Trailers, Inc., 175 F.3d
1356 (Fed. Cir. 1999).
---------------------------------------------------------------------------
Because the Federal Circuit and regional circuits agreed
that these types of state-law causes of action, which
effectively assign legal liability based on a determination of
the scope and the validity of the claims in a patent, ``arise
under'' Federal patent law, the Federal district courts had
original (and removal) jurisdiction over such actions, and the
Federal Circuit had appellate jurisdiction over them.
The Supreme Court's recent decision in Gunn v. Minton,\122\
however, has cast doubt over whether such actions continue to
``arise under'' Federal patent law. The Court's opinion
concluded that ``arising under'' jurisdiction exists when the
validity or construction of a Federal statute is in question,
when a case's resolution will affect numerous other Federal
cases, or when a case affects the Federal Government.\123\
---------------------------------------------------------------------------
\122\133 S.Ct. 1059 (Feb. 20, 2013).
\123\See Gunn, 133 S.Ct. at 1066-67.
---------------------------------------------------------------------------
None of these factors, however, necessarily captures the
case of a state contract or tort action posing the possibility
of inconsistent determinations regarding the legal effect of a
patent's claims. Such a case does not typically turn on an
interpretation of Federal law or affect numerous other cases or
the Federal Government. If Gunn's enumeration of ``arising
under'' factors is thus treated as an exclusive listing of such
factors, ``arising under'' jurisdiction could be deemed to no
longer extend to the case merely threatening inconsistent
determinations as to the effect of a patent.
The Federal Circuit recently has suggested that its past
cases finding ``arising under'' jurisdiction for patent-related
state-law business disparagement and injurious falsehood claims
``may well have survived the Supreme Court's decision in
Gunn.''\124\ That statement, however, is only dicta, and the
matter remains unresolved in the Federal Circuit. Moreover,
some regional courts of appeals have begun to apply Gunn
broadly. They effectively have treated Gunn's partial
enumeration of the factors that can render a patent issue
``substantial'' for purposes of arising under jurisdiction as
an exclusive list of such factors.\125\ Courts such as the
Eleventh Circuit in MDS (Canada) Inc. have thus held that even
a case in which liability turns on whether a particular product
infringes a claim in a patent does not ``arise under'' the
Federal patent laws.\126\
---------------------------------------------------------------------------
\124\Forrester Envtl. Servs., Inc. v. Wheelabrator Techs., Inc.,
715 F.3d 1329, 1334 (Fed. Cir. 2013).
\125\See MDS (Canada) Inc. v. Rad Source Technologies, Inc., 720
F.3d 833, 842-43 (11th Cir. 2013) (``The substantiality inquiry under
Grable looks [ ] to the importance of the issue to the Federal system
as a whole,'' Gunn v. Minton, ___ U.S. __, 133 S.Ct. 1059, 1066, 185
L.Ed.2d 72 (2013), and the Supreme Court has identified three factors
to assist in this inquiry. First, a pure question of law is more likely
to be a substantial Federal question. Empire Healthchoice Assur., Inc.
v. McVeigh, 547 U.S. 677, 700-01, 126 S.Ct. 2121, 2137, 165 L.Ed.2d 131
(2006). Second, a question that will control many other cases is more
likely to be a substantial Federal question. Id. Third, a question that
the government has a strong interest in litigating in a Federal forum
is more likely to be a substantial Federal question. Grable, 545 U.S.
at 315-16, 125 S.Ct. at 2368-69. All of these factors establish that
the issue of patent infringement here is not a substantial Federal
question for the purpose of section 1338.'').
\126\See id. at 846.
---------------------------------------------------------------------------
It is important that ``arising under'' jurisdiction
continue to extend to these types of cases. If it were
otherwise, a patent owner could successfully prosecute an
infringement action in Federal court with respect to a product,
yet simultaneously be held liable for ``business
disparagement'' in state court for asserting that the same
product infringes the same patent. Similarly, a licensee
manufacturer could successfully assert a defense of
noninfringement in Federal court, yet be held liable for breach
of contract in state court with respect to the same patent and
the same product. One of the principal reasons for creating the
Federal Circuit in 1982 was to prevent inconsistent
adjudications as to the legal effect of a patent--that is, to
avoid situations where one circuit finds a patent infringed by
a product and valid and another circuit finds the opposite. But
a broad reading of Gunn effectively threatens this very result.
Finally, the Committee has become persuaded that the
Supreme Court's holding in Gunn should be abrogated in its
entirety, and that Federal courts' jurisdiction over legal
malpractice suits that arise out of patent litigation or
prosecution should be restored.\127\ The more difficult
questions that are posed by such actions typically are ones of
patent law, rather than legal-malpractice law. Some recent
malpractice cases, for example, have involved questions of
whether a patent application was directed to patent-eligible
subject matter under the Supreme Court's decision in Alice
Corp. Pty. Ltd. v. CLS Bank Int'l, 134 S.Ct. 2347 (June 19,
2014).\128\ State judges, however, do not hear patent cases.
Federal courts, particularly with review centralized in the
U.S. Court of Appeals for the Federal Circuit, typically have
more experience with patent law cases and therefore are a
better forum for evaluating whether an attorney's patent
litigation or prosecution practices were unreasonable.
---------------------------------------------------------------------------
\127\April 2015 hearing, Statement of Robert A. Armitage, Former
General Counsel, Eli Lilly & Co., at *25.
\128\See, e.g., ``Antonelli Says Alice Kills Protostorm's $8M
Malpractice Win,'' Law360, January 13, 2015; ``Dickstein Says Alice
Shields It in IP Malpractice Case,'' Law360, March 30, 2015.
---------------------------------------------------------------------------
Hearings
The House Committee on the Judiciary held a hearing on H.R.
9 on April 14, 2015. Testimony was received from the Honorable
Michelle K. Lee, Under Secretary of Commerce for Intellectual
Property and Director of the United States Patent and Trademark
Office; David M. Simon, Senior Vice President of Intellectual
Property, Salesforce.com, Inc.; Hans Sauer, Ph.D., Deputy
General Counsel for Intellectual Property, Biotechnology
Industry Organization; Kevin Kramer, Vice President and Deputy
General Counsel for Intellectual Property, Yahoo! Inc.; and
Robert A. Armitage, Former General Counsel, Eli Lilly & Co.
The Committee's Subcommittee on Courts, Intellectual
Property, and the Internet also conducted two separate but
related hearings on February 12, 2015 (``Examining Recent
Supreme Court Cases in the Patent Arena,'' Serial No. 114-2),
and March 25, 2015 (``Patent Reform: Protecting American
Innovators and Job Creators from Abusive Patent Litigation,''
Serial No. 114-17).
In the previous Congress, the Committee held a hearing on
patent reform: ``Innovation Act: Hearing on H.R. 3309''
(October 29, 2013, Serial No. 113-58). The Subcommittee also
held two hearings: ``Abusive Patent Litigation: The Impact on
American Innovation & Jobs, and Potential Solutions'' (March
14, 2013, Serial No. 113-13); and ``Abusive Patent Litigation:
The Issues Impacting American Competitiveness and Job Creation
at the International Trade Commission and Beyond'' (April 16,
2013, Serial No. 113-24).
Committee Consideration
On June 11, 2015, the Committee met in open session and
ordered the bill H.R. 9 favorably reported with an amendment,
by a rollcall vote of 24 to 8, a quorum being present.
Committee Votes
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
following rollcall votes occurred during the Committee's
consideration of H.R. 9.
1. Amendment #3 to the Amendment in the Nature of a
Substitute, offered by Mr. Conyers. This amendment creates a
revolving fund for USPTO fees and extends the USPTO's authority
to set its own fees by an additional 10 years. Failed by a
rollcall vote of 11 to 16.
ROLLCALL NO. 1
------------------------------------------------------------------------
Ayes Nays Present
------------------------------------------------------------------------
Mr. Goodlatte (VA), Chairman................... X
Mr. Sensenbrenner, Jr. (WI)....................
Mr. Smith (TX)................................. X
Mr. Chabot (OH)................................ X
Mr. Issa (CA).................................. X
Mr. Forbes (VA)................................ X
Mr. King (IA).................................. X
Mr. Franks (AZ)................................
Mr. Gohmert (TX)...............................
Mr. Jordan (OH)................................
Mr. Poe (TX)...................................
Mr. Chaffetz (UT).............................. X
Mr. Marino (PA)................................ X
Mr. Gowdy (SC).................................
Mr. Labrador (ID)..............................
Mr. Farenthold (TX)............................ X
Mr. Collins (GA)............................... X
Mr. DeSantis (FL)..............................
Ms. Walters (CA)............................... X
Mr. Buck (CO).................................. X
Mr. Ratcliffe (TX)............................. X
Mr. Trott (MI)................................. X
Mr. Bishop (MI)................................ X
Mr. Conyers, Jr. (MI), Ranking Member.......... X
Mr. Nadler (NY)................................ X
Ms. Lofgren (CA)............................... X
Ms. Jackson Lee (TX)........................... X
Mr. Cohen (TN)................................. X
Mr. Johnson (GA)............................... X
Mr. Pierluisi (PR).............................
Ms. Chu (CA)................................... X
Mr. Deutch (FL)................................ X
Mr. Gutierrez (IL).............................
Ms. Bass (CA)..................................
Mr. Richmond (LA)..............................
Ms. DelBene (WA)............................... X
Mr. Jeffries (NY).............................. X
Mr. Cicilline (RI)............................. X
Mr. Peters (CA)................................ X
------------------------
Total...................................... 11 16
------------------------------------------------------------------------
2. Amendment #6 to the Amendment in the Nature of a
Substitute, offered by Mr. Issa. This amendment extends the
Transitional Program for Covered Business Method Patents by an
additional 6 years. Failed by a rollcall vote of 13 to 18.
ROLLCALL NO. 2
------------------------------------------------------------------------
Ayes Nays Present
------------------------------------------------------------------------
Mr. Goodlatte (VA), Chairman................... X
Mr. Sensenbrenner, Jr. (WI)....................
Mr. Smith (TX)................................. X
Mr. Chabot (OH)................................ X
Mr. Issa (CA).................................. X
Mr. Forbes (VA)................................ X
Mr. King (IA).................................. X
Mr. Franks (AZ)................................ X
Mr. Gohmert (TX)............................... X
Mr. Jordan (OH)................................
Mr. Poe (TX)................................... X
Mr. Chaffetz (UT).............................. X
Mr. Marino (PA)................................ X
Mr. Gowdy (SC).................................
Mr. Labrador (ID).............................. X
Mr. Farenthold (TX)............................ X
Mr. Collins (GA)............................... X
Mr. DeSantis (FL).............................. X
Ms. Walters (CA)............................... X
Mr. Buck (CO).................................. X
Mr. Ratcliffe (TX)............................. X
Mr. Trott (MI).................................
Mr. Bishop (MI)................................ X
Mr. Conyers, Jr. (MI), Ranking Member.......... X
Mr. Nadler (NY)................................ X
Ms. Lofgren (CA)............................... X
Ms. Jackson Lee (TX)........................... X
Mr. Cohen (TN)................................. X
Mr. Johnson (GA)............................... X
Mr. Pierluisi (PR).............................
Ms. Chu (CA)................................... X
Mr. Deutch (FL)................................ X
Mr. Gutierrez (IL).............................
Ms. Bass (CA)..................................
Mr. Richmond (LA)..............................
Ms. DelBene (WA)............................... X
Mr. Jeffries (NY).............................. X
Mr. Cicilline (RI)............................. X
Mr. Peters (CA)................................ X
------------------------
Total...................................... 13 18
------------------------------------------------------------------------
3. Amendment #5 to the Amendment in the Nature of a
Substitute, offered by Mr. Johnson. This amendment requires a
prevailing party seeking a fee award to show that the position
or conduct of the nonprevailing party was not objectively
reasonable, and precludes fee awards for positions or actions
that are de minimis or are not material to the outcome of the
case. Failed by a rollcall vote of 10 to 22.
ROLLCALL NO. 3
------------------------------------------------------------------------
Ayes Nays Present
------------------------------------------------------------------------
Mr. Goodlatte (VA), Chairman................... X
Mr. Sensenbrenner, Jr. (WI)....................
Mr. Smith (TX)................................. X
Mr. Chabot (OH)................................ X
Mr. Issa (CA).................................. X
Mr. Forbes (VA)................................
Mr. King (IA).................................. X
Mr. Franks (AZ)................................ X
Mr. Gohmert (TX)............................... X
Mr. Jordan (OH)................................ X
Mr. Poe (TX)................................... X
Mr. Chaffetz (UT).............................. X
Mr. Marino (PA)................................ X
Mr. Gowdy (SC).................................
Mr. Labrador (ID).............................. X
Mr. Farenthold (TX)............................ X
Mr. Collins (GA)............................... X
Mr. DeSantis (FL).............................. X
Ms. Walters (CA)............................... X
Mr. Buck (CO).................................. X
Mr. Ratcliffe (TX)............................. X
Mr. Trott (MI)................................. X
Mr. Bishop (MI)................................ X
Mr. Conyers, Jr. (MI), Ranking Member.......... X
Mr. Nadler (NY)................................ X
Ms. Lofgren (CA)............................... X
Ms. Jackson Lee (TX)........................... X
Mr. Cohen (TN)................................. X
Mr. Johnson (GA)............................... X
Mr. Pierluisi (PR).............................
Ms. Chu (CA)................................... X
Mr. Deutch (FL)................................ X
Mr. Gutierrez (IL).............................
Ms. Bass (CA)..................................
Mr. Richmond (LA)..............................
Ms. DelBene (WA)............................... X
Mr. Jeffries (NY).............................. X
Mr. Cicilline (RI)............................. X
Mr. Peters (CA)................................ X
------------------------
Total...................................... 10 22
------------------------------------------------------------------------
4. Reporting H.R. 9 as amended. This bill makes
improvements and technical corrections to title 35 and the
Leahy-Smith America Invents Act. Reported by a rollcall vote of
24 to 8.
ROLLCALL NO. 4
------------------------------------------------------------------------
Ayes Nays Present
------------------------------------------------------------------------
Mr. Goodlatte (VA), Chairman................... X
Mr. Sensenbrenner, Jr. (WI)....................
Mr. Smith (TX)................................. X
Mr. Chabot (OH)................................ X
Mr. Issa (CA).................................. X
Mr. Forbes (VA)................................ X
Mr. King (IA).................................. X
Mr. Franks (AZ)................................ X
Mr. Gohmert (TX)............................... X
Mr. Jordan (OH)................................
Mr. Poe (TX)................................... X
Mr. Chaffetz (UT).............................. X
Mr. Marino (PA)................................ X
Mr. Gowdy (SC).................................
Mr. Labrador (ID)..............................
Mr. Farenthold (TX)............................ X
Mr. Collins (GA)............................... X
Mr. DeSantis (FL).............................. X
Ms. Walters (CA)............................... X
Mr. Buck (CO)..................................
Mr. Ratcliffe (TX)............................. X
Mr. Trott (MI)................................. X
Mr. Bishop (MI)................................ X
Mr. Conyers, Jr. (MI), Ranking Member.......... X
Mr. Nadler (NY)................................ X
Ms. Lofgren (CA)............................... X
Ms. Jackson Lee (TX)........................... X
Mr. Cohen (TN)................................. X
Mr. Johnson (GA)............................... X
Mr. Pierluisi (PR)............................. X
Ms. Chu (CA)................................... X
Mr. Deutch (FL)................................ X
Mr. Gutierrez (IL).............................
Ms. Bass (CA).................................. X
Mr. Richmond (LA)..............................
Ms. DelBene (WA)............................... X
Mr. Jeffries (NY).............................. X
Mr. Cicilline (RI)............................. X
Mr. Peters (CA)................................ X
------------------------
Total...................................... 24 8
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Committee Oversight Findings
In compliance with clause 3(c)(1) of rule XIII of the Rules
of the House of Representatives, the Committee advises that the
findings and recommendations of the Committee, based on
oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
New Budget Authority and Tax Expenditures
Clause 3(c)(2) of rule XIII of the Rules of the House of
Representatives is inapplicable because this legislation does
not provide new budgetary authority or increased tax
expenditures.
Congressional Budget Office Cost Estimate
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, the Committee sets forth, with
respect to the bill, H.R. 9, the following estimate and
comparison prepared by the Director of the Congressional Budget
Office under section 402 of the Congressional Budget Act of
1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, July 10, 2015.
Hon. Bob Goodlatte, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 9, the
``Innovation Act.''
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Marin
Burnett and Susan Willie who can be reached at 226-2860.
Sincerely,
Keith Hall,
Director.
Enclosure
cc:
Honorable John Conyers, Jr.
Ranking Member
H.R. 9--Innovation Act.
As ordered reported by the House Committee on the Judiciary
on June 11, 2015.
H.R. 9 would change administrative and judicial processes
that support the protection of intellectual property rights.
The bill also would require reports by the Administrative
Office of the United States Courts (AOUSC) and the Government
Accountability Office.
Assuming appropriation of the necessary amounts, CBO
estimates that implementing H.R. 9 would cost $3 million over
the 2016-2020 period, mainly for reports and administrative
costs incurred by the AOUSC associated with new judicial
procedures. Additionally, based on information from the Patent
and Trademark Office (PTO), CBO estimates that implementing the
bill would cost PTO about $7 million per year to comply with
the bill's requirements. However, PTO is authorized to collect
fees sufficient to offset its operating expenses; therefore,
CBO estimates that the net budgetary effect of PTO's activities
undertaken to implement H.R. 9 would not be significant,
assuming appropriation actions consistent with the agency's
authorities. Pay-as-you-go procedures do not apply to this
legislation because it would not affect direct spending or
revenues.
The bill would change procedures that PTO has in place to
examine patent applications, award patents, and determine the
validity of a patent that has already been granted. Among other
things, H.R. 9 would specify that the agency use methods
similar to those used in district courts to evaluate the
validity of a patent. The bill also would require the agency to
develop new databases to make information about patent
ownership and litigation available on its website. Finally, the
bill would require PTO, the Government Accountability Office
and the AOUSC to prepare several studies and reports on topics
ranging from patent ownership to the behavior of certain patent
owners.
H.R. 9 would make several adjustments to judicial
procedures for patent infringement cases, including which
parties may join a suit and when a court is required to grant a
motion to stay an action. Further, the bill would require the
courts to award the prevailing party reasonable fees and other
expenses incurred in connection with such cases. The bill also
would require the AOUSC to develop rules and procedures related
to the discovery of evidence in lawsuits for patent
infringement. CBO expects that, by requiring inventors to be
more specific in pleadings to the court, awarding attorney fees
to the prevailing party, and limiting discovery early in an
infringement proceeding, the bill would affect the decisions of
inventors to initiate lawsuits for patent infringement.
H.R. 9 would impose a mandate as defined in the Unfunded
Mandates Reform Act (UMRA) on both public and private entities
because PTO would charge fees to offset the costs incurred to
collect and make some information related to patent ownership
and litigation publically available. Other provisions in the
bill that change administrative procedures related to patents
also would result in increased patent fees. The requirement to
pay those fees would be a mandate because the Federal
Government controls the patent and trademark system and no
reasonable alternatives to the system exist.
Based on information from PTO, CBO estimates that the
average annual cost to comply with the mandate would be about
$7 million, with less than $150,000 of those costs accruing to
public entities and the rest accruing to private entities.
Therefore, the cost for public and private entities to comply
with the mandate would fall well below the annual thresholds
established in UMRA for both intergovernmental and private-
sector mandates ($77 million and $154 million in 2015,
respectively, adjusted annually for inflation).
The CBO contacts for this estimate are Susan Willie and
Marin Burnett (for Federal costs), Melissa Merrell (for the
impact on state and local governments), and Logan Smith (for
the private-sector impact). The estimate was approved by H.
Samuel Papenfuss, Deputy Assistant Director for Budget
Analysis.
Duplication of Federal Programs
No provision of H.R. 9 establishes or reauthorizes a
program of the Federal Government known to be duplicative of
another Federal program, a program that was included in any
report from the Government Accountability Office to Congress
pursuant to section 21 of Public Law 111-139, or a program
related to a program identified in the most recent Catalog of
Federal Domestic Assistance.
Disclosure of Directed Rule Makings
The Committee estimates that H.R. 9 specifically directs to
be completed two specific rule makings within the meaning of 5
U.S.C. 551.
Performance Goals and Objectives
The Committee states that pursuant to clause 3(c)(4) of
rule XIII of the Rules of the House of Representatives, H.R. 9
amends title 35, United States Code, and the Leahy-Smith
America Invents Act, to curb abusive patent litigation
practices, and to make improvements and technical corrections.
Advisory on Earmarks
In accordance with clause 9 of rule XXI of the Rules of the
House of Representatives, H.R. 9 does not contain any
congressional earmarks, limited tax benefits, or limited tariff
benefits as defined in clause 9(e), 9(f), or 9(g) of Rule XXI.
Section-by-Section Analysis
Section 1. Short title; table of contents.
This Act may be cited as the ``Innovation Act.''
Section 2. Definitions.
Section 2 defines the terms ``Director'' and ``Office.''
Section 3. Patent infringement actions.
(a) pleading requirements
New Sec. 281A establishes heightened pleading requirements
for claims of patent infringement. Subsection (a) requires a
party asserting a claim of patent infringement to identify all
patents that are alleged to be infringed, each product or
process that is alleged to infringe each patent, and provide a
detailed and specific explanation of how each limitation of a
claim is met by the product or process, per patent.\129\ For
claims of indirect infringement, the complaint or claim must
also describe the acts of indirect infringement that contribute
to or induce the direct infringement. The complaint must also
describe the authority of the party to assert the patent (i.e.,
facts establishing an ownership interest in the patent
sufficient to support standing) and the grounds for the court's
jurisdiction.
---------------------------------------------------------------------------
\129\Section 281A was modified in the Committee's executive session
to address the concerns noted in the background section of this report.
The Committee amendment eliminates requirements, for a given patent, to
plead additional claims when another claim is pleaded with detailed
specificity with respect to the same product or process. It has become
clear over the course of the Committee's consideration of this issue
that an ``all claims'' pleading requirement would result in massively
long complaints, would force the pleading of marginally relevant
claims, and would inevitably lead to expensive and pointless motions
practice. Paragraph (3)'s requirement to identify all accused
instrumentalities, and paragraph (5)'s requirement to provide a
detailed and specific explanation of how all claim limitations are met,
is sufficient to identify which products, features, or components are
accused of infringement and thus allow a defendant to determine whether
it is already licensed to practice the asserted patents or is entitled
to an indemnity from a supplier. Such information will effectively be
disclosed because, for a given product or process, the complaint will
make the defendant aware of all patents that such product or process
allegedly infringes, and will provide a detailed, element-by-element
explanation of why the product or process is alleged to infringe each
such patent.
---------------------------------------------------------------------------
Some have suggested that an all-claims pleading requirement is
desirable because a defendant would not be able to challenge asserted
claims in an IPR if it does not have notice of all potentially asserted
claims early in the litigation, given Sec. 315(b)'s 1-year bar on
seeking an IPR after being sued for infringement. The Innovation Act
squarely addresses this concern in targeted and efficient fashion in
its Sec. 9(d)(3), which amends Sec. 315(c) of title 35 to allow a
defendant, upon receiving notice of newly-asserted patent claims later
in the litigation, to challenge these claims in an IPR through joinder
to an earlier petition. In contrast, a requirement to plead all claims
in the complaint would incentivize plaintiffs to plead even marginally
relevant patent claims, thereby forcing defendants to seek IPR against
a long list of patent claims that ultimately will not be pursued in the
litigation. Moreover, since some amendments to pleadings must be
allowed, the patent owner would still have the opportunity to assert
new patent claims outside of Sec. 315(b)'s 1-year bar, leaving a
defendant with no sure recourse to an IPR. Section 9(c)(3)'s amendments
to Sec. 315(c) are a better solution to this problem.
Finally, it has become apparent--particularly since the since the
House of Representative's passage of the Innovation Act in the 113th
Congress on December 5, 2013--that a proper application of Ashcroft v.
Iqbal, 556 U.S. 662 (2009), and Bell Atlantic Corp. v. Twombly, 550
U.S. 544 (2007), does not require that all asserted patent claims be
identified in a complaint. A patent claim is akin to a legal theory of
liability, and the Supreme Court has made clear that the ``[f]ederal
pleading rules . . . do not countenance dismissal of a complaint for
imperfect statement of the legal theory supporting the claim
asserted.'' Johnson v. City of Shelby, Mississippi, 135 S.Ct. 346 (Nov.
10, 2014); see also Skinner v. Switzer, 562 U.S. 521, ___, 131 S.Ct.
1289, 1296 (2011) (``under the Federal Rules of Civil Procedure, a
complaint need not pin plaintiff's claim for relief to a precise legal
theory''). The Supreme Court has particularly emphasized that ``[o]ur
decisions in . . . Twombly and . . . Iqbal are not in point, for they
concern the factual allegations a complaint must contain to survive a
motion to dismiss.'' City of Shelby, 135 S.Ct. at 347 (emphasis in
original). A patent claim, of course, is not a fact--it forms no part
of the defendant's conduct. Rule 8 does not regulate which theories of
liability are asserted or limit the parties to their ``theory of the
pleadings,'' see 5 C. Wright & A. Miller, Federal Practice & Procedure
Sec. 1219--and certainly does not require that all such possible
theories be stated in a complaint.
Subsection (b) allows a party to only generally describe
information that is not readily accessible to it after a
reasonable inquiry, though it must explain why the information
is not accessible and describe what efforts it has made to
obtain the information.
Subsection (c) preserves the liberal right to amend
pleadings under the Federal Rules of Civil Procedure.\130\
---------------------------------------------------------------------------
\130\See Wright & Miller, supra, at Sec. 1219; City of Shelby,
supra, at 347.
---------------------------------------------------------------------------
Subsection (d) provides for the filing of confidential
information under seal.
(b) attorney's fees
Subsection (a) of revised Sec. 285 provides that fees and
expenses shall be awarded to a prevailing party unless the
position and conduct of the nonprevailing party was reasonably
justified in law and fact or special circumstances (such as
economic hardship to the inventor) make a fee award unjust.
This standard reflects the Supreme Court's clarification of the
standard employed by the Equal Access to Justice Act
(EAJA),\131\ which governs the award of fees against the
Federal Government. Enacted over 30 years ago, EAJA offers a
well-developed body of caselaw to guide application of revised
Sec. 285, and sets a standard that is predictable and fair.
---------------------------------------------------------------------------
\131\28 U.S.C. Sec. 2412(d).
---------------------------------------------------------------------------
Under this standard, there is no presumption that the
nonprevailing party's position was not reasonably justified
simply because it lost the case.\132\ Even if a plaintiff's
allegations are rejected by the judge or jury, the plaintiff is
immune from a fee award so long as its position had a
reasonable basis in law and fact.\133\ Fees cannot be awarded
if the nonprevailing party's case was justified to a degree
that could satisfy a reasonable person,\134\ or there was at
least a dispute over which reasonable minds could differ.\135\
---------------------------------------------------------------------------
\132\Norris v. SEC, 695 F.3d 1261, 1265 (Fed. Cir. 2012).
\133\Pierce v. Underwood, 487 U.S. 552, 565 (1988).
\134\Id.
\135\Norris v. SEC, 695 F.3d 1261, 1265 (Fed. Cir. 2012).
---------------------------------------------------------------------------
When a case turns on a legal question, courts have looked
to the clarity of the governing law--that is, whether judicial
decisions on the issue left the status of the law unsettled,
and whether the legal issue was novel or difficult.\136\ On
questions of statutory interpretation, for example, courts have
asked whether the Federal courts were split on the matter,\137\
or whether the nonprevailing party interpreted a statute in a
manner that is contrary to its plain language and unsupported
by its legislative history.\138\
---------------------------------------------------------------------------
\136\Id.
\137\DGR Assocs., Inc. v. United States, 690 F.3d 1335, 1342 (Fed.
Cir. 2012).
\138\Patrick v. Shinseki, 668 F.3d 1325, 1330-31 (Fed. Cir. 2011).
---------------------------------------------------------------------------
Subsection (a) clarifies that the special circumstances
that justify the denial of a fee award to a prevailing party
may include situations involving severe economic hardship to
the inventor.\139\ The courts have discretion in special
circumstances to protect from a fee award, for example, the
unsophisticated independent inventor who brought a lawsuit to
protect what he may have understood to be his claimed invention
but whose allegations were ultimately determined not to be
reasonably justified.
---------------------------------------------------------------------------
\139\The term ``inventor'' is defined at Sec. 100(f) of title 35.
---------------------------------------------------------------------------
This analysis is not conducted issue by issue; rather, the
nonprevailing party's litigation position is reviewed in the
overall context.\140\ While the parties' postures on individual
matters may be more or less justified, the reasonable-
justification test favors treating a case as an inclusive
whole, rather than as atomized line-items.\141\ Also, when
determining whether a party is a prevailing party that is
entitled to a fee award, courts consider the degree of success
obtained by that party. A party whose ``success'' consists of a
damage award that is only a very small fraction of what it
originally sought is not entitled to a fee award.\142\
---------------------------------------------------------------------------
\140\DGR Assocs., 690 F.3d at 1343.
\141\Id. (quoting I.N.S. v. Jean, 496 U.S. 154, 161-62 (1990)).
\142\See, e.g., Hubbard v. United States, 480 F.3d 1327 (Fed. Cir.
2007).
---------------------------------------------------------------------------
As under the EAJA, a district court's decision to grant or
deny a fee award under Sec. 285(a) is reviewed for an abuse of
discretion.\143\ This deferential standard, however, ``does not
mean that a mistake of law is beyond appellate correction. A
district court by definition abuses its discretion when it
makes an error of law.''\144\
---------------------------------------------------------------------------
\143\Pierce v. Underwood, 487 U.S. at 562-63.
\144\Koon v. U.S., 518 U.S. 81, 100 (1996) (citation omitted); see
also Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 402 (1990). Plenary
review of the reasonableness of a nonprevailing litigant's position on
a legal question is particularly appropriate in the context of patent
infringement litigation because of the amounts likely to be at stake,
the specialized nature of patent law and the Federal Circuit's
familiarity with it, and the need to provide guidance to litigants as
to, for example, the types of claim-construction and obviousness
arguments that, even if ultimately unsuccessful, are nevertheless
objectively reasonable.
---------------------------------------------------------------------------
Subsection (b) of Sec. 285 provides that any party to the
action may, upon motion, require another party to certify
whether or not it will be able to satisfy a fee award in the
event that such an award is made against such other party. This
subsection also provides that a party joined in the action
pursuant to Sec. 299(d) may be required to pay the unsatisfied
portion of a fee award.
Subsection (c) of Sec. 285 closes a potential loophole that
an abusive litigant otherwise might be able to exploit to
impose substantial costs on the opposing party with an
unjustified complaint while evading accountability under
subsection (a). Under the Supreme Court's Buckhannon decision,
the ``prevailing party'' that is potentially entitled to a fee
award includes only a party that has obtained from the court an
``enforceable judgment on the merits'' or a ``court-ordered
consent decree.''\145\ A defendant's ``voluntary change in
conduct,'' even if spurred by the plaintiff's lawsuit, is
insufficient to make the plaintiff a prevailing party.\146\
---------------------------------------------------------------------------
\145\Buckhannon Bd. and Care Home, Inc. v. West Virginia Dep't of
Health and Human Resources, 532 U.S. 598, 604 (2001).
\146\Id. at 605.
---------------------------------------------------------------------------
Under Federal Circuit precedent,\147\ moreover, a patent
owner can deprive a court of Article III jurisdiction over an
accused infringer's counterclaims for invalidity or
noninfringement by giving the accused infringer a covenant not
to sue for infringement--and thereby preclude the defendant
from becoming a ``prevailing party'' on the basis of those
counterclaims.\148\ Highway Equipment also held, however, that
such a covenant does not deprive the court of jurisdiction over
the patent owner's infringement complaint,\149\ and that fees
may be awarded to the defendant if the covenant results in
dismissal of the complaint with prejudice.\150\ Highway
Equipment would thus appear to allow a defendant to obtain
prevailing-party status and hold a plaintiff accountable for an
unjustified litigation position.
---------------------------------------------------------------------------
\147\Highway Equipment Co., Inc. v. FECO, Ltd, 469 F.3d 1027 (Fed.
Cir. 2006).
\148\Id. at 1033 n.1; see also Cisco Sys., Inc. v. Alberta
Telecomms. Research Ctr., 538 Fed. App'x 894, 898 (Fed. Cir. Aug. 29,
2013).
\149\Highway Equip. Co., 469 F.3d at 1033 n.1.
\150\Id. at 1035-36.
---------------------------------------------------------------------------
Courts have also held, however, that a defendant is not a
prevailing party if a complaint is dismissed without
prejudice\151\--and district courts have discretion to
determine whether a complaint is dismissed with or without
prejudice.\152\ Moreover, Highway Equipment itself notes that
the regional courts of appeals are divided as to whether even a
dismissal with prejudice makes the defendant a prevailing party
and potentially eligible for a fee award.\153\ And finally,
several regional courts of appeals have held that when a case
is dismissed as moot--which a covenant not to sue would appear
to require--the defendant is not a prevailing party and no fees
may be awarded.\154\
---------------------------------------------------------------------------
\151\See Jeroski v. Federal Mine Safety and Health Review Comm'n,
697 F.3d 651 (7th Cir. 2012); Newport News Holdings Corp. v. Virtual
City Vision, Inc., 650 F.3d 423, 444 (4th Cir. 2011).
\152\See Highway Equip. Co., 469 F.3d at 1034; Wright & Miller's
Federal Practice and Procedure Sec. 2364.
\153\See Highway Equip. Co., 469 F.3d at 1032, 1036.
\154\Doe v. Nixon, 716 F.3d 1041, 1050-51 (8th Cir. 2013); Dionne
v. Floormasters Enters., Inc., 667 F.3d 1199, 1205-06 (11th Cir. 2012);
Demis v. Sniezek, 558 F.3d 508, 513 (6th Cir. 2009); Ma v. Chertoff,
547 F.3d 342, 344 (2nd Cir. 2008); Biodiversity Conservation Alliance
v. Stem, 519 F.3 1226, 1230 (10th Cir. 2008) (O'Connor, J.). A
dismissal on account of the plaintiff's extension of a covenant not to
sue--whether with or without prejudice--also appears to tread closely
to mooting the action through a voluntary cessation of conduct--the
scenario that Buckhannon found to make a party immune from a fee award.
---------------------------------------------------------------------------
To avoid subjecting patent litigants to the uncertainty
surrounding this still-developing area of the law, subsection
(c) provides that an infringement claimant who unilaterally
extends a covenant not to sue to the opposing party shall be
deemed to be the nonprevailing party for purposes of subsection
(a). Subsection (c) applies only if the plaintiff acts
unilaterally--it does not apply if, for example, the parties
jointly stipulate to dismissal of the case. Subsection (c), by
deeming the defendant the prevailing party, preserves only the
possibility of a fee award. A plaintiff deemed nonprevailing
under subsection (c) would not be subject to a fee award if its
position and conduct were reasonably justified or special
circumstances would make an award unjust. Subsection (c)
protects the rights of a defendant who believes that he has
been the target of an abusive complaint, and who would have
preferred to continue the litigation in order to hold the
plaintiff accountable for his position or conduct under
subsection (a).
An exception is made to subsection (c) for a plaintiff who
seeks dismissal of his claims early in the litigation, when he
would be allowed to do so without a court order under Rule 41.
A patentee who timely reconsiders the wisdom of his
infringement claims, extends a covenant not to sue to the
opposing party, and seeks such early dismissal of his complaint
would remain immune from the possibility of an award of
attorney's fees. The abusive litigant, however, who delays and
forces the defendant to incur large costs--and who subsequently
dismisses his complaint and unilaterally extends a covenant not
to sue in order to moot the defendant's counterclaims--could be
held to account under subsection (a).\155\
---------------------------------------------------------------------------
\155\It is clear that a defendant in an infringement action whose
success in a copending reexamination or review proceeding results in
dismissal of the civil action is regarded as the prevailing party in
the civil action. See, e.g., Inland Steel Co. v. LTV Steel Co., 364
F.3d 1318, 1320-21 (Fed. Cir. 2004). This rule is legally well-grounded
and is sound policy, given the extent to which such proceedings
increasingly serve as an alternative to, and are statutorily
intertwined with, district court actions. See, e.g., 35 U.S.C.
Sec. 315(b). The Committee thus declines to displace or disturb this
rule.
---------------------------------------------------------------------------
Section 3(b)(2)(B) of the Innovation Act strikes
subsections (f) and (g) of Sec. 273 of title 35. Subsection (f)
deems particular cases ``exceptional'' for purposes of
Sec. 285--a standard that will no longer be employed by
Sec. 285. Subsection (g) provides that a patent shall not be
deemed invalid solely because a defense is established under
Sec. 273. The subsection ensures that the fact that a patent
owner or third party made secret use of an invention that
qualifies as a prior commercial use within the meaning of
Sec. 273 will not necessarily result in a loss of right to
patent.\156\ Because such uses, however, are not invalidating
under current law, subsection (g) no longer serves any purpose
and is repealed.\157\
---------------------------------------------------------------------------
\156\New Idea Farm Equip. Corp. v. Sperry Corp., 916 F.2d 1561,
1566 (Fed. Cir. 1990); Woodland Trust v. Flowertree Nursery, Inc., 148
F.3d 1370-71 (Fed. Cir. 1998).
\157\See Examination Guidelines for Implementing the First Inventor
To File Provisions of the Leahy-Smith America
Invents Act, 78 Fed. Reg. 11059, 11062, 11075 (Feb. 14, 2013).
Subsection (g) is preserved with respect to the limited universe of
pre-AIA patents to which Sec. 273 applies.
---------------------------------------------------------------------------
Section 3(b)(3) of the Act applies revised Sec. 285 to
cases filed on or after the date that is 6 months prior to the
enactment of the Act. This is in accord with precedents
applying new fee-shifting statutes to pending cases,\158\ and
will preclude an unseemly rush to file cases in the period
immediately prior to the enactment of the Act.
---------------------------------------------------------------------------
\158\See Bradley v. School Bd. of City of Richmond, 416 U.S. 696
(1974); Hutto v. Finney, 437 U.S. 678, 694 n.23 (1978) (``this court's
general practice'' is to apply newly enacted fee-shifting statutes to
``all cases pending on the date of enactment'').
---------------------------------------------------------------------------
(c) joinder of interested parties
New Sec. 299(d) of title 35 provides that if a plaintiff is
unable to pay fees and expenses awarded pursuant to Sec. 285,
the court may join in the action and hold liable for fees any
interested party of that plaintiff. The provision was modified
in the Committee's executive session to make clear that it
applies only to patent assertion entities, and does not apply
to start-up companies or to named inventors or coinventors who
are asserting their patents.\159\ Section 299(d) also does not
extend liability to bona fide employees of the plaintiff, law
firms compensated in relation to the legal services provided,
or passive investors who lack the ability to direct or control
the patentee's litigation. New paragraph (4) provides that the
provision is not triggered unless the defendant files an
initial statement indicating that the patentee is a patent
assertion entity, and the patentee fails to certify and
demonstrate that it is not a patent assertion entity or that it
will be able to satisfy a fee award.
---------------------------------------------------------------------------
\159\Start-up companies and research universities are protected by
paragraph (7)(B), which excludes from Sec. 299(d)'s reach those who
commercially practice, make substantial preparations to commercially
practice, or conduct research in ``technology in the field of the
subject matter.'' ``Technology'' has the same meaning in paragraph
(7)(B) as in Sec. 18 of the AIA, and does not include mere business
methods. See Leahy-Smith America Invents Act, Pub. L. No. 112-29,
Sec. 18(d)(1) (2011); Transitional Program for Covered Business Method
Patents--Definitions of Covered Business Method Patent and
Technological Invention, 77 Fed. Reg. 48,734, 48,735 (Aug. 14, 2012)
(discussing 37 C.F.R. Sec. 42.301).
---------------------------------------------------------------------------
(d) stay of discovery pending preliminary motions
New Sec. 281B stays discovery in patent cases during the
pendency of certain preliminary motions. Such a stay only
applies if the preliminary motion is filed within 90 days of
the service of the complaint. The stay expires when all motions
are decided, and the motions must be decided before a
scheduling order is issued or other substantive motions are
decided. An exception to the stay of discovery is allowed for
discovery necessary to decide the preliminary motion, when
necessary to prevent competitive harm to the patent owner, or
when the parties consent to an exception.
(e) sense of congress
Subsection (e) expresses the sense of congress with respect
to patent demand letters.
(f) demand letters
Subsection (f) adds an undesignated paragraph to the end of
Sec. 284 of title 35 that provides that pre-suit notification
of infringement may not be relied on to establish willfulness
unless such notification identifies with particularity the
patent and the accused products or process and explains why a
claim is infringed to the extent possible following a
reasonable inquiry.
(g) venue
Paragraph (1) establishes limits on the venue where a
patent-infringement action or declaratory-judgment invalidity
or non-infringement action may be brought. Amended Sec. 1400(b)
limits patent venue to the district where the defendant is
headquartered or incorporated, where it has a regular and
established physical facility that gives rise to the acts of
infringement, where the defendant has agreed or consented to be
sued for the action in question, where the named inventor or a
co-inventor conducted research and development that led to the
patent in suit, or where a party has a regular and established
physical facility that it controls and operates, not primarily
for purposes of creating venue,\160\ and from which such party
managed research and development that led to the patent or
where it made a tangible product that embodies the patent in
suit.\161\ For foreign defendants that are not headquartered or
incorporated in the United States and who lack a regular and
established physical facility in the United States, venue is
provided under Sec. 1391(d) of title 28.
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\160\In assessing whether activities are undertaken primarily for
purposes of establishing venue, courts should consider the nature of
the plaintiff and the place where venue is sought. An operating company
should be presumed to undertake its activities primarily in pursuit of
those operations, and discovery into its motives for establishing its
facilities in an area is unnecessary. For an entity that lacks a
substantial interest in the patent other than asserting it in
litigation, the court should consider the district where venue is
sought. If the chosen venue is not one that is disproportionately
burdened with patent litigation, and the plaintiff engages in
significant research and development or manufacturing, the choice of
venue should be presumed bona fide and discovery is unnecessary absent
substantial initial evidence to the contrary. When, however, an entity
that lacks a substantial non-litigation interest in the patent asserts
that venue is present in a district that is disproportionately burdened
with patent cases, the plaintiff should bear the burden of
demonstrating that it satisfies all of paragraph (5)'s requirements,
and some discovery may be appropriate.
\161\Because such activities must be significant, bona fide, and
result in the production of tangible goods, merely replicating software
or running a website is not sufficient to satisfy subparagraphs (B) and
(C).
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Paragraph (2) provides enhanced access to mandamus relief
for a party whose motion to transfer on the basis of new
Sec. 1400(b) has been improperly denied. Under Federal Circuit
precedent, ``three conditions must be satisfied before
[mandamus relief] may issue.'' In re Procter & Gamble Co., 749
F.3d 1376 (Fed. Cir. 2014). ``The petitioner must show a clear
and indisputable right to relief. The petitioner must lack
adequate alternative means to obtain the relief it seeks. And
even if the first two prerequisites have been met, the issuing
court, in the exercise of its discretion, must be satisfied
that the writ is appropriate under the circumstances.''\162\
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\162\Id. (citations omitted).
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The P&G case involved a request by a patent owner for
mandamus to prevent the USPTO from instituting an IPR for a
patent. The court denied relief, partly on the basis that
``this is not one of the rare situations in which irremediable
interim harm can justify mandamus, which is unavailable simply
to relieve P&G of the burden of going through the inter partes
review.'' In support of this proposition, the court cited In re
Roche Molecular Sys., Inc.,\163\ which it characterized as
holding that a mandamus ``petitioner's hardship and
inconvenience in going through trial d[oes] not provide a basis
for mandamus.''
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\163\516 F.3d 1003, 1004 (Fed. Cir. 2008).
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Paragraph (2) removes a barrier to mandamus review of
denials of motions to transfer or dismiss on the basis of new
Sec. 1400(b). It does so by stating that being subjected to
trial in a district where venue is improper does constitute
irremediable interim harm. To obtain relief, however, the
mandamus petitioner still must show a clear and indisputable
right to relief--this requirement is repeated in paragraph (2)
in order to make clear that the paragraph does not displace
this element of the P&G test. The third prong of that test also
remains in place: the issuing court must be satisfied that the
writ is appropriate under the circumstances.\164\ This element
of the P&G test ensures that the Federal Circuit will retain
the ability to control its docket and will not be forced to
entertain an overwhelming number of petitions.\165\ By placing
a proverbial thumb on the scale in favor of mandamus relief,
however, paragraph (2) ensures that new Sec. 1400(b)'s writ
will run in all judicial districts.\166\
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\164\In assessing whether issuance of the writ is appropriate, the
Court may consider, for example, whether relief is sought from a
district that is burdened with a disproportionate number of patent
infringement actions, and whether the passage of time and the
development of caselaw applying amended Sec. 1400(b) has resulted in a
proportionate distribution of patent litigation across judicial
districts and thus rendered continued enhanced access to mandamus
relief unnecessary.
\165\To further conserve Federal appellate resources, the Court may
dispose of mandamus petitions by remand for reconsideration in view of
intervening authority, or by summary reversal.
\166\The Committee is aware that some industry representatives have
recommended that decisions on motions to transfer be made subject to
interlocutory appeal. See May 2015 Senate hearing, Statement of Mark
Chandler, Senior Vice President and General Counsel, Cisco Systems
Inc., at *12. The Committee is at the present time persuaded that
enhanced access to mandamus relief will be sufficient to ensure that
the amended Sec. 1400(b) is consistently and effectively enforced.
Should this prove not to be the case, however, the Committee will
revisit the question of whether an interlocutory appeal should be
authorized.
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Paragraph (3) provides that the retail facilities of a
defendant who also manufactures the accused product--and who is
thus ineligible for a customer stay under new Sec. 296--cannot
serve as the basis for venue under new paragraph (2) of
Sec. 1400(b). Amended Sec. 296 reflects a policy judgment that
infringement suits against retailers are disfavored. Consistent
with that principle, paragraph (3) provides that a
manufacturer's retail facilities alone cannot serve as a basis
for venue. Paragraph (3) also ensures that such retailer-
manufacturers are not deterred from establishing retail
facilities in locations where they prefer not to be amenable to
suit.
Paragraph (4) clarifies that the presence of a defendant's
teleworkers in a district cannot serve as a basis for patent-
infringement venue.
(h) effective date
This subsection applies the amendments made by section 3 to
cases filed on or after the enactment of the Innovation Act,
except where the individual subsections of section 3 supply
their own effective dates.
Section 4. Transparency of patent ownership.
New Sec. 290(b) of title 35 requires disclosure, upon the
filing of an infringement action, of the real-parties-in
interest to the patent and its enforcement. In the event of
noncompliance, awards of attorney's fees, and recovery of
enhanced damages incurred during periods of non-compliance, are
barred, and the adverse party may recover attorney's fees that
it incurred in the course of uncovering correct ownership
information.
Section 5. Customer-suit exception.
New Sec. 296 codifies and strengthens the common-law
customer-suit exception to a patent plaintiff's presumptive
entitlement to her choice of venue. It requires grant of a
timely motion to stay the suit against the customer if the
manufacturer has joined the suit or filed a related suit and
the customer agrees to be bound by the final resolution of
common issues in the manufacturer's suit without the
opportunity to separately litigate such issues.\167\ In
addition, if the manufacturer was made a party to the action on
motion by the customer, a stay is mandatory only if the
manufacturer and customer agree in writing to the stay.
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\167\Subsection (b)(2) limits the estoppel effect of the
manufacturer's suit to those issues for which the other elements of the
doctrine of issue preclusion are met. Issue preclusion bars an action
when ``(1) the issue is identical to one decided in the first action;
(2) the issue was actually litigated in the first action; (3)
resolution of the issue was essential to a final judgment in the first
action; and (4) the plaintiff had a full and fair opportunity to
litigate the issue in the first action.'' Laguna Hermosa Corp. v.
United States, 671 F.3d 1284, 1288 (Fed. Cir. 2012). Thus a customer
who obtains a Sec. 296 stay will be bound as to identical and actually
litigated issues whose resolution was essential to the final judgment
in the manufacturer's suit.
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Section 296 was narrowed in the Committee's executive
session to provide that only a retailer or consumer end user
can qualify as the ``covered customer'' who may seek a
mandatory stay. The definition of covered customer at paragraph
(1) makes clear that the term does not include a party that has
modified the accused product or process in a manner that is
alleged to infringe the patent in suit, and the definitions of
``retailer'' and ``end user'' at paragraphs (5) and (6) make
clear that covered customers do not include those who make or
cause the making of the infringing product.\168\ Paragraph
(2)'s definition of the covered manufacturer does, however,
include those who make or supply the covered product or a
relevant part thereof. Thus a downstream manufacturer or
wholesaler may not seek the stay, but the customer or retailer
may obtain a stay based on the participation in the action or a
separate action of the upstream supplier of the relevant
part.\169\
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\168\Because the reported version of Sec. 296 precludes
intermediate manufacturers or distributors who supply retailers (rather
than sell to the public) from obtaining a stay, it moots concerns that
were raised by a witness at a Subcommittee hearing that the statutory
customary stay would allow a series of successive stays to be obtained
by distributors and manufacturers of the infringing product. See March
2015 hearing at 33-35 (Statement of Bryan Pate, Co-Founder and CEO,
ElliptiGO, Inc.). Because only retailers and customers can obtain the
stay, the first stay will have been obtained in favor of an action
involving a supplier that will not itself be able to seek a stay.
\169\Per subsection (c)(1)(A), however, a stay may not be
maintained if the part that was supplied by the manufacturer is not a
material part of the claimed invention. A part is ``relevant'' only if
it is what infringes the asserted claim.
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Section 296 eliminates the inconsistencies in current law's
application of the customer-suit exception that are described
in the background section of this report. It authorizes a stay,
for example, whether the manufacturer is a party to the
customer suit or to a separate related action, and it allows
the customer and manufacturer to obtain a stay despite the fact
that the customer is the only party accused of directly
infringing a method claim or the customer has been accused of
inducement of infringement.\170\
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\170\``[E]fficiency and judicial economy'' have been described as
the ``guiding principles'' for interpreting and applying the common-law
customer suit exception. Lonestar Inventions, L.P. v. Sony Elecs. Inc.,
Civil Action No. 6:10-CV-588-LED-JDL (E.D. Tex. 2011). To ensure that
this type of judicial solipsism does not infect the interpretation of
Sec. 296, the Committee emphasizes that the guiding principles for
interpreting and applying the statutory customer-suit stay--as
expressed by witnesses testifying before the Committee
and Subcommittee--is to protect customers against the inherently
coercive nature of infringement suits directed at products or processes
that the defendant did not develop or design.
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Subsection (c)(1) creates limited exceptions to the
customer and manufacturer's entitlement to a stay. Subparagraph
(A) allows an exception for situations in which the
manufacturer's action will not resolve a major issue in the
suit against the customer. This would include, for example, a
suit involving only method claims in which the manufacturer
does not contest the validity of the patent or its alleged
infringement by the customer, and instead contends only that it
is not liable for infringement because its product has
substantial non-infringing use. It would also include a case in
which it is clear that the major dispute over infringement or
invalidity will concern components or materials in the covered
customer's product or process other than those supplied by the
covered manufacturer.
Subparagraph (B) allows an exception where a stay
unreasonably prejudices or would be manifestly unjust to a
party seeking to lift the stay. This would include, for
example, a case in which it is clear that the manufacturer
would be unable to satisfy a substantial damages judgment and
the patent owner's only true recourse is against infringing
customers. A stay may also unreasonably prejudice a party if it
is clear that the purported customer provided the infringing
specifications, or the stay would be contrary to a negotiated
agreement between the parties that is more than a mere contract
of adhesion.
Once a stay is imposed, the customer nevertheless remains a
party to the suit, and limited discovery may be sought from the
customer to the extent necessary to prove the case against the
manufacturer. Thus, for example, when the manufacturer is sued
for indirect infringement, discovery may be necessary to show
that prerequisite direct infringement has, in fact, occurred.
Customer discovery also may be necessary to identify all
suppliers of allegedly infringing products, components, or
materials.
Subsection (f) makes clear that Sec. 296 only prescribes
the conditions for a mandatory stay, and that courts retain
discretion to grant a customer stay in other circumstances,
including under the authority of Sec. 296 itself. A court
exercising its discretionary authority to grant a stay or
expand a stay under Sec. 296 should disregard the arbitrary
limitations on customer stays described in the background
section of this report, such as rules followed by some courts
that stays may not be entered in component cases or when the
manufacturer only induces infringement. Rather, courts
exercising the discretionary stay authority preserved by
subsection (f) should be guided by the principles embodied by
Sec. 296: that a customer stay is appropriate when it is clear
that a manufacturer who is willing to litigate the case is in a
better position to understand and defend against the
allegations of infringement.\171\
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\171\The pre-Innovation Act version of Sec. 296, which was enacted
in 1992 and attempted to address the Eleventh Amendment immunity of
states, was voided in its entirety in 1999 by the Supreme Court in its
decision in Florida Prepaid Postsecondary Education Expense Board v.
College Savings Bank, 527 U.S. 627 (1999). The Innovation Act reclaims
this long-dormant code section. To the extent that states and their
subdivisions do not enjoy Eleventh Amendment immunity against patent-
infringement actions, that liability is codified and preserved by
Sec. 271(h) of title 35, which continues to provide that liability for
patent infringement extends to ``any State, any instrumentality of a
State, and any officer or employee of a State or instrumentality of a
State acting in his official capacity.''
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Section 6. Procedures and practices to implement and recommendations to
the Judicial Conference.
Subsection (a) requires six or more district courts that
are currently participating in the patent pilot program to
develop rules and procedures to address the asymmetries in
discovery burdens and costs in patent cases and address case
management procedures in patent cases. Subsection (b) requires
the six courts to implement these rules as a pilot program.
Subsection (c) authorizes the Judicial Conference to apply all
or some of the rules and procedures to all district courts
after they have been in effect for 2 years.
Subsection (d) requires the Supreme Court to eliminate its
current short-form patent complaint--Form 18--from the Appendix
of the Federal Rules of Civil Procedure, and provides that the
Court may prescribe a new form that, at minimum, notifies
accused infringers of the asserted claim or claims, the
products or services accused of infringement, and the
plaintiff's theory as to how an accused product or service
meets each limitation of each asserted claim.
Subsection (e), by adding 11 U.S.C. Sec. 365(n) to the
mandatory provisions that must apply in a Chapter 15 bankruptcy
proceeding when relevant, provides certainty to licensees of
patents and other intellectual property by guaranteeing that
such licenses cannot be terminated in the United States via a
foreign bankruptcy proceeding. The amendment also clarifies
that trademark licenses are protected against being voided in
bankruptcy, effectively codifying the Seventh Circuit's
approach in Sunbeam Prods., Inc. v. Chicago Am. Mfg., LLC.\172\
Because of the importance of providing certainty to
manufacturers that they will be allowed to practice licensed
technology in the United States, the amendment is made fully
retroactive, applying to cases pending at any level of appeal
or review.
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\172\686 F.3d 372 (7th Cir. 2012) (Easterbrook, J.).
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Subsection (f) requires the Judicial Conference to prepare
a report on discovery in patent cases.
Section 7. Small business education, outreach, and information access.
Subsection (a) establishes a small business education and
outreach program and directs the USPTO to provide information
to small businesses to address concerns arising from patent
infringement. Subsection (b) directs the USPTO to provide to
the public on a website information about patent ownership that
has been disclosed to the Office as a result of litigation.
Section 8. Studies on patent transactions, quality, and examination.
Subsection (a) directs the USPTO to conduct a study of the
developing secondary market for patents in the United States,
and to make recommendations as to how to promote transparency
and fairness in such markets.
Subsection (b) directs the USPTO to conduct a study of
patents owned by the United States, how such patents are
licensed, and how different agencies maintain records of such
licenses, and to provide recommendations as to whether
restrictions should be imposed on the transfer of patents by
the United States.
Subsection (c) directs the Comptroller General to conduct a
study of patent examination and relevant technology.
Subsection (d) requires the Director of the Administrative
Office of the United States Courts to conduct a study regarding
proposals to create a patent small-claims court.
Subsection (e) requires the USPTO to conduct a study on
patent demand letters.
Subsection (f) directs the Comptroller General to conduct a
study of litigation involving business-method patents.
Subsection (g) requires the USPTO to conduct a study on the
impact of the Innovation Act on individuals and small
businesses owned by women, minorities, and veterans to secure
and assert patents.
Section 9. Improvements and corrections to the America Invents Act.
(a) Lrepeal of could-have-raised estoppel for civil
litigation following post-grant review
This subsection corrects the so-called scrivener's error in
Sec. 325(e)(2) of title 35, repealing the could-have-raised
estoppel that was inadvertently applied by the AIA to civil
litigation following the completion of a post-grant review.
Estoppel in civil litigation will henceforth be limited to
those issues that were actually raised and decided in the post-
grant review. Could-have-raised estoppel will continue to apply
to other USPTO proceedings following the completion of a post-
grant review, and to all proceedings following completion of an
inter partes review.
(b) reform of PTAB proceedings
Paragraphs (1) and (2) direct the USPTO to follow civil-
litigation standards of claim construction, currently
authoritatively described in Phillips v. AWH Corp.,\173\ when
construing claims in AIA trials. The USPTO will be permitted to
continue to give claims their broadest reasonable
interpretation during examination and in other administrative
proceedings.\174\ This subsection also requires the PTAB to
consider an existing district court claim construction of
relevant terms in a patent when the PTAB is construing those
terms, but allows the Board to reject a district court
interpretation that it finds to be clearly erroneous.
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\173\415 F.3d 1303 (Fed. Cir. 2005).
\174\Use of the broadest reasonable interpretation of claims is
appropriate during prosecution and reexamination of a patent because,
during such proceedings, ``a patent applicant has the opportunity and
the responsibility to remove any ambiguity in claim term meaning by
amending the application.'' In re Bigio, 381 F.3d 1320, 1324 (Fed. Cir.
2004). ``Only in this way can uncertainties of claim scope be removed,
as much as possible, during the administrative process.'' In re Zletz,
893 F.2d 319, 321 (Fed. Cir. 1990). By requiring the patentee or
applicant to address at least those ambiguities identified by the
examiner during the administrative process, the PTO thus avoids leaving
``the public to guess about which language the drafter deems necessary
to his claimed invention and which language is merely superfluous,
nonlimiting elaboration.'' Bicon, Inc. v. The Straumann Co., 441 F.3d
945, 950 (Fed. Cir. 2006).
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Regulations implementing this subsection's amendments, like
all regulations promulgated pursuant to Sec. Sec. 316 and 326
of title 35, must, pursuant to subsection (b) of those
sections, be implemented with consideration of ``the efficient
administration of the Office'' and ``the ability of the Office
to timely complete proceedings instituted under'' chapters 31
and 32. District court claim construction therefore must be
adapted to the unique nature of inter partes and post-grant
reviews, and should not be accompanied in those proceedings by
unnecessary and time-consuming procedures such as a formal
Markman hearing.
Paragraphs (1) and (2) also require a petitioner for an AIA
trial to certify that she does not hold a short position in the
stock of the patent owner, and has not demanded anything of
value from the patent owner in exchange for not filing the
petition. The Committee anticipates that the prospect of
disciplinary proceedings under Sec. 32 and sanctions under
Sec. Sec. 316(a)(6) and 326(a)(6) will be sufficient to ensure
accurate certifications, and thus discovery into such matters
under Sec. Sec. 316(a)(5) and 326(a)(5) will not be warranted.
Paragraph (3) exempts CBM proceedings from the first of the
new requirements applied by paragraph (2).
Paragraph (4) requires the USPTO to allow patent owners to
present the same type of declaration evidence in their
preliminary responses under Sec. Sec. 313 and 323 that
petitioners are permitted to include in a petition for an AIA
trial.
Paragraph (5) requires the USPTO to consider the rights of
due process of patent owners and petitioners when promulgating
and applying regulations implementing AIA trials.
Paragraph (6) makes precedential several PTAB decisions
applying Sec. Sec. 325(d) and 315(e)'s restrictions on serial
or redundant petitions. Section 325(d) in particular is an
important guarantee of ``patent peace''--it applies when the
same or substantially the same prior art or arguments have been
considered by the Office, and does not depend on an identity
between the parties asserting such art or arguments. The more
recent PTAB decisions made precedential by this paragraph
signal a departure from early Board decisions that
inappropriately relied on Sec. 325(d)'s discretionary nature to
simply ignore its limitations without explanation,\175\ or that
suggested that mere inclusion of a declaration or a new but
cumulative secondary reference necessarily defeats application
of Sec. 325(d)'s strictures regarding petitions presenting the
same or substantially the same prior art.\176\
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\175\See, e.g., Research in Motion Corp. v. Multimedia Ideas LLC,
IPR2013-00036, Paper 15 (PTAB Mar. 18, 2013).
\176\See, e.g., Innolux Corp. v. Semiconductor Energy Lab. Co.,
Ltd., IPR2013-00064, Paper 11 (PTAB April 30, 2013).
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Paragraph (7) authorizes the Director to allow a
petitioner's reply to the patent owner's preliminary response
under Sec. 313, and adjusts other time limits to accommodate
such a reply. Such a reply may only be allowed, however, if the
preliminary response raises new issues--for example, if the
patent owner alleges that the petition is barred by Sec. 315(b)
or should be rejected because the petitioner has not disclosed
all of its real parties in interest.
(c) obviousness-type double patenting
Section 9(c) codifies double patenting principles that
heretofore have been almost entirely administered through non-
statutory, judicially imposed grounds for invalidating
patents.\177\ This codification will supersede the entirety of
the judge-made double patenting doctrine for first-inventor-to-
file patents.
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\177\Under Sec. 9(c)(2)(A), the new statutory double patenting
provisions for first-inventor-to-file patents apply to the same extent
as though these new provisions had been enacted as part of the America
Invents Act. This effect for the amendments to 35 U.S.C. Sec. 102
assures that all first-inventor-to-file patents will be subject to the
same prior art provision within the patent statute.
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The new statutory provisions will implement a fundamental
principle underlying all of U.S. patent law--specifically, that
each of the valid claims of any one issued U.S. patent should
be ``patentably distinct'' (i.e., differ in some inventive
manner) from each of the valid claims of every other issued
U.S. patent. When existing statutory prior art limitations
would otherwise fail to ensure this result, the new double
patenting prior art provisions for first-inventor-to-file
patents will apply to require that any two such patents
containing patentably indistinct claims cannot both be valid
absent enforcement-related restrictions that operate to prevent
the separate enforcement of the two patents.
The new prior art provisions in 35 U.S.C. Sec. 102(e) apply
to any pair of first-inventor-to-file patents that are not
otherwise prior art to one another by rendering the claims from
one (or both) of the respective patents prior art with respect
to the claims of the other patent.\178\ This prior art effect
is subject to two exceptions.
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\178\New 35 U.S.C. Sec. 102(e) establishes a claim-by-claim prior
art relationship between each pair of claims of the two patents for
which neither of the pair of claims was otherwise prior art to the
other. It does so by making the claim (the ``first claim'') from the
earlier-filed patent (the ``first patent'') prior art to the claim (the
``second claim'') from the later-filed patent (the ``second patent'').
If the pair of claims from the two patents were both effectively filed
on the same day, then each is made prior art to the other (i.e., each
claim becomes both a ``first claim'' from a ``first patent'' and a
``second claim'' from a ``second patent'').
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First, under proposed Sec. 102(e)(1), if the issuance of
separate patents resulted from a ``restriction requirement''
imposed by the Office,\179\ the prior art relationship under
Sec. 102(e) is avoided to the extent that the claims of the two
patents are limited in a manner consonant with a requirement
for restriction. \180\ This ``restriction requirement''
exception supersedes a corresponding statutory ``safe harbor''
provision contained in the third sentence in 35 U.S.C.
Sec. 121.\181\ Section 9(c)(1)(B) repeals that sentence in
Sec. 121 for first-inventor-to-file patents. The repeal
eliminates the possibility of any confusion that might
otherwise arise as to the possible continued relevance of the
repealed text or its possible inconsistency with the exception
set forth in new Sec. 102(e)(1).\182\
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\179\A ``restriction requirement'' is an administrative finding by
a patent examiner that the claims of a single patent application
properly belong in separate patents. It is grounded on the examiner's
determination that division of the claims into separate patents is
appropriate because the respective claimed inventions that would issue
in separate patents are independent and distinct. See 35 U.S.C.
Sec. 121.
\180\See St. Jude Medical, Inc. v. Access Closure, Inc., 729 F. 3d
1369, 1377 (Fed. Cir. 2013).
\181\Under 35 U.S.C. Sec. 121, third sentence, double patenting is
made inapplicable to divisional applications where claims are consonant
with a restriction requirement. This sentence is unnecessary given the
codification contained in 35 U.S.C. Sec. 102(e)(1).
\182\For example, the ``divisional application'' limitation
contained in the 35 U.S.C. Sec. 121 (third sentence) ``safe harbor'' is
not present in the 35 U.S.C. Sec. 102(e)(1) exception, and thus the
holding in Pfizer, Inc. v. Teva Pharmaceuticals USA, Inc., 518 F. 3d
1353, 1362 (Fed. Cir. 2008), that is based on this limitation is
inapplicable to Sec. 102(e)(1).
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Second, when the owner of the later-sought of the two
patents (or each of the respective owners of the two patents if
their patents were effectively filed on the same day) has
elected to limit the separate enforcement of its patent, the
prior art relationship that would otherwise be imposed under 35
U.S.C. Sec. 102(e) is removed. This election requirement is
provided in proposed Sec. 102(e)(2) and has two separate
components.
Under the first component, the right to bring an action to
enforce a patent for which the Sec. 102(e)(2) election has been
made, i.e., an ``election patent,''\183\ is disclaimed to the
extent that such an enforcement action would have been barred
by res judicata had the asserted claims of the election patent
instead been issued in the other patent involved in the double
patenting.\184\ This requirement limits the ability to bring a
separate enforcement action asserting the election patent where
the other patent has already been enforced.
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\183\For convenience, a patent in which an election under 35 U.S.C.
Sec. 102(e)(2) has been made is referred to as an ``election patent''
herein. As noted supra, it is described in 35 U.S.C. Sec. 102(e) itself
as a ``second patent.''
\184\See Sec. 102(e)(2)(A).
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The second component of the election establishes
requirements that apply to the owner of the other patent
involved in the double patenting. These requirements must be
met by the owner of the other patent before the election patent
can be enforced, and they apply to the owner of the other
patent until it is no longer possible to bring or maintain an
action to enforce that patent. This second component requires
that the owner of the other patent either must have filed its
own election to limit separate enforcement of the other patent
under Sec. 102(e)(2), or it must be a party to the action to
enforce the election patent.\185\
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\185\See Sec. 102(e)(2)(B). The second component of the election
requirement is inherently satisfied when the two patents involved in
the double patenting are owned by the same person. In double patenting
situations, other than those arising under Sec. 102(c), common
ownership of both patents involved in the double patenting is typically
present.
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Any election patent is subject to a further limitation with
respect to the term of the patent. Patents subject to the 20-
year patent term provision of the URAA may qualify for patent
term adjustments that can move the expiration date of the
patent beyond the end of the 20-year term measured from the
priority date.\186\ Patent term adjustment can result in
situations where the combined protection period for the two
patents involved in the double patenting could exceed the 17-
year maximum term of protection that the patent term adjustment
provisions were intended to secure.\187\
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\186\See 35 U.S.C. Sec. 154(b).
\187\See 35 U.S.C. Sec. 154(b)(1)(B), setting forth a ``Guarantee
of no more than 3-year application pendency,'' a provision designed to
ensure that 17 years of the 20-year patent term would remain once the
pending application issued as a patent. Nothing in the patent term
adjustment provisions of 35 U.S.C. Sec. 154(b) operates to secure more
than this 17-year period for any individual patent that might issue.
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Section 9(c)(1)(D) provides a limitation on patent term
adjustment that voids any adjusted patent term for an election
patent to the extent that the combined post-issuance patent
term for both patents involved in the double patenting would
exceed 17 years.\188\ This limitation can eliminate eligibility
for patent term adjustment for an elected patent altogether in
certain situations.\189\ Subparagraph (D) operates to remove
the last vestige of the type of pre-URAA extensions of patent
rights that justified limiting the patent terms of URAA patents
in situations of double patenting.\190\
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\188\If the term of the election patent would be longer than 17
years in the absence of any patent term adjustment, i.e., based upon
the prompt issuance of the patent after the initial patent filing,
Sec. 9(c)(1)(D)'s limitation on patent term adjustment would have no
impact on the term of the election patent.
\189\If one of two patents involved in double patenting issues
within 3 years from its nonprovisional filing date, patent term
adjustment would be unavailable for the election patent. In this
situation, the limitation in Sec. 9(c)(1)(D) supersedes any other
patent term adjustment for which the election patent might have
qualified.
\190\These policy justifications are discussed in the background
section of this report.
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Because the new prior art provisions of Sec. 102(e) will
apply to all first-inventor-to-file patents, including patents
issued before the date of enactment, a ``savings clause'' in
Sec. 9(c)(2)(B) of the Innovation Act makes new Sec. 102(e)
inapplicable to any patent issued before the date of enactment
that would not have been invalid absent the enactment of
Sec. 102(e).
Section 9(c)(2)(C) reaffirms the Office's practice of
making provisional rejections for double patenting. This
provision expressly authorizes the Office to continue to make
provisional rejections for double patenting prior to the
issuance of patents on applications containing patentably
indistinct claims.
Section 9(c)(2)(D) discontinues the Office's practice of
requiring disclaimers of patent term in situations involving
double patenting for patents subject to the 20-year URAA patent
term.\191\ In lieu of the current ``terminal disclaimer''\192\
requirements, the Office is permitted to condition the issuance
of a patent subject to the 20-year URAA patent term on the
filing of an election under 35 U.S.C. Sec. 102(e)(2).\193\
Additionally, for terminal disclaimers filed in patent
applications pending on or after July 1, 2015, the effect of
such a disclaimer can be nullified if an election under 35
U.S.C. Sec. 102(e)(2) is made with respect to the application
or the patent issuing on the application within 1 year from the
date of enactment.\194\ Terminal disclaimers currently in
effect are otherwise unaffected.\195\
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\191\Gilead Sciences, Inc. v. Natco Pharma Ltd., 753 F. 3d 1208
(Fed. Cir. 2014), is legislatively abrogated to the extent that the
holding in that appeal was based on a finding that the 20-year URAA
term of the invalidated patent constituted an unjustified timewise
extension of the patent owner's exclusive rights.
\192\See 37 C.F.R. Sec. 1.321.
\193\See Sec. 9(c)(2)(D)(i)(III).
\194\See Sec. 9(c)(2)(D)(ii).
\195\See Sec. 9(c)(2)(D)(iii).
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Section 9(c)(E) provides further rules of
construction.\196\ Under clause (i), all non-statutory double
patenting grounds for invalidating first-inventor-to-file
patents are barred. Under clause (ii), non-statutory double
patenting grounds for invalidating first-to-invent patents are
barred to the extent a prior art relationship exists between
the claims of the respective patents. This limitation is
imposed because such a prior art relationship assures that the
respective claims of the two patents can be valid only if
directed to patentably distinct subject matter.\197\
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\196\These rules of construction, like those in Sec. 9(C)(2)(D),
take effect upon enactment, but do not apply to any invalidity defense
raised in a patent infringement action brought before the date of
enactment. See Sec. 9(c)(2)(F).
\197\In re Hubbell, 709 F.3d 1140 (Fed. Cir. 2013), is
legislatively abrogated given that the facts of the case indicate that
the claims of the respective patents had a prior art relationship under
pre-AIA Sec. 102(g).
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(d) PTO patent reviews
Paragraph (1) amends AIA Sec. 18(a)(1)(C) to allow patents
and published applications to be effective as prior art against
a first-to-invent business-method patent as of their effective
filing dates.
Paragraph (2) authorizes the Director to waive the fee for
filing a CBM proceeding.
Paragraph (3) allows a petitioner to employ Sec. 315(c)
joinder to join a new petition to a pending inter partes review
to which it is already a party. Such same party joinder, which
is not subject to the Sec. 315(b) time limitation, may be
exercised for good cause shown. Good cause would necessarily
include situations where a patent owner has submitted
contentions asserting additional claims of a patent in
litigation only after the defendant has filed a petition under
Sec. 311 challenging the claims that were initially asserted.
This will allow an IPR petitioner to limit its petition to
those claims asserted against it in litigation, without fear
that Sec. 315(b) may preclude it from challenging additional
patent claims that are asserted later.
(e) clarification of jurisdiction
This subsection abrogates Gunn v. Minton,\198\ restoring
the Federal courts' jurisdiction over patent legal-malpractice
cases. It also establishes that actions that necessarily
require resolution of a disputed question as to the validity or
scope of a patent ``arise under'' the patent laws. The
subsection thus clarifies that it is not necessary to exclusive
Federal patent jurisdiction that a case also require
interpretation of a Federal statute or affect numerous parties
or the Federal Government. The provision effectively codifies
the Federal Circuit's recent dicta in Forrester Environmental
Services,\199\ and ensures the continuing vitality of the
Federal Circuit and regional circuits' pre-Gunn precedents
recognizing patents ``arising under'' jurisdiction over certain
state-law business-disparagement and breach-of-contract
actions.\200\
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\198\133 S.Ct. 1059 (Feb. 20, 2013).
\199\715 F.3d 1329, 1334 (Fed. Cir. 2013) (noting that ``arising
under'' jurisdiction over particular ``state law claims premised on
allegedly false statements about patents. . . . may well have survived
the Supreme Court's decision in Gunn'').
\200\See, e.g., Scherbatskoy v. Halliburton Co., 125 F.3d 288 (5th
Cir. 1997); U.S. Valves, Inc. v. Dray, 190 F.3d 811 (7th Cir. 1999);
Additive Controls & Measurement Sys., Inc. v. Flowdata, Inc., 986 F.2d
476 (Fed. Cir. 1993); Hunter Douglas, Inc. v. Harmonic Design, Inc.,
153 F.3d 1318 (Fed. Cir. 1998), overruled on other grounds, Midwest
Indus., Inc. v. Karavan Trailers, Inc., 175 F.3d 1356 (Fed. Cir. 1999).
---------------------------------------------------------------------------
This clarification is applied to all pending and future
cases. It is applied to pending cases so that courts will not
be required to determine whether Gunn's enumeration of
``substantiality'' factors is intended to be exclusive, or what
exactly Gunn means with respect to state-law breach of contract
and unfair competition cases that turn on whether a product or
process infringes a patent. An exception is made, however, for
cases in which a Federal court already has determined its
``arising under'' patents jurisdiction--those courts will not
be required to revisit such determinations for those cases,
despite the enactment of this provision.
(f) extension of patent pilot program
This subsection extends by an additional 10 years the
duration of the patent pilot program operating in certain
district courts that was established by Public Law No. 111-349
(2011).
(g) management of the USPTO
This subsection clarifies the authority of the Deputy
Director to serve as Acting Director.
(h) technical corrections
(1) Sec. 102
This paragraph makes a nonsubstantive stylistic correction
to the Patent Code. It amends Sec. 102 so that it consistently
uses the term ``the inventor or a joint inventor or another,''
rather than alternating between that phrase and ``the inventor
or joint inventor or by another.'' The change has no
substantive effect, and creates linguistic uniformity and
eliminates a potential ambiguity in the section.
(2) inventor's oath or declaration
This paragraph allows the Director to dispense with the
filing of an oath or declaration under Sec. 115 of title 35 as
she deems appropriate. This could include, for example, with
respect to continuing applications for patent under
Sec. Sec. 120 and 121, where the separate Sec. 115 requirement
can be a redundancy. The amendments thus remove unnecessary
paperwork from the patent examination process.
(3) assignee filers
Section 4(b) of the AIA amended 35 U.S.C. Sec. 118 to
broadly authorize assignees (rather than just inventors) to
file their own patent applications. Per section 4(e) of the
AIA, this authorization applies to all applications filed on or
after the date that is 1 year after the enactment of the AIA
(i.e., September 16, 2012).
The AIA neglected, however, to make a conforming change to
Sec. 119(e)(1) to allow the assignee filer to claim the benefit
of the filing date of an earlier provisional application. That
section still requires that the application claiming the
earlier date be filed ``by an inventor or inventors named'' in
the provisional application. Although the courts might overlook
this legislative mistake (which would otherwise vitiate the
effect of the AIA's changes to Sec. 118 for provisional
filers), the Committee thinks it best to simply correct this
oversight in the present bill.
This paragraph also amends the language of Sec. 120 to make
a stylistic change similar to that made by paragraph (1), while
also reenacting AIA Sec. 3(f)'s conforming amendment for
assignee filers and giving the new conforming amendment a
proper effective date. The AIA amended Sec. 120 that authorized
assignee applicants (rather than just inventor applicants) to
claim the benefit of the filing date of a parent application in
a continuation application. Unfortunately, however, this
conforming change to Sec. 120 was included in Sec. 3(f) of the
AIA. Per Sec. 3(n) of the AIA, the changes made by AIA
Sec. 3(f) apply only to first-inventor-to-file patents. A large
number of patents filed after September 16, 2012, however, will
continue to be first-to-invent patents. Absent the revision
made by this paragraph, there could be a substantial number of
first-to-invent patents filed by assignees after September 16,
2012 whose owners would later discovered that they are unable
to claim the benefit of a parent application's priority date.
The revisions made by this paragraph ensure that the conforming
change accommodating assignee filers will apply to all patents
(including first-to-invent patents) for which Sec. 4(b) of the
AIA authorizes assignee filing.
This paragraph also conforms Sec. 120 to the proper
linguistic formulation: ``the inventor or a joint inventor.''
Sections 100(f) and (g) of title 35 now define ``inventor'' and
``joint inventor.'' The former refers to the entire inventive
entity (i.e., all of the joint inventors), and thus should
always be preceded by the definite article. The latter (``a
joint inventor'') is necessarily one of the several who
invented the subject matter. This paragraph's edits, though
nonsubstantive, ensure usage consistent with these meanings.
(4) derived patents
This paragraph makes the same nonsubstantive stylistic
change to Sec. 291(b) of title 35 that paragraph (1) makes to
Sec. 102 of that title.
(5) specification
This paragraph amends the effective date of the AIA's
addition of subsections and titles to Sec. 112 so that the new
citation format will be used in all proceedings and matters
after enactment of the present bill. This will simplify
citation to Sec. 112, which currently is understood to be
required to be cited by its pre-AIA, undesignated paragraphs
for patents issuing from an application filed before September
16, 2012: Biosig Instruments, Inc. v. Nautilus, Inc.,\201\
recently held that the AIA's addition of substructure to
Sec. 112 applies only with respect to patents issued after
September 16, 2012.\202\ The only rational purpose of adding
substructure to Sec. 112, however, is to simplify citation to
it--a purpose that is entirely defeated by the current
approach. Under Biosig, the patent bar would be required, for
the next quarter century, to first identify the issue date of a
patent before it could determine whether to cite to the
subsections of current Sec. 112 or to the undesignated
paragraphs of pre-AIA Sec. 112. This paragraph avoids such
absurdities by making the AIA's addition of subsections and
titles to Sec. 112 immediately applicable in all proceedings
and matters, and thereby eliminating the need to ever again
cite to the undesignated paragraphs of pre-AIA Sec. 112.
---------------------------------------------------------------------------
\201\715 F.3d 891 (Fed. Cir. 2013).
\202\See id. at 897, n.3.
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(6) Ltime limit for commencing misconduct proceedings
This paragraph addresses several problems that the USPTO's
Office of Enrollment and Discipline has encountered under the
AIA's new 1-year deadline for commencing misconduct
proceedings. These amendments to Sec. 32 ensure that the
deadline only runs from when the USPTO receives a written
grievance about an attorney's misconduct, rather than from when
the USPTO receives any knowledge of the misconduct (such as
from a news story). The amendments also toll the deadline while
a trial court's finding of misconduct is appealed, so that the
USPTO is not required to commence a misconduct proceeding
before an appeals court can review, for example, a trial
court's finding that inequitable conduct has occurred. The
amendments also allow the parties to agree to toll the
deadline. Finally, these amendments add an additional 6 months
to the time by which the Director must commence a misconduct
proceeding once a written grievance has been received. These
amendments apply to all misconduct proceedings commenced after
the enactment of the Innovation Act.
(7) patent owner response
Sections 316(a)(8) and 326(a)(8) of title 35 each provide
for ``the filing by the patent owner of a response to the
petition under section 313 [or 323] after a . . . review has
been instituted.'' The citation to Sec. Sec. 313 and 323 is
incorrect--reviews are instituted under Sec. Sec. 311 and 321.
Sections 313 and 323 only authorize the patent owner to file a
preliminary response to the petition before the review is
instituted. These amendments correct this miscitation.
(8) international applications
Paragraph (7) of section 202(b) of the Patent Law Treaties
Implementation Act (``PLTIA'') amends 35 U.S.C. Sec. 361(c) to
``authorize'' the Director to allow the filing of a PCT
application in a language other than English. The PCT and its
regulations would require the USPTO to review such an
application for errors and to process requests for
incorporation by reference. The USPTO has indicated, however,
that
[t]he United States Receiving Office is simply not
currently capable of conducting the review and
processing required by the PCT for PCT applications
filed in a language other than English. Creating a
procedure under the PCT to provide for the initial
filing of a non-English-language PCT application and
later filing of an English-language translation for the
purpose of subsequent review and processing would,
under the provisions of the PCT and PCT Regulations,
result in the resetting of the International Filing
Date to the later date of submission of the English-
language translation of the non-English-language PCT
application.\203\
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\203\Changes to Implement the Patent Law Treaty, 78 Fed. Reg.
62368, 62390 (Oct. 21, 2013).
This paragraph repeals PLTIA Sec. 202(b)(7)'s amendments to
35 U.S.C. Sec. 361(c), thereby relieving the United States
Receiving Office of its authority to review PCT applications
for errors and process requests for incorporation by reference
in a language other than English.
(9) global worksharing
This paragraph amends Sec. 122 to allow the USPTO to share
information about a pending application with a foreign or
international intellectual property office if a corresponding
application has been filed with such office.
(10) jurisdiction for appeals of trademark cases
This paragraph gives the U.S. Court of Appeals for the
Federal Circuit exclusive jurisdiction over appeals of
trademark registrability decisions under Sec. 21(b) of the
Lanham Act. Inter partes trademark cases (i.e., challenges to
trademarks brought by private parties) can still be brought in
any appropriate district. While Federal Circuit law will govern
the registrability determinations in such cases, if
infringement or other claims are joined to the Sec. 21(b)
claim, regional circuit law will continue to govern those
additional claims and any equitable or monetary relief in such
cases.\204\ Centralizing appeals of Sec. 21(b) actions in the
Federal Circuit will end current law's practice of subjecting
examiner's registrability decisions to the inconsistent and
conflicting standards adopted by the regional circuits with
regard to issues such as the relevance of evidence of
marketplace conditions that may conflict with facts set forth
on the application or registration involved, and what set of
factors governs the likelihood-of-confusion analysis.
---------------------------------------------------------------------------
\204\See Payless Shoesource, Inc. v. Reebok Int'l Ltd., 998 F.2d
985, 988-89 (Fed. Cir. 1993).
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(11) officers and employees
This paragraph's amendment to Sec. 3 of title 35 clarifies
that in addition to appointing officers to carry out the
functions of the Office, the Director may nominate officers for
appointment by the Secretary of Commerce to carry out such
functions. By specifying that the Secretary of Commerce has
statutory authority to appoint officers nominated by the
Director, the amendment provides a clear mechanism for
obtaining constitutional appointments for officers whose duties
would make them ``inferior officers'' under the Constitution's
Appointments Clause.
(i) extension of fee-setting authority
This subsection extends by an additional 10 years the
USPTO's authority to adjust its own fees that was created by
Sec. 10(a) of the Leahy-Smith America Invents Act, Pub. L. No.
112-29 (2011).
Section 10. Effective date.
Except as otherwise provided in this Act, the amendments
made by the Act shall be effective upon enactment of the Act,
and shall apply to any patent issued or any action filed on or
after such effective date.
Agency Views
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, and existing law in which no
change is proposed is shown in roman):
TITLE 35, UNITED STATES CODE
* * * * * * *
PART I--UNITED STATES PATENT AND TRADEMARK OFFICE
* * * * * * *
CHAPTER
* * * * * * *
Sec. 3. Officers and employees
(a) Under Secretary and Director.--
(1) In general.--The powers and duties of the
United States Patent and Trademark Office shall be
vested in an Under Secretary of Commerce for
Intellectual Property and Director of the United States
Patent and Trademark Office (in this title referred to
as the ``Director''), who shall be a citizen of the
United States and who shall be appointed by the
President, by and with the advice and consent of the
Senate. The Director shall be a person who has a
professional background and experience in patent or
trademark law.
(2) Duties.--
(A) In general.--The Director shall be
responsible for providing policy direction and
management supervision for the Office and for
the issuance of patents and the registration of
trademarks. The Director shall perform these
duties in a fair, impartial, and equitable
manner.
(B) Consulting with the public advisory
committees.--The Director shall consult with
the Patent Public Advisory Committee
established in section 5 on a regular basis on
matters relating to the patent operations of
the Office, shall consult with the Trademark
Public Advisory Committee established in
section 5 on a regular basis on matters
relating to the trademark operations of the
Office, and shall consult with the respective
Public Advisory Committee before submitting
budgetary proposals to the Office of Management
and Budget or changing or proposing to change
patent or trademark user fees or patent or
trademark regulations which are subject to the
requirement to provide notice and opportunity
for public comment under section 553 of title
5, as the case may be.
(3) Oath.--The Director shall, before taking
office, take an oath to discharge faithfully the duties
of the Office.
(4) Removal.--The Director may be removed from
office by the President. The President shall provide
notification of any such removal to both Houses of
Congress.
(b) Officers and Employees of the Office.--
(1) Deputy under secretary and deputy director.--
The Secretary of Commerce, upon nomination by the
Director, shall appoint a Deputy Under Secretary of
Commerce for Intellectual Property and Deputy Director
of the United States Patent and Trademark Office who
shall [be vested with the authority to act in the
capacity of the] serve as Acting, Director in the event
of the absence or incapacity of the Director or in the
event of a vacancy in the office of the Director. The
Deputy Director shall be a citizen of the United States
who has a professional background and experience in
patent or trademark law.
(2) Commissioners.--
(A) Appointment and duties.--The Secretary
of Commerce shall appoint a Commissioner for
Patents and a Commissioner for Trademarks,
without regard to chapter 33, 51, or 53 of
title 5. The Commissioner for Patents shall be
a citizen of the United States with
demonstrated management ability and
professional background and experience in
patent law and serve for a term of 5 years. The
Commissioner for Trademarks shall be a citizen
of the United States with demonstrated
management ability and professional background
and experience in trademark law and serve for a
term of 5 years. The Commissioner for Patents
and the Commissioner for Trademarks shall serve
as the chief operating officers for the
operations of the Office relating to patents
and trademarks, respectively, and shall be
responsible for the management and direction of
all aspects of the activities of the Office
that affect the administration of patent and
trademark operations, respectively. The
Secretary may reappoint a Commissioner to
subsequent terms of 5 years as long as the
performance of the Commissioner as set forth in
the performance agreement in subparagraph (B)
is satisfactory.
(B) Salary and performance agreement.--The
Commissioners shall be paid an annual rate of
basic pay not to exceed the maximum rate of
basic pay for the Senior Executive Service
established under section 5382 of title 5,
including any applicable locality-based
comparability payment that may be authorized
under section 5304(h)(2)(C) of title 5. The
compensation of the Commissioners shall be
considered, for purposes of section
207(c)(2)(A) of title 18, to be the equivalent
of that described under clause (ii) of section
207(c)(2)(A) of title 18. In addition, the
Commissioners may receive a bonus in an amount
of up to, but not in excess of, 50 percent of
the Commissioners' annual rate of basic pay,
based upon an evaluation by the Secretary of
Commerce, acting through the Director, of the
Commissioners' performance as defined in an
annual performance agreement between the
Commissioners and the Secretary. The annual
performance agreements shall incorporate
measurable organization and individual goals in
key operational areas as delineated in an
annual performance plan agreed to by the
Commissioners and the Secretary. Payment of a
bonus under this subparagraph may be made to
the Commissioners only to the extent that such
payment does not cause the Commissioners' total
aggregate compensation in a calendar year to
equal or exceed the amount of the salary of the
Vice President under section 104 of title 3.
(C) Removal.--The Commissioners may be
removed from office by the Secretary for
misconduct or nonsatisfactory performance under
the performance agreement described in
subparagraph (B), without regard to the
provisions of title 5. The Secretary shall
provide notification of any such removal to
both Houses of Congress.
(3) Other officers and employees.--The Director
shall--
(A) [appoint] appoint, or nominate for
appointment by the Secretary of Commerce, such
officers, employees (including attorneys), and
agents of the Office as the Director considers
necessary to carry out the functions of the
Office; and
(B) define the title, authority, and duties
of such officers and employees and delegate to
them such of the powers vested in the Office as
the Director may determine.
The Office shall not be subject to any administratively
or statutorily imposed limitation on positions or
personnel, and no positions or personnel of the Office
shall be taken into account for purposes of applying
any such limitation.
(4) Training of examiners.--The Office shall submit
to the Congress a proposal to provide an incentive
program to retain as employees patent and trademark
examiners of the primary examiner grade or higher who
are eligible for retirement, for the sole purpose of
training patent and trademark examiners.
(5) National security positions.--The Director, in
consultation with the Director of the Office of
Personnel Management, shall maintain a program for
identifying national security positions and providing
for appropriate security clearances, in order to
maintain the secrecy of certain inventions, as
described in section 181, and to prevent disclosure of
sensitive and strategic information in the interest of
national security.
(6) Administrative patent judges and administrative
trademark judges.--The Director may fix the rate of
basic pay for the administrative patent judges
appointed pursuant to section 6 and the administrative
trademark judges appointed pursuant to section 17 of
the Trademark Act of 1946 (15 U.S.C. 1067) at not
greater than the rate of basic pay payable for level
III of the Executive Schedule under section 5314 of
title 5. The payment of a rate of basic pay under this
paragraph shall not be subject to the pay limitation
under section 5306(e) or 5373 of title 5.
(c) Continued Applicability of Title 5.--Officers and
employees of the Office shall be subject to the provisions of
title 5, relating to Federal employees.
(d) Adoption of Existing Labor Agreements.--The Office
shall adopt all labor agreements which are in effect, as of the
day before the effective date of the Patent and Trademark
Office Efficiency Act, with respect to such Office (as then in
effect).
(e) Carryover of Personnel.--
(1) From pto.--Effective as of the effective date
of the Patent and Trademark Office Efficiency Act, all
officers and employees of the Patent and Trademark
Office on the day before such effective date shall
become officers and employees of the Office, without a
break in service.
(2) Other personnel.--Any individual who, on the
day before the effective date of the Patent and
Trademark Office Efficiency Act, is an officer or
employee of the Department of Commerce (other than an
officer or employee under paragraph (1)) shall be
transferred to the Office, as necessary to carry out
the purposes of that Act, if--
(A) such individual serves in a position
for which a major function is the performance
of work reimbursed by the Patent and Trademark
Office, as determined by the Secretary of
Commerce;
(B) such individual serves in a position
that performed work in support of the Patent
and Trademark Office during at least half of
the incumbent's work time, as determined by the
Secretary of Commerce; or
(C) such transfer would be in the interest
of the Office, as determined by the Secretary
of Commerce in consultation with the Director.
Any transfer under this paragraph shall be effective as
of the same effective date as referred to in paragraph
(1), and shall be made without a break in service.
(f) Transition Provisions.--
(1) Interim appointment of director.--On or after
the effective date of the Patent and Trademark Office
Efficiency Act, the President shall appoint an
individual to serve as the Director until the date on
which a Director qualifies under subsection (a). The
President shall not make more than one such appointment
under this subsection.
(2) Continuation in office of certain officers.--
(A) The individual serving as the Assistant
Commissioner for Patents on the day before the
effective date of the Patent and Trademark Office
Efficiency Act may serve as the Commissioner for
Patents until the date on which a Commissioner for
Patents is appointed under subsection (b).
(B) The individual serving as the Assistant
Commissioner for Trademarks on the day before the
effective date of the Patent and Trademark Office
Efficiency Act may serve as the Commissioner for
Trademarks until the date on which a Commissioner for
Trademarks is appointed under subsection (b).
* * * * * * *
CHAPTER 3--PRACTICE BEFORE PATENT AND TRADEMARK OFFICE
* * * * * * *
Sec. 32. Suspension or exclusion from practice
The Director may, after notice and opportunity for a
hearing, suspend or exclude, either generally or in any
particular case, from further practice before the Patent and
Trademark Office, any person, agent, or attorney shown to be
incompetent or disreputable, or guilty of gross misconduct, or
who does not comply with the regulations established under
section 2(b)(2)(D), or who shall, by word, circular, letter, or
advertising, with intent to defraud in any manner, deceive,
mislead, or threaten any applicant or prospective applicant, or
other person having immediate or prospective business before
the Office. The reasons for any such suspension or exclusion
shall be duly recorded. The Director shall have the discretion
to designate any attorney who is an officer or employee of the
United States Patent and Trademark Office to conduct the
hearing required by this section. [A proceeding under this
section shall be commenced not later than the earlier of either
the date that is 10 years after the date on which the
misconduct forming the basis for the proceeding occurred, or 1
year after the date on which the misconduct forming the basis
for the proceeding is made known to an officer or employee of
the Office as prescribed in the regulations established under
section 2(b)(2)(D).] A proceeding under this section shall be
commenced not later than the earlier of either the date that is
10 years after the date on which the misconduct forming the
basis for the proceeding occurred, or 18 months after the date
on which the Director of the Office of Enrollment and
Discipline received a written grievance (as prescribed in the
regulations established under section 2(b)(2)(D)) about a
specified individual that describes the misconduct forming the
basis for the proceeding. If the misconduct that forms the
basis for the proceeding under this section is at issue in a
court or administrative-agency proceeding, the 18-month period
for commencing the proceeding under this section shall be
tolled until the court or agency's decision regarding the
misconduct becomes final and non-appealable. The 18-month
period for commencing a proceeding under this section also may
be tolled by agreement between the parties. The United States
District Court for the Eastern District of Virginia, under such
conditions and upon such proceedings as it by its rules
determines, may review the action of the Director upon the
petition of the person so refused recognition or so suspended
or excluded.
* * * * * * *
PART II--PATENTABILITY OF INVENTIONS AND GRANT OF PATENTS
* * * * * * *
CHAPTER 10--PATENTABILITY OF INVENTIONS
* * * * * * *
Sec. 102. Conditions for patentability; novelty
(a) Novelty; Prior Art.--A person shall be entitled to a
patent unless--
(1) the claimed invention was patented, described
in a printed publication, or in public use, on sale, or
otherwise available to the public before the effective
filing date of the claimed invention; or
(2) the claimed invention was described in a patent
issued under section 151, or in an application for
patent published or deemed published under section
122(b), in which the patent or application, as the case
may be, names another inventor and was effectively
filed before the effective filing date of the claimed
invention.
(b) Exceptions.--
(1) Disclosures made 1 year or less before the
effective filing date of the claimed invention.--A
disclosure made 1 year or less before the effective
filing date of a claimed invention shall not be prior
art to the claimed invention under subsection (a)(1)
if--
(A) the disclosure was made by [the
inventor or joint inventor or by another] the
inventor or a joint inventor or another who
obtained the subject matter disclosed directly
or indirectly from the inventor or a joint
inventor; or
(B) the subject matter disclosed had,
before such disclosure, been publicly disclosed
by the inventor or a joint inventor or another
who obtained the subject matter disclosed
directly or indirectly from the inventor or a
joint inventor.
(2) Disclosures appearing in applications and
patents.--A disclosure shall not be prior art to a
claimed invention under subsection (a)(2) if--
(A) the subject matter disclosed was
obtained directly or indirectly from the
inventor or a joint inventor;
(B) the subject matter disclosed had,
before such subject matter was effectively
filed under subsection (a)(2), been publicly
disclosed by the inventor or a joint inventor
or another who obtained the subject matter
disclosed directly or indirectly from the
inventor or a joint inventor; or
(C) the subject matter disclosed and the
claimed invention, not later than the effective
filing date of the claimed invention, were
owned by the same person or subject to an
obligation of assignment to the same person.
(c) Common Ownership Under Joint Research Agreements.--
Subject matter disclosed and a claimed invention shall be
deemed to have been owned by the same person or subject to an
obligation of assignment to the same person in applying the
provisions of subsection (b)(2)(C) if--
(1) the subject matter disclosed was developed and
the claimed invention was made by, or on behalf of, 1
or more parties to a joint research agreement that was
in effect on or before the effective filing date of the
claimed invention;
(2) the claimed invention was made as a result of
activities undertaken within the scope of the joint
research agreement; and
(3) the application for patent for the claimed
invention discloses or is amended to disclose the names
of the parties to the joint research agreement.
(d) Patents and Published Applications Effective as Prior
Art.--For purposes of determining whether a patent or
application for patent is prior art to a claimed invention
under subsection (a)(2), such patent or application shall be
considered to have been effectively filed, with respect to any
subject matter described in the patent or application--
(1) if paragraph (2) does not apply, as of the
actual filing date of the patent or the application for
patent; or
(2) if the patent or application for patent is
entitled to claim a right of priority under section
119, 365(a), or 365(b), or to claim the benefit of an
earlier filing date under section 120, 121, or 365(c),
based upon 1 or more prior filed applications for
patent, as of the filing date of the earliest such
application that describes the subject matter.
(e) Double-patenting Prior Art.--If a first claimed
invention in a first patent was effectively filed on or before
the effective filing date of a second claimed invention in a
second patent or in the application on which the second patent
issues, and the first claimed invention is not otherwise prior
art to the second claimed invention under this section, then
the first claimed invention shall, notwithstanding the other
subsections of this section, constitute prior art to the second
claimed invention under this subsection unless--
(1) the second claimed invention is consonant with
a requirement for restriction under the first sentence
of section 121 with respect to the claims issued in the
first patent; or
(2) an election has been recorded in the Office by
the owner of the second patent or the application on
which the second patent issues disclaiming the right to
bring or maintain a civil action under section 281 to
enforce the second patent, except that such disclaimer
shall not apply if--
(A) the relief being sought in the civil
action would not constitute a cause of action
barred by res judicata had the asserted claims
of the second patent been issued in the first
patent; and
(B) the owner of the first patent or the
application on which the first patent issues
has recorded an election limiting the
enforcement of the first patent relative to the
second patent in the manner described in this
paragraph, the owner of the first patent is a
party to the civil action, or a separate action
under section 281 to enforce the first patent
can no longer be brought or maintained.
* * * * * * *
CHAPTER 11--APPLICATION FOR PATENT
* * * * * * *
Sec. 115. Inventor's oath or declaration
(a) Naming the Inventor; Inventor's Oath or Declaration.--
An application for patent that is filed under section 111(a) or
commences the national stage under section 371 shall include,
or be amended to include, the name of the inventor for any
invention claimed in the application. Except as otherwise
provided in this section, each individual who is the inventor
or a joint inventor of a claimed invention in an application
for patent [shall execute] may be required to execute an oath
or declaration in connection with the application.
(b) Required Statements.--An oath or declaration under
subsection (a) shall contain statements that--
(1) the application was made or was authorized to
be made by the affiant or declarant; and
(2) such individual believes himself or herself to
be the original inventor or an original joint inventor
of a claimed invention in the application.
(c) Additional Requirements.--The Director may specify
additional information relating to the inventor and the
invention that is required to be included in an oath or
declaration under subsection (a).
(d) Substitute Statement.--
(1) In general.--In lieu of executing an oath or
declaration under subsection (a), the applicant for
patent may provide a substitute statement under the
circumstances described in paragraph (2) and such
additional circumstances that the Director may specify
by regulation.
(2) Permitted circumstances.--A substitute
statement under paragraph (1) is permitted with respect
to any individual who--
(A) is unable to file the oath or
declaration under subsection (a) because the
individual--
(i) is deceased;
(ii) is under legal incapacity; or
(iii) cannot be found or reached
after diligent effort; or
(B) is under an obligation to assign the
invention but has refused to make the oath or
declaration required under subsection (a).
(3) Contents.--A substitute statement under this
subsection shall--
(A) identify the individual with respect to
whom the statement applies;
(B) set forth the circumstances
representing the permitted basis for the filing
of the substitute statement in lieu of the oath
or declaration under subsection (a); and
(C) contain any additional information,
including any showing, required by the
Director.
(e) Making Required Statements in Assignment of Record.--An
individual who is under an obligation of assignment of an
application for patent may include the required statements
under subsections (b) and (c) in the assignment executed by the
individual, in lieu of filing such statements separately.
(f) Time for Filing.--The applicant for patent shall
provide each required oath or declaration under subsection (a),
substitute statement under subsection (d), or recorded
assignment meeting the requirements of subsection (e) no later
than the date on which the issue fee for the patent is paid.
(g) Earlier-Filed Application Containing Required
Statements or Substitute Statement.--
(1) Exception.--The requirements under this section
shall not apply to an individual with respect to an
application for patent in which the individual is named
as the inventor or a joint inventor and that claims the
benefit under section 120, 121, or 365(c) of the filing
of an earlier-filed application, if--
(A) an oath or declaration meeting the
requirements of subsection (a) was executed by
the individual and was filed in connection with
the earlier-filed application;
(B) a substitute statement meeting the
requirements of subsection (d) was filed in
connection with the earlier filed application
with respect to the individual; or
(C) an assignment meeting the requirements
of subsection (e) was executed with respect to
the earlier-filed application by the individual
and was recorded in connection with the
earlier-filed application.
(2) Copies of oaths, declarations, statements, or
assignments.--Notwithstanding paragraph (1), the
Director may require that a copy of the executed oath
or declaration, the substitute statement, or the
assignment filed in connection with the earlier-filed
application be included in the later-filed application.
(h) Supplemental and Corrected Statements; Filing
Additional Statements.--
(1) In general.--Any person making a statement
required under this section may withdraw, replace, or
otherwise correct the statement at any time. If a
change is made in the naming of the inventor requiring
the filing of 1 or more additional statements under
this section, the Director shall establish regulations
under which such additional statements may be filed.
(2) Supplemental statements not required.--If an
individual has executed an oath or declaration meeting
the requirements of subsection (a) or an assignment
meeting the requirements of subsection (e) with respect
to an application for patent, the Director may not
thereafter require that individual to make any
additional oath, declaration, or other statement
equivalent to those required by this section in
connection with the application for patent or any
patent issuing thereon.
(3) Savings clause.--A patent shall not be invalid
or unenforceable based upon the failure to comply with
a requirement under this section if the failure is
remedied as provided under paragraph (1).
(i) Acknowledgment of Penalties.--Any declaration or
statement filed pursuant to this section shall contain an
acknowledgment that any willful false statement made in such
declaration or statement is punishable under section 1001 of
title 18 by fine or imprisonment of not more than 5 years, or
both.
* * * * * * *
Sec. 119. Benefit of earlier filing date; right of priority
(a) An application for patent for an invention filed in
this country by any person who has, or whose legal
representatives or assigns have, previously regularly filed an
application for a patent for the same invention in a foreign
country which affords similar privileges in the case of
applications filed in the United States or to citizens of the
United States, or in a WTO member country, shall have the same
effect as the same application would have if filed in this
country on the date on which the application for patent for the
same invention was first filed in such foreign country, if the
application in this country is filed within 12 months from the
earliest date on which such foreign application was filed. The
Director may prescribe regulations, including the requirement
for payment of the fee specified in section 41(a)(7), pursuant
to which the 12-month period set forth in this subsection may
be extended by an additional 2 months if the delay in filing
the application in this country within the 12-month period was
unintentional.
(b)(1) No application for patent shall be entitled to this
right of priority unless a claim is filed in the Patent and
Trademark Office, identifying the foreign application by
specifying the application number on that foreign application,
the intellectual property authority or country in or for which
the application was filed, and the date of filing the
application, at such time during the pendency of the
application as required by the Director.
(2) The Director may consider the failure of the applicant
to file a timely claim for priority as a waiver of any such
claim. The Director may establish procedures, including the
payment of a surcharge, to accept an unintentionally delayed
claim under this section.
(3) The Director may require a certified copy of the
original foreign application, specification, and drawings upon
which it is based, a translation if not in the English
language, and such other information as the Director considers
necessary. Any such certification shall be made by the foreign
intellectual property authority in which the foreign
application was filed and show the date of the application and
of the filing of the specification and other papers.
(c) In like manner and subject to the same conditions and
requirements, the right provided in this section may be based
upon a subsequent regularly filed application in the same
foreign country instead of the first filed foreign application,
provided that any foreign application filed prior to such
subsequent application has been withdrawn, abandoned, or
otherwise disposed of, without having been laid open to public
inspection and without leaving any rights outstanding, and has
not served, nor thereafter shall serve, as a basis for claiming
a right of priority.
(d) Applications for inventors' certificates filed in a
foreign country in which applicants have a right to apply, at
their discretion, either for a patent or for an inventor's
certificate shall be treated in this country in the same manner
and have the same effect for purpose of the right of priority
under this section as applications for patents, subject to the
same conditions and requirements of this section as apply to
applications for patents, provided such applicants are entitled
to the benefits of the Stockholm Revision of the Paris
Convention at the time of such filing.
(e)(1) An application for patent filed under section 111(a)
or section 363 for an invention disclosed in the manner
provided by section 112(a) (other than the requirement to
disclose the best mode) in a provisional application filed
under section 111(b), [by an inventor or inventors named] that
names the inventor or a joint inventor in the provisional
application, shall have the same effect, as to such invention,
as though filed on the date of the provisional application
filed under section 111(b), if the application for patent filed
under section 111(a) or section 363 is filed not later than 12
months after the date on which the provisional application was
filed and if it contains or is amended to contain a specific
reference to the provisional application. The Director may
prescribe regulations, including the requirement for payment of
the fee specified in section 41(a)(7), pursuant to which the
12-month period set forth in this subsection may be extended by
an additional 2 months if the delay in filing the application
under section 111(a) or section 363 within the 12-month period
was unintentional. No application shall be entitled to the
benefit of an earlier filed provisional application under this
subsection unless an amendment containing the specific
reference to the earlier filed provisional application is
submitted at such time during the pendency of the application
as required by the Director. The Director may consider the
failure to submit such an amendment within that time period as
a waiver of any benefit under this subsection. The Director may
establish procedures, including the payment of the fee
specified in section 41(a)(7), to accept an unintentionally
delayed submission of an amendment under this subsection.
(2) A provisional application filed under section 111(b)
may not be relied upon in any proceeding in the Patent and
Trademark Office unless the fee set forth in subparagraph (A)
or (C) of section 41(a)(1) has been paid.
(3) If the day that is 12 months after the filing
date of a provisional application falls on a Saturday,
Sunday, or Federal holiday within the District of
Columbia, the period of pendency of the provisional
application shall be extended to the next succeeding
secular or business day. For an application for patent
filed under section 363 in a Receiving Office other
than the Patent and Trademark Office, the 12-month and
additional 2-month period set forth in this subsection
shall be extended as provided under the treaty and
Regulations as defined in section 351.
(f) Applications for plant breeder's rights filed in a WTO
member country (or in a foreign UPOV Contracting Party) shall
have the same effect for the purpose of the right of priority
under subsections (a) through (c) of this section as
applications for patents, subject to the same conditions and
requirements of this section as apply to applications for
patents.
(g) As used in this section--
(1) the term ``WTO member country'' has the same
meaning as the term is defined in section 104(b)(2);
and
(2) the term ``UPOV Contracting Party'' means a
member of the International Convention for the
Protection of New Varieties of Plants.
Sec. 120. Benefit of earlier filing date in the United States
An application for patent for an invention disclosed in the
manner provided by section 112(a) (other than the requirement
to disclose the best mode) in an application previously filed
in the United States, or as provided by section 363, which
[names an inventor or joint inventor] names the inventor or a
joint inventor in the previously filed application shall have
the same effect, as to such invention, as though filed on the
date of the prior application, if filed before the patenting or
abandonment of or termination of proceedings on the first
application or on an application similarly entitled to the
benefit of the filing date of the first application and if it
contains or is amended to contain a specific reference to the
earlier filed application. No application shall be entitled to
the benefit of an earlier filed application under this section
unless an amendment containing the specific reference to the
earlier filed application is submitted at such time during the
pendency of the application as required by the Director. The
Director may consider the failure to submit such an amendment
within that time period as a waiver of any benefit under this
section. The Director may establish procedures, including the
payment of a surcharge, to accept an unintentionally delayed
submission of an amendment under this section.
Sec. 121. Divisional applications
If two or more independent and distinct inventions are
claimed in one application, the Director may require the
application to be restricted to one of the inventions. If the
other invention is made the subject of a divisional application
which complies with the requirements of section 120 it shall be
entitled to the benefit of the filing date of the original
application. [A patent issuing on an application with respect
to which a requirement for restriction under this section has
been made, or on an application filed as a result of such a
requirement, shall not be used as a reference either in the
Patent and Trademark Office or in the courts against a
divisional application or against the original application or
any patent issued on either of them, if the divisional
application is filed before the issuance of the patent on the
other application.] The validity of a patent shall not be
questioned for failure of the Director to require the
application to be restricted to one invention.
Sec. 122. Confidential status of applications; publication of patent
applications
(a) Confidentiality.--Except as provided in [subsection
(b)] subsections (b) and (f), applications for patents shall be
kept in confidence by the Patent and Trademark Office and no
information concerning the same given without authority of the
applicant or owner unless necessary to carry out the provisions
of an Act of Congress or in such special circumstances as may
be determined by the Director.
(b) Publication.--
(1) In general.--(A) Subject to paragraph (2), each
application for a patent shall be published, in
accordance with procedures determined by the Director,
promptly after the expiration of a period of 18 months
from the earliest filing date for which a benefit is
sought under this title. At the request of the
applicant, an application may be published earlier than
the end of such 18-month period.
(B) No information concerning published patent
applications shall be made available to the public
except as the Director determines.
(C) Notwithstanding any other provision of law, a
determination by the Director to release or not to
release information concerning a published patent
application shall be final and nonreviewable.
(2) Exceptions.--(A) An application shall not be
published if that application is--
(i) no longer pending;
(ii) subject to a secrecy order under
section 181;
(iii) a provisional application filed under
section 111(b); or
(iv) an application for a design patent
filed under chapter 16.
(B)(i) If an applicant makes a request upon filing,
certifying that the invention disclosed in the
application has not and will not be the subject of an
application filed in another country, or under a
multilateral international agreement, that requires
publication of applications 18 months after filing, the
application shall not be published as provided in
paragraph (1).
(ii) An applicant may rescind a request made under
clause (i) at any time.
(iii) An applicant who has made a request under
clause (i) but who subsequently files, in a foreign
country or under a multilateral international agreement
specified in clause (i), an application directed to the
invention disclosed in the application filed in the
Patent and Trademark Office, shall notify the Director
of such filing not later than 45 days after the date of
the filing of such foreign or international
application. A failure of the applicant to provide such
notice within the prescribed period shall result in the
application being regarded as abandoned, unless it is
shown to the satisfaction of the Director that the
delay in submitting the notice was unintentional.
(iv) If an applicant rescinds a request made under
clause (i) or notifies the Director that an application
was filed in a foreign country or under a multilateral
international agreement specified in clause (i), the
application shall be published in accordance with the
provisions of paragraph (1) on or as soon as is
practical after the date that is specified in clause
(i).
(v) If an applicant has filed applications in one
or more foreign countries, directly or through a
multilateral international agreement, and such foreign
filed applications corresponding to an application
filed in the Patent and Trademark Office or the
description of the invention in such foreign filed
applications is less extensive than the application or
description of the invention in the application filed
in the Patent and Trademark Office, the applicant may
submit a redacted copy of the application filed in the
Patent and Trademark Office eliminating any part or
description of the invention in such application that
is not also contained in any of the corresponding
applications filed in a foreign country. The Director
may only publish the redacted copy of the application
unless the redacted copy of the application is not
received within 16 months after the earliest effective
filing date for which a benefit is sought under this
title. The provisions of section 154(d) shall not apply
to a claim if the description of the invention
published in the redacted application filed under this
clause with respect to the claim does not enable a
person skilled in the art to make and use the subject
matter of the claim.
(c) Protest and Pre-Issuance Opposition.--The Director
shall establish appropriate procedures to ensure that no
protest or other form of pre-issuance opposition to the grant
of a patent on an application may be initiated after
publication of the application without the express written
consent of the applicant.
(d) National Security.--No application for patent shall be
published under subsection (b)(1) if the publication or
disclosure of such invention would be detrimental to the
national security. The Director shall establish appropriate
procedures to ensure that such applications are promptly
identified and the secrecy of such inventions is maintained in
accordance with chapter 17.
(e) Preissuance Submissions by Third Parties.--
(1) In general.--Any third party may submit for
consideration and inclusion in the record of a patent
application, any patent, published patent application,
or other printed publication of potential relevance to
the examination of the application, if such submission
is made in writing before the earlier of--
(A) the date a notice of allowance under
section 151 is given or mailed in the
application for patent; or
(B) the later of--
(i) 6 months after the date on
which the application for patent is
first published under section 122 by
the Office, or
(ii) the date of the first
rejection under section 132 of any
claim by the examiner during the
examination of the application for
patent.
(2) Other requirements.--Any submission under
paragraph (1) shall--
(A) set forth a concise description of the
asserted relevance of each submitted document;
(B) be accompanied by such fee as the
Director may prescribe; and
(C) include a statement by the person
making such submission affirming that the
submission was made in compliance with this
section.
(f) Foreign or International Filing.--
(1) Provision of information.--The Director may
provide information concerning an application for
patent to a foreign or international intellectual
property office if a corresponding application is filed
with such foreign or international intellectual
property office. If the corresponding application is an
international application, such information may also be
provided to an International Searching Authority, an
International Preliminary Examining Authority, or the
International Bureau.
(2) Definitions.--For purposes of this subsection,
the terms ``international application'',
``International Searching Authority'', ``International
Preliminary Examining Authority'', and ``International
Bureau'' have the same meaning given those terms under
section 351.
* * * * * * *
CHAPTER 14--ISSUE OF PATENT
* * * * * * *
Sec. 154. Contents and term of patent; provisional rights
(a) In General.--
(1) Contents.--Every patent shall contain a short
title of the invention and a grant to the patentee, his
heirs or assigns, of the right to exclude others from
making, using, offering for sale, or selling the
invention throughout the United States or importing the
invention into the United States, and, if the invention
is a process, of the right to exclude others from
using, offering for sale or selling throughout the
United States, or importing into the United States,
products made by that process, referring to the
specification for the particulars thereof.
(2) Term.--Subject to the payment of fees under
this title, such grant shall be for a term beginning on
the date on which the patent issues and ending 20 years
from the date on which the application for the patent
was filed in the United States or, if the application
contains a specific reference to an earlier filed
application or applications under section 120, 121, or
365(c), from the date on which the earliest such
application was filed.
(3) Priority.--Priority under section 119, 365(a),
or 365(b) shall not be taken into account in
determining the term of a patent.
(4) Specification and drawing.--A copy of the
specification and drawing shall be annexed to the
patent and be a part of such patent.
(b) Adjustment of Patent Term.--
(1) Patent term guarantees.--
(A) Guarantee of prompt patent and
trademark office responses.--Subject to the
limitations under paragraph (2), if the issue
of an original patent is delayed due to the
failure of the Patent and Trademark Office to--
(i) provide at least one of the
notifications under section 132 or a
notice of allowance under section 151
not later than 14 months after--
(I) the date on which an
application was filed under
section 111(a); or
(II) the date of
commencement of the national
stage under section 371 in an
international application;
(ii) respond to a reply under
section 132, or to an appeal taken
under section 134, within 4 months
after the date on which the reply was
filed or the appeal was taken;
(iii) act on an application within
4 months after the date of a decision
by the Patent Trial and Appeal Board
under section 134 or 135 or a decision
by a Federal court under section 141,
145, or 146 in a case in which
allowable claims remain in the
application; or
(iv) issue a patent within 4 months
after the date on which the issue fee
was paid under section 151 and all
outstanding requirements were
satisfied,
the term of the patent shall be extended 1 day
for each day after the end of the period
specified in clause (i), (ii), (iii), or (iv),
as the case may be, until the action described
in such clause is taken.
(B) Guarantee of no more than 3-year
application pendency.--Subject to the
limitations under paragraph (2), if the issue
of an original patent is delayed due to the
failure of the United States Patent and
Trademark Office to issue a patent within 3
years after the actual filing date of the
application under section 111(a) in the United
States or, in the case of an international
application, the date of commencement of the
national stage under section 371 in the
international application, not including--
(i) any time consumed by continued
examination of the application
requested by the applicant under
section 132(b);
(ii) any time consumed by a
proceeding under section 135(a), any
time consumed by the imposition of an
order under section 181, or any time
consumed by appellate review by the
Patent Trial and Appeal Board or by a
Federal court; or
(iii) any delay in the processing
of the application by the United States
Patent and Trademark Office requested
by the applicant except as permitted by
paragraph (3)(C),
the term of the patent shall be extended 1 day
for each day after the end of that 3-year
period until the patent is issued.
(C) Guarantee of adjustments for delays due
to derivation proceedings, secrecy orders, and
appeals.--Subject to the limitations under
paragraph (2), if the issue of an original
patent is delayed due to--
(i) a proceeding under section
135(a);
(ii) the imposition of an order
under section 181; or
(iii) appellate review by the
Patent Trial and Appeal Board or by a
Federal court in a case in which the
patent was issued under a decision in
the review reversing an adverse
determination of patentability,
the term of the patent shall be extended 1 day
for each day of the pendency of the proceeding,
order, or review, as the case may be.
(2) Limitations.--
(A) In general.--To the extent that periods
of delay attributable to grounds specified in
paragraph (1) overlap, the period of any
adjustment granted under this subsection shall
not exceed the actual number of days the
issuance of the patent was delayed.
(B) Disclaimed term.--No patent the term of
which has been disclaimed beyond a specified
date may be adjusted under this section beyond
the expiration date specified in the
disclaimer.
(C) Reduction of period of adjustment.--
(i) The period of adjustment of the
term of a patent under paragraph (1)
shall be reduced by a period equal to
the period of time during which the
applicant failed to engage in
reasonable efforts to conclude
prosecution of the application.
(ii) With respect to adjustments to
patent term made under the authority of
paragraph (1)(B), an applicant shall be
deemed to have failed to engage in
reasonable efforts to conclude
processing or examination of an
application for the cumulative total of
any periods of time in excess of 3
months that are taken to respond to a
notice from the Office making any
rejection, objection, argument, or
other request, measuring such 3-month
period from the date the notice was
given or mailed to the applicant.
(iii) The Director shall prescribe
regulations establishing the
circumstances that constitute a failure
of an applicant to engage in reasonable
efforts to conclude processing or
examination of an application.
(D) Patents subject to election.--If a
patent is subject to an election as described
in section 102(e)(2) with respect to one or
more other patents, the adjusted term of the
patent under this subsection may not exceed a
period of 17 years from the date of issuance of
any of such other patents and the portion of
any adjustment of the term of the patent under
this subsection that extends beyond the
expiration of such 17-year period years shall
be void.
(3) Procedures for patent term adjustment
determination.--
(A) The Director shall prescribe
regulations establishing procedures for the
application for and determination of patent
term adjustments under this subsection.
(B) Under the procedures established under
subparagraph (A), the Director shall--
(i) make a determination of the
period of any patent term adjustment
under this subsection, and shall
transmit a notice of that determination
no later than the date of issuance of
the patent; and
(ii) provide the applicant one
opportunity to request reconsideration
of any patent term adjustment
determination made by the Director.
(C) The Director shall reinstate all or
part of the cumulative period of time of an
adjustment under paragraph (2)(C) if the
applicant, prior to the issuance of the patent,
makes a showing that, in spite of all due care,
the applicant was unable to respond within the
3-month period, but in no case shall more than
three additional months for each such response
beyond the original 3-month period be
reinstated.
(D) The Director shall proceed to grant the
patent after completion of the Director's
determination of a patent term adjustment under
the procedures established under this
subsection, notwithstanding any appeal taken by
the applicant of such determination.
(4) Appeal of patent term adjustment
determination.--
(A) An applicant dissatisfied with the
Director's decision on the applicant's request
for reconsideration under paragraph (3)(B)(ii)
shall have exclusive remedy by a civil action
against the Director filed in the United States
District Court for the Eastern District of
Virginia within 180 days after the date of the
Director's decision on the applicant's request
for reconsideration. Chapter 7 of title 5 shall
apply to such action. Any final judgment
resulting in a change to the period of
adjustment of the patent term shall be served
on the Director, and the Director shall
thereafter alter the term of the patent to
reflect such change.
(B) The determination of a patent term
adjustment under this subsection shall not be
subject to appeal or challenge by a third party
prior to the grant of the patent.
(c) Continuation.--
(1) Determination.--The term of a patent that is in
force on or that results from an application filed
before the date that is 6 months after the date of the
enactment of the Uruguay Round Agreements Act shall be
the greater of the 20-year term as provided in
subsection (a), or 17 years from grant, subject to any
terminal disclaimers.
(2) Remedies.--The remedies of sections 283, 284,
and 285 shall not apply to acts which--
(A) were commenced or for which substantial
investment was made before the date that is 6
months after the date of the enactment of the
Uruguay Round Agreements Act; and
(B) became infringing by reason of
paragraph (1).
(3) Remuneration.--The acts referred to in
paragraph (2) may be continued only upon the payment of
an equitable remuneration to the patentee that is
determined in an action brought under chapter 28 and
chapter 29 (other than those provisions excluded by
paragraph (2)).
(d) Provisional Rights.--.--
(1) In general.--In addition to other rights
provided by this section, a patent shall include the
right to obtain a reasonable royalty from any person
who, during the period beginning on the date of
publication of the application for such patent under
section 122(b), or in the case of an international
application filed under the treaty defined in section
351(a) designating the United States under Article
21(2)(a) of such treaty, the date of publication of the
application, and ending on the date the patent is
issued--
(A)(i) makes, uses, offers for sale, or
sells in the United States the invention as
claimed in the published patent application or
imports such an invention into the United
States; or
(ii) if the invention as claimed in the
published patent application is a process,
uses, offers for sale, or sells in the United
States or imports into the United States
products made by that process as claimed in the
published patent application; and
(B) had actual notice of the published
patent application and, in a case in which the
right arising under this paragraph is based
upon an international application designating
the United States that is published in a
language other than English, had a translation
of the international application into the
English language.
(2) Right based on substantially identical
inventions.--The right under paragraph (1) to obtain a
reasonable royalty shall not be available under this
subsection unless the invention as claimed in the
patent is substantially identical to the invention as
claimed in the published patent application.
(3) Time limitation on obtaining a reasonable
royalty.--The right under paragraph (1) to obtain a
reasonable royalty shall be available only in an action
brought not later than 6 years after the patent is
issued. The right under paragraph (1) to obtain a
reasonable royalty shall not be affected by the
duration of the period described in paragraph (1).
(4) Requirements for international applications.--
(A) Effective date.--The right under
paragraph (1) to obtain a reasonable royalty
based upon the publication under the treaty
defined in section 351(a) of an international
application designating the United States shall
commence on the date of publication under the
treaty of the international application, or, if
the publication under the treaty of the
international application is in a language
other than English, on the date on which the
Patent and Trademark Office receives a
translation of the publication in the English
language.
(B) Copies.--The Director may require the
applicant to provide a copy of the
international application and a translation
thereof.
* * * * * * *
PART III--PATENTS AND PROTECTION OF PATENT RIGHTS
* * * * * * *
CHAPTER 28--INFRINGEMENT OF PATENTS
* * * * * * *
Sec. 273. Defense to infringement based on prior commercial use
(a) In General.--A person shall be entitled to a defense
under section 282(b) with respect to subject matter consisting
of a process, or consisting of a machine, manufacture, or
composition of matter used in a manufacturing or other
commercial process, that would otherwise infringe a claimed
invention being asserted against the person if--
(1) such person, acting in good faith, commercially
used the subject matter in the United States, either in
connection with an internal commercial use or an actual
arm's length sale or other arm's length commercial
transfer of a useful end result of such commercial use;
and
(2) such commercial use occurred at least 1 year
before the earlier of either--
(A) the effective filing date of the
claimed invention; or
(B) the date on which the claimed invention
was disclosed to the public in a manner that
qualified for the exception from prior art
under section 102(b).
(b) Burden of Proof.--A person asserting a defense under
this section shall have the burden of establishing the defense
by clear and convincing evidence.
(c) Additional Commercial Uses.--
(1) Premarketing regulatory review.--Subject matter
for which commercial marketing or use is subject to a
premarketing regulatory review period during which the
safety or efficacy of the subject matter is
established, including any period specified in section
156(g), shall be deemed to be commercially used for
purposes of subsection (a)(1) during such regulatory
review period.
(2) Nonprofit laboratory use.--A use of subject
matter by a nonprofit research laboratory or other
nonprofit entity, such as a university or hospital, for
which the public is the intended beneficiary, shall be
deemed to be a commercial use for purposes of
subsection (a)(1), except that a defense under this
section may be asserted pursuant to this paragraph only
for continued and noncommercial use by and in the
laboratory or other nonprofit entity.
(d) Exhaustion of Rights.--Notwithstanding subsection
(e)(1), the sale or other disposition of a useful end result by
a person entitled to assert a defense under this section in
connection with a patent with respect to that useful end result
shall exhaust the patent owner's rights under the patent to the
extent that such rights would have been exhausted had such sale
or other disposition been made by the patent owner.
(e) Limitations and Exceptions.--
(1) Personal defense.--
(A) In general.--A defense under this
section may be asserted only by the person who
performed or directed the performance of the
commercial use described in subsection (a), or
by an entity that controls, is controlled by,
or is under common control with such person.
(B) Transfer of right.--Except for any
transfer to the patent owner, the right to
assert a defense under this section shall not
be licensed or assigned or transferred to
another person except as an ancillary and
subordinate part of a good-faith assignment or
transfer for other reasons of the entire
enterprise or line of business to which the
defense relates.
(C) Restriction on sites.--A defense under
this section, when acquired by a person as part
of an assignment or transfer described in
subparagraph (B), may only be asserted for uses
at sites where the subject matter that would
otherwise infringe a claimed invention is in
use before the later of the effective filing
date of the claimed invention or the date of
the assignment or transfer of such enterprise
or line of business.
(2) Derivation.--A person may not assert a defense
under this section if the subject matter on which the
defense is based was derived from the patentee or
persons in privity with the patentee.
(3) Not a general license.--The defense asserted by
a person under this section is not a general license
under all claims of the patent at issue, but extends
only to the specific subject matter for which it has
been established that a commercial use that qualifies
under this section occurred, except that the defense
shall also extend to variations in the quantity or
volume of use of the claimed subject matter, and to
improvements in the claimed subject matter that do not
infringe additional specifically claimed subject matter
of the patent.
(4) Abandonment of use.--A person who has abandoned
commercial use (that qualifies under this section) of
subject matter may not rely on activities performed
before the date of such abandonment in establishing a
defense under this section with respect to actions
taken on or after the date of such abandonment.
(5) University exception.--
(A) In general.--A person commercially
using subject matter to which subsection (a)
applies may not assert a defense under this
section if the claimed invention with respect
to which the defense is asserted was, at the
time the invention was made, owned or subject
to an obligation of assignment to either an
institution of higher education (as defined in
section 101(a) of the Higher Education Act of
1965 (20 U.S.C. 1001(a)), or a technology
transfer organization whose primary purpose is
to facilitate the commercialization of
technologies developed by one or more such
institutions of higher education.
(B) Exception.--Subparagraph (A) shall not
apply if any of the activities required to
reduce to practice the subject matter of the
claimed invention could not have been
undertaken using funds provided by the Federal
Government.
[(f) Unreasonable Assertion of Defense.--If the defense
under this section is pleaded by a person who is found to
infringe the patent and who subsequently fails to demonstrate a
reasonable basis for asserting the defense, the court shall
find the case exceptional for the purpose of awarding attorney
fees under section 285.
[(g) Invalidity.--A patent shall not be deemed to be
invalid under section 102 or 103 solely because a defense is
raised or established under this section.]
* * * * * * *
CHAPTER 29--REMEDIES FOR INFRINGEMENT OF PATENT, AND OTHER ACTIONS
Sec.
281. Remedy for infringement of patent.
281A. Pleading requirements for patent infringement actions.
281B. Stay of discovery pending a preliminary motion.
* * * * * * *
[285. Attorney fees.]
285. Fees and other expenses.
* * * * * * *
[290. Notice of patent suits.]
290. Notice of patent suits; disclosure of interests.
* * * * * * *
[296. Liability of States, instrumentalities of States, and State
officials for infringement of patents.]
296. Stay of action against customer.
* * * * * * *
Sec. 281A. Pleading requirements for patent infringement actions
(a) Pleading Requirements.--Except as provided in
subsection (b), in a civil action in which a party asserts a
claim for relief arising under any Act of Congress relating to
patents, a party alleging infringement shall include in the
initial complaint, counterclaim, or cross-claim for patent
infringement, unless the information is not reasonably
accessible to such party, the following:
(1) An identification of each patent allegedly
infringed.
(2) An identification of all claims necessary to
produce the identification (under paragraph (3)) of
each process, machine, manufacture, or composition of
matter (referred to in this section as an `accused
instrumentality') that is alleged to infringe any claim
of each patent that is identified under paragraph (1).
(3) For each claim identified under paragraph (2),
an identification of each accused instrumentality
alleged to infringe the claim.
(4) For each accused instrumentality identified
under paragraph (3), an identification with
particularity, if known, of--
(A) the name or model number (or a
representative model number) of each accused
instrumentality; or
(B) if there is no name or model number, a
description of each accused instrumentality.
(5) For each accused instrumentality identified
under paragraph (3), a clear and concise statement of--
(A) where each element of each claim
identified under paragraph (2) is found within
the accused instrumentality; and
(B) with detailed specificity, how each
limitation of each claim identified under
paragraph (2) is met by the accused
instrumentality.
(6) For each claim of indirect infringement, a
description of the acts of the alleged indirect
infringer that contribute to or are inducing the direct
infringement.
(7) A description of the authority of the party
alleging infringement to assert each patent identified
under paragraph (1) and of the grounds for the court's
jurisdiction.
(b) Information Not Readily Accessible.--If information
required to be disclosed under subsection (a) is not readily
accessible to a party after an inquiry reasonable under the
circumstances, as required by Rule 11 of the Federal Rules of
Civil Procedure, that information may instead be generally
described, along with an explanation of why such undisclosed
information was not readily accessible, and of any efforts made
by such party to access such information.
(c) Amendment of Pleadings.--Nothing in this section shall
be construed to affect a party's ability to amend pleadings as
specified in the Federal Rules of Civil Procedure. Amendments
permitted by the court are subject to the pleading requirements
set forth in this section.
(d) Confidential Information.--A party required to disclose
information described under subsection (a) may file, under
seal, information believed to be confidential, with a motion
setting forth good cause for such sealing. If such motion is
denied by the court, the party may seek to file an amended
complaint.
(e) Exemption.--A civil action that includes a claim for
relief arising under section 271(e)(2) shall not be subject to
the requirements of subsection (a).
Sec. 281B. Stay of discovery pending a preliminary motion.
(a) In General.--Except as provided in subsection (d), in
an action for patent infringement under section 271 or an
action for a declaratory judgement that a patent is invalid or
not infringed, discovery shall be stayed if--
(1) the defendant moves to--
(A) sever a claim or drop a party for
misjoinder under Rule 21 of the Federal Rules
of Civil Procedure;
(B) transfer the action under section
1404(a) of title 28;
(C) transfer or dismiss the action under
section 1406(a) of title 28; or
(D) dismiss the action pursuant to Federal
Rule of Civil Procedure 12(b); and
(2) such motion is filed within 90 days after
service of the complaint and includes a declaration or
other evidence in support of the motion.
(b) Expiration of Stay.--A stay entered under subsection
(a) shall expire when all motions that are the basis for the
stay are decided by the court.
(c) Priority of Decision.--In an action described in
subsection (a), the court shall decide a motion to sever a
claim or drop a party for misjoinder under Rule 21 of the
Federal Rules of Civil Procedure, to transfer under section
1404(a) to title 28, to transfer or dismiss under 1406(a) of
title 28, or to dismiss the action pursuant to Federal Rule of
Civil Procedure 12(b) before the earlier of the date on which
the court--
(1) decides any other substantive motion, provided
however that the court may decide a question of its own
jurisdiction at any time; or
(2) issues a scheduling order under Rule 16(b) of
the Federal Rules of Civil Procedure.
(d) Exception.--
(1) Discovery necessary to decide motion.--
Notwithstanding subsection (a), the court may allow
such discovery as the court determines to be necessary
to decide a motion to sever, drop a party, dismiss, or
transfer.
(2) Competitive harm.--Subsections (a) and (c)
shall not apply to an action in which the patentee is
granted a preliminary injunction to prevent harm
arising from the manufacture, use, sale, offer for
sale, or importation of an allegedly infringing product
or process that competes with a product or process
made, sold, or offered for sale by the patentee.
(3) Consent of the parties.--The patentee and an
opposing party shall be excluded, in whole or in part,
from the limitations of subsections (a) and (c) upon
such parties' filing with the court a signed
stipulation agreeing to such exclusion.
(4) FDA and biological product application.--
Subsections (a) and (c) shall not apply to an action
that includes a cause of action described under section
271(e)(2).
* * * * * * *
Sec. 284. Damages
[Upon finding] (a) In General._Upon finding for the
claimant the court shall award the claimant damages adequate to
compensate for the infringement, but in no event less than a
reasonable royalty for the use made of the invention by the
infringer, together with interest and costs as fixed by the
court.
[When the damages] (b) Assessment by Court; Treble
Damages._When the damages are not found by a jury, the court
shall assess them. In either event the court may increase the
damages up to three times the amount found or assessed.
Increased damages under this paragraph shall not apply to
provisional rights under section 154(d).
(c) Willful Infringement.--A claimant seeking to establish
willful infringement may not rely on evidence of pre-suit
notification of infringement unless that notification
identifies with particularity the asserted patent, identifies
the product or process accused, identifies the ultimate parent
entity of the claimant, and explains with particularity, to the
extent possible following a reasonable investigation or
inquiry, how the product or process infringes one or more
claims of the patent.
[The court] (d) Expert Testimony._The court may receive
expert testimony as an aid to the determination of damages or
of what royalty would be reasonable under the circumstances.
[Sec. 285. Attorney fees
[The court in exceptional cases may award reasonable
attorney fees to the prevailing party.]
Sec. 285. Fees and other expenses
(a) Award.--The court shall award, to a prevailing party,
reasonable fees and other expenses incurred by that party in
connection with a civil action in which any party asserts a
claim for relief arising under any Act of Congress relating to
patents, unless the court finds that the position and conduct
of the nonprevailing party or parties were reasonably justified
in law and fact or that special circumstances (such as severe
economic hardship to a named inventor) make an award unjust.
(b) Certification and Recovery.--Upon motion of any party
to the action, the court shall require another party to the
action to certify whether or not the other party will be able
to pay an award of fees and other expenses if such an award is
made under subsection (a). If a nonprevailing party is unable
to pay an award that is made against it under subsection (a),
the court may make a party that has been joined under section
299(d) with respect to such party liable for the unsatisfied
portion of the award.
(c) Covenant Not to Sue.--A party to a civil action who
asserts a claim for relief arising under any Act of Congress
relating to patents against another party, and who subsequently
unilaterally (i) seeks dismissal of the action without consent
of the other party and (ii) extends to such other party a
covenant not to sue for infringement with respect to the patent
or patents at issue, may be the subject of a motion for
attorneys fees under subsection (a) as if it were a non-
prevailing party, unless 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 under Rule 41 of the Federal Rules of Civil Procedure, or
the interests of justice require otherwise.
* * * * * * *
Sec. 290. Notice of patent [suits] suits; disclosure of interests
[The clerks] (a) Notice of Patent Suits._The clerks of the
courts of the United States, within one month after the filing
of an action under this title shall give notice thereof in
writing to the Director, setting forth so far as known the
names and addresses of the parties, name of the inventor, and
the designating number of the patent upon which the action has
been brought. If any other patent is subsequently included in
the action he shall give like notice thereof. Within one month
after the decision is rendered or a judgment issued the clerk
of the court shall give notice thereof to the Director. The
Director shall, on receipt of such notices, enter the same in
the file of such patent.
(b) Initial Disclosure.--
(1) In general.--Except as provided in paragraph
(2), upon the filing of an initial complaint for patent
infringement, the plaintiff shall disclose to the
Patent and Trademark Office, the court, and each
adverse party the identity of each of the following:
(A) The assignee of the patent or patents
at issue.
(B) Any entity with a right to sublicense
or enforce the patent or patents at issue.
(C) Any entity, other than the plaintiff,
that the plaintiff knows to have a financial
interest in the patent or patents at issue or
the plaintiff.
(D) The ultimate parent entity of any
assignee identified under subparagraph (A) and
any entity identified under subparagraph (B) or
(C).
(E) A clear and concise description of the
principal business, if any, of the party
alleging infringement.
(F) A list of each complaint filed, of
which the party alleging infringement has
knowledge, that asserts or asserted any of the
patents identified under subparagraph (A).
(G) For each patent identified under
subparagraph (A), whether a standard-setting
body has specifically declared such patent to
be essential, potentially essential, or having
potential to become essential to that standard-
setting body, and whether the United States
Government or a foreign government has imposed
specific licensing requirements with respect to
such patent.
(2) Exemption.--The requirements of paragraph (1)
shall not apply with respect to a civil action filed
under subsection (a) that includes a cause of action
described under section 271(e)(2).
(c) Disclosure Compliance.--
(1) Publicly traded.--For purposes of subsection
(b)(1)(C), if the financial interest is held by a
corporation traded on a public stock exchange, an
identification of the name of the corporation and the
public exchange listing shall satisfy the disclosure
requirement.
(2) Not publicly traded.--For purposes of
subsection (b)(1)(C), if the financial interest is not
held by a publicly traded corporation, the disclosure
shall satisfy the disclosure requirement if the
information identifies--
(A) in the case of a partnership, the name
of the partnership and the name and
correspondence address of each partner or other
entity that holds more than a 5-percent share
of that partnership;
(B) in the case of a corporation, the name
of the corporation, the location of
incorporation, the address of the principal
place of business, and the name of each officer
of the corporation; and
(C) for each individual, the name and
correspondence address of that individual.
(d) Ongoing Duty of Disclosure to the Patent and Trademark
Office.--
(1) In general.--A plaintiff required to submit
information under subsection (b) or a subsequent owner
of the patent or patents at issue shall, not later than
90 days after any change in the assignee of the patent
or patents at issue or an entity described under
subparagraph (B) or (D) of subsection (b)(1), submit to
the Patent and Trademark Office the updated
identification of such assignee or entity.
(2) Failure to comply.--With respect to a patent
for which the requirement of paragraph (1) has not been
met--
(A) the plaintiff or subsequent owner shall
not be entitled to recover reasonable fees and
other expenses under section 285 or increased
damages under section 284 with respect to
infringing activities taking place during any
period of noncompliance with paragraph (1),
unless the denial of such damages or fees would
be manifestly unjust; and
(B) the court shall award to a prevailing
party accused of infringement reasonable fees
and other expenses under section 285 that are
incurred to discover the updated assignee or
entity described under paragraph (1), unless
such sanctions would be unjust.
(e) Definitions.--In this section:
(1) Financial interest.--The term ``financial
interest''--
(A) means--
(i) with regard to a patent or
patents, the right of a person to
receive proceeds related to the
assertion of the patent or patents,
including a fixed or variable portion
of such proceeds; and
(ii) with regard to the plaintiff,
direct or indirect ownership or control
by a person of more than 5 percent of
such plaintiff; and
(B) does not mean--
(i) ownership of shares or other
interests in a mutual or common
investment fund, unless the owner of
such interest participates in the
management of such fund; or
(ii) the proprietary interest of a
policyholder in a mutual insurance
company or of a depositor in a mutual
savings association, or a similar
proprietary interest, unless the
outcome of the proceeding could
substantially affect the value of such
interest.
(2) Proceeding.--The term ``proceeding'' means all
stages of a civil action, including pretrial and trial
proceedings and appellate review.
(3) Ultimate parent entity.--
(A) In general.--Except as provided in
subparagraph (B), the term ``ultimate parent
entity'' has the meaning given such term in
section 801.1(a)(3) of title 16, Code of
Federal Regulations, or any successor
regulation.
(B) Modification of definition.--The
Director may modify the definition of
``ultimate parent entity'' by regulation.
Sec. 291. Derived Patents
(a) In General.--The owner of a patent may have relief by
civil action against the owner of another patent that claims
the same invention and has an earlier effective filing date, if
the invention claimed in such other patent was derived from the
inventor of the invention claimed in the patent owned by the
person seeking relief under this section.
(b) Filing Limitation.--An action under this section may be
filed only before the end of the 1-year period beginning on the
date of the issuance of the first patent containing a claim to
the allegedly derived invention and naming an individual
alleged to have derived such invention as the inventor [or
joint inventor] or a joint inventor.
* * * * * * *
[Sec. 296. Liability of States, instrumentalities of States, and State
officials for infringement of patents
[(a) In General.--Any State, any instrumentality of a
State, and any officer or employee of a State or
instrumentality of a State acting in his official capacity,
shall not be immune, under the eleventh amendment of the
Constitution of the United States or under any other doctrine
of sovereign immunity, from suit in Federal court by any
person, including any governmental or nongovernmental entity,
for infringement of a patent under section 271, or for any
other violation under this title.
[(b) Remedies.--In a suit described in subsection (a) for a
violation described in that subsection, remedies (including
remedies both at law and in equity) are available for the
violation to the same extent as such remedies are available for
such a violation in a suit against any private entity. Such
remedies include damages, interest, costs, and treble damages
under section 284, attorney fees under section 285, and the
additional remedy for infringement of design patents under
section 289.]
Sec. 296. Stay of action against customer
(a) Definitions.--In this section:
(1) Covered customer.--The term ``covered
customer'' means a retailer or end user that is accused
of infringing a patent or patents in dispute based on--
(A) the sale, or offer for sale, of a
covered product or covered process without
material modification of the product or process
in a manner that is alleged to infringe a
patent or patents in dispute; or
(B) the use by such retailer, the
retailer's end user customer, or an end user of
a covered product or covered process without
material modification of the product or process
in a manner that is alleged to infringe a
patent or patents in dispute.
(2) Covered manufacturer.--The term ``covered
manufacturer'' means a person that manufactures or
supplies, or causes the manufacture or supply of, a
covered product or covered process, or a relevant part
thereof.
(3) Covered process.--The term ``covered process''
means a process, method, or a relevant part thereof,
that is alleged to infringe a patent or patents in
dispute where such process, method, or relevant part
thereof is implemented by an apparatus, material,
system, software, or other instrumentality that is
provided by the covered manufacturer.
(4) Covered product.--The term ``covered product''
means a product, system, service, component, material,
or apparatus, or relevant part thereof, that--
(A) is alleged to infringe a patent or
patents in dispute; or
(B) implements a process alleged to
infringe the patent or patents in dispute.
(5) End user.--The term ``end user'' includes an
affiliate of an end user, but does not include an
entity that manufacturers or causes the manufacture of
a covered product or covered process, or a relevant
part thereof.
(6) Retailer.--The term ``retailer'' means an
entity that generates revenues predominately through
the sale to the public of consumer goods or services,
or an affiliate of such entity, but does not include an
entity that manufacturers or causes the manufacturer of
a covered product or covered process, or a relevant
part thereof.
(b) Stay of Action Against Customer.--Except as provided in
subsection (d), in any civil action in which a party asserts a
claim for relief arising under any Act of Congress relating to
patents, the court shall grant a motion to stay at least the
portion of the action against a covered customer related to
infringement of a patent involving a covered product or covered
process if the following requirements are met:
(1) Party to the action.--The covered manufacturer
is a party to the action or to a separate action (in
which a party asserts a claim for relief arising under
any Act of Congress relating to patents) involving the
same patent or patents related to the same covered
product or covered process.
(2) Agreement to be bound by issues determined.--
The covered customer agrees to be bound as to issues
determined in an action described in paragraph (1)
without a full and fair opportunity to separately
litigate any such issue, but only as to those issues
for which all other elements of the common law doctrine
of issue preclusion are met.
(3) Deadline to file motion.--The motion is filed
after the first pleading in the action but not later
than the later of--
(A) the 120th day after the date on which
the first pleading or paper in the action is
served that specifically identifies the covered
product or covered process as a basis for the
covered customer's alleged infringement of the
patent and that specifically identifies how the
covered product or covered process is alleged
to infringe the patent; or
(B) the date on which the first scheduling
order in the case is entered.
(4) Manufacturer consent in certain cases.--In a
case in which the covered manufacturer has been made a
party to the action on motion by the covered customer,
the covered manufacturer and the covered customer
consent in writing to the stay.
(c) Lift of Stay.--
(1) In general.--A stay entered under this section
may be lifted upon grant of a motion based on a showing
that--
(A) the action involving the covered
manufacturer will not resolve a major issue in
the suit against the covered customer (such as
a covered product or covered process identified
in the motion to lift the stay is not a
material part of the claimed invention or
inventions in the patent or patents in
dispute); or
(B) the stay unreasonably prejudices or
would be manifestly unjust to the party seeking
to lift the stay.
(2) Separate manufacturer action involved.--In the
case of a stay entered under this section based on the
participation of the covered manufacturer in a separate
action described in subsection (b)(1), a motion under
paragraph (1) may only be granted if the court in such
separate action determines that the showing required
under paragraph (1) has been made.
(d) Exemption.--This section shall not apply to an action
that includes a cause of action described under section
271(e)(2).
(e) Waiver of Estoppel Effect.--The court may, upon motion,
determine that a consent judgment or an unappealed final order
shall not be binding on the covered customer with respect to
one or more of the issues that gave rise to the stay based on a
showing that such consent judgment or unappealed final order
would unreasonably prejudice or be manifestly unjust to the
covered customer in light of the circumstances of the case if,
following the grant of a motion to stay under this section, the
covered manufacturer described in subsection (b)(1)--
(1) obtains or consents to entry of a consent
judgment relating to such issue that gave rise to the
stay; or
(2) fails to prosecute to a final, non-appealable
judgment such issue that gave rise to the stay.
(f) Rule of Construction.--Nothing in this section shall be
construed to limit the ability of a court to grant any stay,
expand any stay granted under this section, or grant any motion
to intervene, if otherwise permitted by law.
* * * * * * *
Sec. 299. Joinder of parties
(a) Joinder of Accused Infringers.--With respect to any
civil action arising under any Act of Congress relating to
patents, other than an action or trial in which an act of
infringement under section 271(e)(2) has been pled, parties
that are accused infringers may be joined in one action as
defendants or counterclaim defendants, or have their actions
consolidated for trial, only if--
(1) any right to relief is asserted against the
parties jointly, severally, or in the alternative with
respect to or arising out of the same transaction,
occurrence, or series of transactions or occurrences
relating to the making, using, importing into the
United States, offering for sale, or selling of the
same accused product or process; and
(2) questions of fact common to all defendants or
counterclaim defendants will arise in the action.
(b) Allegations Insufficient for Joinder.--For purposes of
this subsection, accused infringers may not be joined in one
action as defendants or counterclaim defendants, or have their
actions consolidated for trial, based solely on allegations
that they each have infringed the patent or patents in suit.
(c) Waiver.--A party that is an accused infringer may waive
the limitations set forth in this section with respect to that
party.
(d) Joinder of Interested Parties.--
(1) Joinder.--Except as otherwise provided under
this subsection, in a civil action arising under any
Act of Congress relating to patents in which fees and
other expenses have been awarded under section 285 to a
prevailing party defending against an allegation of
infringement of a patent claim, and in which the
nonprevailing party alleging infringement is unable to
pay the award of fees and other expenses, the court
shall grant a motion by the prevailing party to join an
interested party if such prevailing party shows that
the nonprevailing party has no substantial interest in
the subject matter at issue other than asserting such
patent claim in litigation.
(2) Limitation on joinder.--
(A) Discretionary denial of motion.--The
court may deny a motion to join an interested
party under paragraph (1) if--
(i) the interested party is not
subject to service of process; or
(ii) joinder under paragraph (1)
would deprive the court of subject
matter jurisdiction or make venue
improper.
(B) Required denial of motion.--The court
shall deny a motion to join an interested party
under paragraph (1) if--
(i) the interested party did not
timely receive the notice required by
paragraph (3); or
(ii) within 30 days after receiving
the notice required by paragraph (3),
the interested party renounces, in
writing and with notice to the court
and the parties to the action, any
ownership, right, or direct financial
interest (as described in paragraph
(4)) that the interested party has in
the patent or patents at issue.
(3) Notice requirement.--An interested party may
not be joined under paragraph (1) unless it has been
provided actual notice, within 30 days after the
expiration of the time period during which a
certification under paragraph (4)(B) is required to be
filed, that the interested party has been identified in
the initial disclosure under section 290(b) and that
such party may therefore be an interested party subject
to joinder under this subsection. Such notice shall be
provided by the party who subsequently moves to join
the interested party under paragraph (1), and shall
include language that--
(A) identifies the action, the parties
thereto, the patent or patents at issue, and
the pleading or other paper that identified the
party under section 290(b); and
(B) informs the party that it may be joined
in the action and made subject to paying an
award of fees and other expenses under section
285(b) if--
(i) fees and other expenses are
awarded in the action against the party
alleging infringement of the patent or
patents at issue under section 285(a);
(ii) the party alleging
infringement is unable to pay the award
of fees and other expenses;
(iii) the party receiving notice
under this paragraph is determined by
the court to be an interested party;
and
(iv) the party receiving notice
under this paragraph has not, within 30
days after receiving such notice,
renounced in writing, and with notice
to the court and the parties to the
action, any ownership, right, or direct
financial interest (as described in
paragraph (4)) that the interested
party has in the patent or patents at
issue.
(4) Additional requirements for joinder.--
(A) Initial statement.--This subsection
shall not apply to an action unless a party
defending against an allegation of infringement
of a patent claim files, not later than 14 days
before the date on which a scheduling
conference is held or the date on which a
scheduling order is due under Rule 16(b) of the
Federal Rules of Civil Procedure, a statement
that such party holds a good faith belief,
based on publicly available information and any
other information known to such party, that the
party alleging infringement has no substantial
interest in the subject matter at issue other
than asserting the patent in litigation.
(B) Certification.--This subsection shall
not apply to an action if the party alleging
infringement files, not later than 45 days
after the date on which such party is served
with the initial statement described under
subparagraph (A), a certification that--
(i) establishes and certifies to
the court, under oath, that such party
will have sufficient funds available to
satisfy any award of reasonable
attorney's fees and expenses under
section 285 if an award is assessed;
(ii) demonstrates that such party
has a substantial interest in the
subject matter at issue other than
asserting the patent in litigation; or
(iii) is made under oath that there
are no other interested parties.
(5) Exception for university technology transfer
organizations.--This subsection shall not apply to a
technology transfer organization whose primary purpose
is to facilitate the commercialization of technologies
developed by one or more institutions of higher
education (as defined in section 101(a) of the Higher
Education Act of 1965 (20 U.S.C. 1001(a))) if such
technology transfer organization is alleging
infringement on behalf of an entity that would not be
subject to this subsection.
(6) Interested party defined.--In this subsection,
the term ``interested party'' means a person, other
than the party alleging infringement, that--
(A) is an assignee of the patent or patents
at issue;
(B) has a right, including a contingent
right, to enforce or sublicense the patent or
patents at issue; or
(C) has a direct financial interest in the
patent or patents at issue, including the right
to any part of an award of damages or any part
of licensing revenue, except that a person with
a direct financial interest does not include--
(i) an employee of the party
alleging infringement--
(I) whose principal source
of income or employment is
employment with the party
alleging infringement; or
(II) whose sole financial
interest in the patent or
patents at issue is a salary or
hourly wage paid by the party
alleging infringement;
(ii) an attorney or law firm
providing legal representation in the
civil action described in paragraph (1)
if the sole basis for the financial
interest of the attorney or law firm in
the patent or patents at issue arises
from the attorney or law firm's receipt
of compensation reasonably related to
the provision of the legal
representation; or
(iii) a person whose sole financial
interest in the patent or patents at
issue is ownership of an equity or
security interest in the party alleging
infringement, unless such person also
has the right or ability to direct or
control (membership on the board of
directors alone is not sufficient to
demonstrate such right or ability) the
civil action.
(7) Substantial interest.--In this subsection, the
term ``substantial interest'' includes an interest in
the subject matter of a patent at issue if the party--
(A) invented the subject matter; or
(B) commercially practices or implements,
made substantial preparations directed
particularly to commercially practicing or
implementing, or is engaged in research and
development in, technology in the field of the
subject matter.
* * * * * * *
CHAPTER 31--INTER PARTES REVIEW
* * * * * * *
Sec. 313. Preliminary response to petition
If an inter partes review petition is filed under section
311, the patent owner shall have the right to file a
preliminary response to the petition, within a time period set
by the Director, that sets forth reasons why no inter partes
review should be instituted based upon the failure of the
petition to meet any requirement of this chapter[.], including
affidavits or declarations of supporting evidence and opinions.
The Director may accept a reply by the petitioner to new issues
raised in the preliminary response, upon request by the
petitioner to file such reply, within a time period set by the
Director.
Sec. 314. Institution of inter partes review
(a) Threshold.--The Director may not authorize an inter
partes review to be instituted unless the Director determines
that the information presented in the petition filed under
section 311 and [any response] any response or reply filed
under section 313 shows that there is a reasonable likelihood
that the petitioner would prevail with respect to at least 1 of
the claims challenged in the petition.
(b) Timing.--The Director shall determine whether to
institute an inter partes review under this chapter pursuant to
a petition filed under section 311 within 3 months after--
(1) [receiving a preliminary response to the
petition] receiving the later of a preliminary response
to the petition or a reply to such preliminary response
under section 313; or
[(2) if no such preliminary response is filed, the
last date on which such response may be filed.]
(2) if--
(A) no such preliminary response is filed,
the last date on which such response may be
filed; and
(B) such preliminary response is filed and
no such reply is requested, the last day on
which such reply may be requested.
(c) Notice.--The Director shall notify the petitioner and
patent owner, in writing, of the Director's determination under
subsection (a), and shall make such notice available to the
public as soon as is practicable. Such notice shall include the
date on which the review shall commence.
(d) No Appeal.--The determination by the Director whether
to institute an inter partes review under this section shall be
final and nonappealable.
Sec. 315. Relation to other proceedings or actions
(a) Infringer's Civil Action.--
(1) Inter partes review barred by civil action.--An
inter partes review may not be instituted if, before
the date on which the petition for such a review is
filed, the petitioner or real party in interest filed a
civil action challenging the validity of a claim of the
patent.
(2) Stay of civil action.--If the petitioner or
real party in interest files a civil action challenging
the validity of a claim of the patent on or after the
date on which the petitioner files a petition for inter
partes review of the patent, that civil action shall be
automatically stayed until either--
(A) the patent owner moves the court to
lift the stay;
(B) the patent owner files a civil action
or counterclaim alleging that the petitioner or
real party in interest has infringed the
patent; or
(C) the petitioner or real party in
interest moves the court to dismiss the civil
action.
(3) Treatment of counterclaim.--A counterclaim
challenging the validity of a claim of a patent does
not constitute a civil action challenging the validity
of a claim of a patent for purposes of this subsection.
(b) Patent Owner's Action.--An inter partes review may not
be instituted if the petition requesting the proceeding is
filed more than 1 year after the date on which the petitioner,
real party in interest, or privy of the petitioner is served
with a complaint alleging infringement of the patent. The time
limitation set forth in the preceding sentence shall not apply
to a request for joinder under subsection (c).
[(c) Joinder.--If the Director institutes an inter partes
review, the Director, in his or her discretion, may join as a
party to that inter partes review any person who properly files
a petition under section 311 that the Director, after receiving
a preliminary response under section 313 or the expiration of
the time for filing such a response, determines warrants the
institution of an inter partes review under section 314.]
(c) Joinder
(1) Joinder of party If the Director institutes an
inter partes review, the Director, in his or her
discretion, may join as a party to that inter partes
review any person who meets the requirement of properly
filing a petition under section 311 that the Director,
after receiving a preliminary response under section
313 or the expiration of the time for filing such a
response, determines warrants the institution of an
inter partes review under section 314.
(2) Joinder of later filed petition For good cause
shown, the Director may allow a party who files a
petition that meets the requirement described in
paragraph (1) and concerns the patent of a pending
inter partes review to join the petition to the pending
review.
(d) Multiple Proceedings.--Notwithstanding sections 135(a),
251, and 252, and chapter 30, during the pendency of an inter
partes review, if another proceeding or matter involving the
patent is before the Office, the Director may determine the
manner in which the inter partes review or other proceeding or
matter may proceed, including providing for stay, transfer,
consolidation, or termination of any such matter or proceeding.
(e) Estoppel.--
(1) Proceedings before the office.--The petitioner
in an inter partes review of a claim in a patent under
this chapter that results in a final written decision
under section 318(a), or the real party in interest or
privy of the petitioner, may not request or maintain a
proceeding before the Office with respect to that claim
on any ground that the petitioner raised or reasonably
could have raised during that inter partes review.
(2) Civil actions and other proceedings.--The
petitioner in an inter partes review of a claim in a
patent under this chapter that results in a final
written decision under section 318(a), or the real
party in interest or privy of the petitioner, may not
assert either in a civil action arising in whole or in
part under section 1338 of title 28 or in a proceeding
before the International Trade Commission under section
337 of the Tariff Act of 1930 that the claim is invalid
on any ground that the petitioner raised or reasonably
could have raised during that inter partes review.
Sec. 316. Conduct of inter partes review
(a) Regulations.--The Director shall prescribe
regulations--
(1) providing that the file of any proceeding under
this chapter shall be made available to the public,
except that any petition or document filed with the
intent that it be sealed shall, if accompanied by a
motion to seal, be treated as sealed pending the
outcome of the ruling on the motion;
(2) setting forth the standards for the showing of
sufficient grounds to institute a review under section
314(a);
(3) establishing procedures for the submission of
supplemental information after the petition is filed;
(4) establishing and governing inter partes review
under this chapter and the relationship of such review
to other proceedings under this title;
(5) setting forth standards and procedures for
discovery of relevant evidence, including that such
discovery shall be limited to--
(A) the deposition of witnesses submitting
affidavits or declarations; and
(B) what is otherwise necessary in the
interest of justice;
(6) prescribing sanctions for abuse of discovery,
abuse of process, or any other improper use of the
proceeding, such as to harass or to cause unnecessary
delay or an unnecessary increase in the cost of the
proceeding;
(7) providing for protective orders governing the
exchange and submission of confidential information;
(8) providing for the filing by the patent owner of
a response to [the petition under section 313] the
petition under section 311 after an inter partes review
has been instituted, and requiring that the patent
owner file with such response, through affidavits or
declarations, any additional factual evidence and
expert opinions on which the patent owner relies in
support of the response;
(9) setting forth standards and procedures for
allowing the patent owner to move to amend the patent
under subsection (d) to cancel a challenged claim or
propose a reasonable number of substitute claims, and
ensuring that any information submitted by the patent
owner in support of any amendment entered under
subsection (d) is made available to the public as part
of the prosecution history of the patent;
(10) providing either party with the right to an
oral hearing as part of the proceeding;
(11) requiring that the final determination in an
inter partes review be issued not later than 1 year
after the date on which the Director notices the
institution of a review under this chapter, except that
the Director may, for good cause shown, extend the 1-
year period by not more than 6 months, and may adjust
the time periods in this paragraph in the case of
joinder under section 315(c);
(12) setting a time period for requesting joinder
under section 315(c)[; and];
(13) providing the petitioner with at least 1
opportunity to file written comments within a time
period established by the Director[.];
(14) providing that for all purposes under this
chapter--
(A) each claim of a patent shall be
construed as such claim would be in a civil
action to invalidate a patent under section
282(b), including construing each claim of the
patent in accordance with the ordinary and
customary meaning of such claim as understood
by one of ordinary skill in the art and the
prosecution history pertaining to the patent;
and
(B) if a court has previously construed the
claim or a claim term in a civil action in
which the patent owner was a party, the Office
shall consider such claim construction; and
(15) providing that a review may not be instituted
unless the petitioner certifies that the petitioner and
the real parties in interest of the petitioner--
(A) do not own and will not acquire a
financial instrument (including a prepaid
variable forward contract, equity swap, collar,
or exchange fund) that is designed to hedge or
offset any decrease in the market value of an
equity security of the patent owner or an
affiliate of the patent owner, during a period
following the filing of the petition to be
determined by the Director; and
(B) have not demanded payment, monetary or
otherwise, from the patent owner or an
affiliate of the patent owner in exchange for a
commitment not to file a petition under section
311 with respect to the patent that is the
subject of the petition, unless the petitioner
or the real party in interest of the petitioner
has been sued for or charged with infringement
of the patent, during a period to be determined
by the Director.
(b) Considerations.--In prescribing regulations under this
section, the Director shall consider the effect of any such
regulation on the economy, the integrity of the patent system,
the efficient administration of the Office, [and the ability]
the rights to due process of the patent owner and the
petitioner, and the ability of the Office to timely complete
proceedings instituted under this chapter.
(c) Patent Trial and Appeal Board.--The Patent Trial and
Appeal Board shall, in accordance with section 6, conduct each
inter partes review instituted under this chapter.
(d) Amendment of the Patent.--
(1) In general.--During an inter partes review
instituted under this chapter, the patent owner may
file 1 motion to amend the patent in 1 or more of the
following ways:
(A) Cancel any challenged patent claim.
(B) For each challenged claim, propose a
reasonable number of substitute claims.
(2) Additional motions.--Additional motions to
amend may be permitted upon the joint request of the
petitioner and the patent owner to materially advance
the settlement of a proceeding under section 317, or as
permitted by regulations prescribed by the Director.
(3) Scope of claims.--An amendment under this
subsection may not enlarge the scope of the claims of
the patent or introduce new matter.
(e) Evidentiary Standards.--In an inter partes review
instituted under this chapter, the petitioner shall have the
burden of proving a proposition of unpatentability by a
preponderance of the evidence.
* * * * * * *
CHAPTER 32--POST-GRANT REVIEW
* * * * * * *
Sec. 323. Preliminary response to petition
If a post-grant review petition is filed under section 321,
the patent owner shall have the right to file a preliminary
response to the petition, within a time period set by the
Director, that sets forth reasons why no post-grant review
should be instituted based upon the failure of the petition to
meet any requirement of this chapter[.], including affidavits
or declarations of supporting evidence and opinions.
* * * * * * *
Sec. 325. Relation to other proceedings or actions
(a) Infringer's Civil Action.--
(1) Post-grant review barred by civil action.--A
post-grant review may not be instituted under this
chapter if, before the date on which the petition for
such a review is filed, the petitioner or real party in
interest filed a civil action challenging the validity
of a claim of the patent.
(2) Stay of civil action.--If the petitioner or
real party in interest files a civil action challenging
the validity of a claim of the patent on or after the
date on which the petitioner files a petition for post-
grant review of the patent, that civil action shall be
automatically stayed until either--
(A) the patent owner moves the court to
lift the stay;
(B) the patent owner files a civil action
or counterclaim alleging that the petitioner or
real party in interest has infringed the
patent; or
(C) the petitioner or real party in
interest moves the court to dismiss the civil
action.
(3) Treatment of counterclaim.--A counterclaim
challenging the validity of a claim of a patent does
not constitute a civil action challenging the validity
of a claim of a patent for purposes of this subsection.
(b) Preliminary Injunctions.--If a civil action alleging
infringement of a patent is filed within 3 months after the
date on which the patent is granted, the court may not stay its
consideration of the patent owner's motion for a preliminary
injunction against infringement of the patent on the basis that
a petition for post-grant review has been filed under this
chapter or that such a post-grant review has been instituted
under this chapter.
(c) Joinder.--If more than 1 petition for a post-grant
review under this chapter is properly filed against the same
patent and the Director determines that more than 1 of these
petitions warrants the institution of a post-grant review under
section 324, the Director may consolidate such reviews into a
single post-grant review.
(d) Multiple Proceedings.--Notwithstanding sections 135(a),
251, and 252, and chapter 30, during the pendency of any post-
grant review under this chapter, if another proceeding or
matter involving the patent is before the Office, the Director
may determine the manner in which the post-grant review or
other proceeding or matter may proceed, including providing for
the stay, transfer, consolidation, or termination of any such
matter or proceeding. In determining whether to institute or
order a proceeding under this chapter, chapter 30, or chapter
31, the Director may take into account whether, and reject the
petition or request because, the same or substantially the same
prior art or arguments previously were presented to the Office.
(e) Estoppel.--
(1) Proceedings before the office.--The petitioner
in a post-grant review of a claim in a patent under
this chapter that results in a final written decision
under section 328(a), or the real party in interest or
privy of the petitioner, may not request or maintain a
proceeding before the Office with respect to that claim
on any ground that the petitioner raised or reasonably
could have raised during that post-grant review.
(2) Civil actions and other proceedings.--The
petitioner in a post-grant review of a claim in a
patent under this chapter that results in a final
written decision under section 328(a), or the real
party in interest or privy of the petitioner, may not
assert either in a civil action arising in whole or in
part under section 1338 of title 28 or in a proceeding
before the International Trade Commission under section
337 of the Tariff Act of 1930 that the claim is invalid
on any ground that the petitioner raised [or reasonably
could have raised] during that post-grant review.
(f) Reissue Patents.--A post-grant review may not be
instituted under this chapter if the petition requests
cancellation of a claim in a reissue patent that is identical
to or narrower than a claim in the original patent from which
the reissue patent was issued, and the time limitations in
section 321(c) would bar filing a petition for a post-grant
review for such original patent.
Sec. 326. Conduct of post-grant review
(a) Regulations.--The Director shall prescribe
regulations--
(1) providing that the file of any proceeding under
this chapter shall be made available to the public,
except that any petition or document filed with the
intent that it be sealed shall, if accompanied by a
motion to seal, be treated as sealed pending the
outcome of the ruling on the motion;
(2) setting forth the standards for the showing of
sufficient grounds to institute a review under
subsections (a) and (b) of section 324;
(3) establishing procedures for the submission of
supplemental information after the petition is filed;
(4) establishing and governing a post-grant review
under this chapter and the relationship of such review
to other proceedings under this title;
(5) setting forth standards and procedures for
discovery of relevant evidence, including that such
discovery shall be limited to evidence directly related
to factual assertions advanced by either party in the
proceeding;
(6) prescribing sanctions for abuse of discovery,
abuse of process, or any other improper use of the
proceeding, such as to harass or to cause unnecessary
delay or an unnecessary increase in the cost of the
proceeding;
(7) providing for protective orders governing the
exchange and submission of confidential information;
(8) providing for the filing by the patent owner of
a response to [the petition under section 323] the
petition under section 321 after a post-grant review
has been instituted, and requiring that the patent
owner file with such response, through affidavits or
declarations, any additional factual evidence and
expert opinions on which the patent owner relies in
support of the response;
(9) setting forth standards and procedures for
allowing the patent owner to move to amend the patent
under subsection (d) to cancel a challenged claim or
propose a reasonable number of substitute claims, and
ensuring that any information submitted by the patent
owner in support of any amendment entered under
subsection (d) is made available to the public as part
of the prosecution history of the patent;
(10) providing either party with the right to an
oral hearing as part of the proceeding;
(11) requiring that the final determination in any
post-grant review be issued not later than 1 year after
the date on which the Director notices the institution
of a proceeding under this chapter, except that the
Director may, for good cause shown, extend the 1-year
period by not more than 6 months, and may adjust the
time periods in this paragraph in the case of joinder
under section 325(c)[; and];
(12) providing the petitioner with at least 1
opportunity to file written comments within a time
period established by the Director[.];
(13) providing that for all purposes under this
chapter--
(A) each claim of a patent shall be
construed as such claim would be in a civil
action to invalidate a patent under section
282(b), including construing each claim of the
patent in accordance with the ordinary and
customary meaning of such claim as understood
by one of ordinary skill in the art and the
prosecution history pertaining to the patent;
and
(B) if a court has previously construed the
claim or a claim term in a civil action in
which the patent owner was a party, the Office
shall consider such claim construction; and
(14) providing that a review may not be instituted
unless the petitioner certifies that the petitioner and
the real parties in interest of the petitioner--
(A) do not own and will not acquire a
financial instrument (including a prepaid
variable forward contract, equity swap, collar,
or exchange fund) that is designed to hedge or
offset any decrease in the market value of an
equity security of the patent owner or an
affiliate of the patent owner, during a period
following the filing of the petition to be
determined by the Director; and
(B) have not demanded payment, monetary or
otherwise, from the patent owner or an
affiliate of the patent owner in exchange for a
commitment not to file a petition under section
311 with respect to the patent that is the
subject of the petition, unless the petitioner
or the real party in interest of the petitioner
has been sued for or charged with infringement
of the patent, during a period to be determined
by the Director.
(b) Considerations.--In prescribing regulations under this
section, the Director shall consider the effect of any such
regulation on the economy, the integrity of the patent system,
the efficient administration of the Office, [and the ability]
the rights to due process of the patent owner and the
petitioner, and the ability of the Office to timely complete
proceedings instituted under this chapter.
(c) Patent Trial and Appeal Board.--The Patent Trial and
Appeal Board shall, in accordance with section 6, conduct each
post-grant review instituted under this chapter.
(d) Amendment of the Patent.--
(1) In general.--During a post-grant review
instituted under this chapter, the patent owner may
file 1 motion to amend the patent in 1 or more of the
following ways:
(A) Cancel any challenged patent claim.
(B) For each challenged claim, propose a
reasonable number of substitute claims.
(2) Additional motions.--Additional motions to
amend may be permitted upon the joint request of the
petitioner and the patent owner to materially advance
the settlement of a proceeding under section 327, or
upon the request of the patent owner for good cause
shown.
(3) Scope of claims.--An amendment under this
subsection may not enlarge the scope of the claims of
the patent or introduce new matter.
(e) Evidentiary Standards.--In a post-grant review
instituted under this chapter, the petitioner shall have the
burden of proving a proposition of unpatentability by a
preponderance of the evidence.
* * * * * * *
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TITLE 28, UNITED STATES CODE
* * * * * * *
PART IV--JURISDICTION AND VENUE
* * * * * * *
CHAPTER 83--COURTS OF APPEALS
* * * * * * *
Sec. 1295. Jurisdiction of the United States Court of Appeals for the
Federal Circuit
(a) The United States Court of Appeals for the Federal
Circuit shall have exclusive jurisdiction--
(1) of an appeal from a final decision of a
district court of the United States, the District Court
of Guam, the District Court of the Virgin Islands, or
the District Court of the Northern Mariana Islands, in
any civil action arising under, or in any civil action
in which a party has asserted a compulsory counterclaim
arising under, any Act of Congress relating to patents
or plant variety protection;
(2) of an appeal from a final decision of a
district court of the United States, the United States
District Court for the District of the Canal Zone, the
District Court of Guam, the District Court of the
Virgin Islands, or the District Court for the Northern
Mariana Islands, if the jurisdiction of that court was
based, in whole or in part, on section 1346 of this
title, except that jurisdiction of an appeal in a case
brought in a district court under section 1346(a)(1),
1346(b), 1346(e), or 1346(f) of this title or under
section 1346(a)(2) when the claim is founded upon an
Act of Congress or a regulation of an executive
department providing for internal revenue shall be
governed by sections 1291, 1292, and 1294 of this
title;
(3) of an appeal from a final decision of the
United States Court of Federal Claims;
(4) of an appeal from a decision of--
(A) the Patent Trial and Appeal Board of
the United States Patent and Trademark Office
with respect to a patent application,
derivation proceeding, reexamination, post-
grant review, or inter partes review under
title 35, at the instance of a party who
exercised that party's right to participate in
the applicable proceeding before or appeal to
the Board, except that an applicant or a party
to a derivation proceeding may also have remedy
by civil action pursuant to section 145 or 146
of title 35; an appeal under this subparagraph
of a decision of the Board with respect to an
application or derivation proceeding shall
waive the right of such applicant or party to
proceed under section 145 or 146 of title 35;
(B) the Under Secretary of Commerce for
Intellectual Property and Director of the
United States Patent and Trademark Office or
the Trademark Trial and Appeal Board with
respect to applications for registration of
marks and other proceedings as provided in
section 21 of the Trademark Act of 1946 (15
U.S.C. 1071); or
(C) a district court to which a case was
directed pursuant to section 145, 146, or
154(b) of [title 35] title 35 or section 21(b)
of the Act of July 5, 1946 (commonly referred
to as the ``Trademark Act of 1946'') (15 U.S.C.
1071(b));
(5) of an appeal from a final decision of the
United States Court of International Trade;
(6) to review the final determinations of the
United States International Trade Commission relating
to unfair practices in import trade, made under section
337 of the Tariff Act of 1930 (19 U.S.C. 1337);
(7) to review, by appeal on questions of law only,
findings of the Secretary of Commerce under U.S. note 6
to subchapter X of chapter 98 of the Harmonized Tariff
Schedule of the United States (relating to importation
of instruments or apparatus);
(8) of an appeal under section 71 of the Plant
Variety Protection Act (7 U.S.C. 2461);
(9) of an appeal from a final order or final
decision of the Merit Systems Protection Board,
pursuant to sections 7703(b)(1) and 7703(d) of title 5;
(10) of an appeal from a final decision of an
agency board of contract appeals pursuant to section
7107(a)(1) of title 41;
(11) of an appeal under section 211 of the Economic
Stabilization Act of 1970;
(12) of an appeal under section 5 of the Emergency
Petroleum Allocation Act of 1973;
(13) of an appeal under section 506(c) of the
Natural Gas Policy Act of 1978; and
(14) of an appeal under section 523 of the Energy
Policy and Conservation Act.
(b) The head of any executive department or agency may,
with the approval of the Attorney General, refer to the Court
of Appeals for the Federal Circuit for judicial review any
final decision rendered by a board of contract appeals pursuant
to the terms of any contract with the United States awarded by
that department or agency which the head of such department or
agency has concluded is not entitled to finality pursuant to
the review standards specified in section 7107(b) of title 41.
The head of each executive department or agency shall make any
referral under this section within one hundred and twenty days
after the receipt of a copy of the final appeal decision.
(c) The Court of Appeals for the Federal Circuit shall
review the matter referred in accordance with the standards
specified in section 7107(b) of title 41. The court shall
proceed with judicial review on the administrative record made
before the board of contract appeals on matters so referred as
in other cases pending in such court, shall determine the issue
of finality of the appeal decision, and shall, if appropriate,
render judgment thereon, or remand the matter to any
administrative or executive body or official with such
direction as it may deem proper and just.
* * * * * * *
CHAPTER 87--DISTRICT COURTS; VENUE
* * * * * * *
Sec. 1400. Patents and copyrights, mask works, and designs
(a) Civil actions, suits, or proceedings arising under any
Act of Congress relating to copyrights or exclusive rights in
mask works or designs may be instituted in the district in
which the defendant or his agent resides or may be found.
[(b) Any civil action for patent infringement may be
brought in the judicial district where the defendant resides,
or where the defendant has committed acts of infringement and
has a regular and established place of business.]
(b) Venue for Action Relating to Patents.--Notwithstanding
subsections (b) and (c) of section 1391 of this title, any
civil action for patent infringement or any action for a
declaratory judgment that a patent is invalid or not infringed
may be brought only in a judicial district--
(1) where the defendant has its principal place of
business or is incorporated;
(2) where the defendant has committed an act of
infringement of a patent in suit and has a regular and
established physical facility that gives rise to the
act of infringement;
(3) where the defendant has agreed or consented to
be sued in the instant action;
(4) where an inventor named on the patent in suit
conducted research or development that led to the
application for the patent in suit;
(5) where a party has a regular and established
physical facility that such party controls and
operates, not primarily for the purpose of creating
venue, and has--
(A) engaged in management of significant
research and development of an invention
claimed in a patent in suit prior to the
effective filing date of the patent;
(B) manufactured a tangible product that is
alleged to embody an invention claimed in a
patent in suit; or
(C) implemented a manufacturing process for
a tangible good in which the process is alleged
to embody an invention claimed in a patent in
suit; or
(6) for foreign defendants that do not meet the
requirements of paragraphs (1) or (2), according to
section 1391(d) of this title.
* * * * * * *
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TITLE 11, UNITED STATES CODE
* * * * * * *
CHAPTER 1--GENERAL PROVISIONS
Sec. 101. Definitions
In this title the following definitions shall apply:
(1) The term ``accountant'' means accountant
authorized under applicable law to practice public
accounting, and includes professional accounting
association, corporation, or partnership, if so
authorized.
(2) The term ``affiliate'' means--
(A) entity that directly or indirectly
owns, controls, or holds with power to vote, 20
percent or more of the outstanding voting
securities of the debtor, other than an entity
that holds such securities--
(i) in a fiduciary or agency
capacity without sole discretionary
power to vote such securities; or
(ii) solely to secure a debt, if
such entity has not in fact exercised
such power to vote;
(B) corporation 20 percent or more of whose
outstanding voting securities are directly or
indirectly owned, controlled, or held with
power to vote, by the debtor, or by an entity
that directly or indirectly owns, controls, or
holds with power to vote, 20 percent or more of
the outstanding voting securities of the
debtor, other than an entity that holds such
securities--
(i) in a fiduciary or agency
capacity without sole discretionary
power to vote such securities; or
(ii) solely to secure a debt, if
such entity has not in fact exercised
such power to vote;
(C) person whose business is operated under
a lease or operating agreement by a debtor, or
person substantially all of whose property is
operated under an operating agreement with the
debtor; or
(D) entity that operates the business or
substantially all of the property of the debtor
under a lease or operating agreement.
(3) The term ``assisted person'' means any person
whose debts consist primarily of consumer debts and the
value of whose nonexempt property is less than
$150,000.
(4) The term ``attorney'' means attorney,
professional law association, corporation, or
partnership, authorized under applicable law to
practice law.
(4A) The term ``bankruptcy assistance'' means any
goods or services sold or otherwise provided to an
assisted person with the express or implied purpose of
providing information, advice, counsel, document
preparation, or filing, or attendance at a creditors'
meeting or appearing in a case or proceeding on behalf
of another or providing legal representation with
respect to a case or proceeding under this title.
(5) The term ``claim'' means--
(A) right to payment, whether or not such
right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal,
equitable, secured, or unsecured; or
(B) right to an equitable remedy for breach
of performance if such breach gives rise to a
right to payment, whether or not such right to
an equitable remedy is reduced to judgment,
fixed, contingent, matured, unmatured,
disputed, undisputed, secured, or unsecured.
(6) The term ``commodity broker'' means futures
commission merchant, foreign futures commission
merchant, clearing organization, leverage transaction
merchant, or commodity options dealer, as defined in
section 761 of this title, with respect to which there
is a customer, as defined in section 761 of this title.
(7) The term ``community claim'' means claim that
arose before the commencement of the case concerning
the debtor for which property of the kind specified in
section 541(a)(2) of this title is liable, whether or
not there is any such property at the time of the
commencement of the case.
(7A) The term ``commercial fishing operation''
means--
(A) the catching or harvesting of fish,
shrimp, lobsters, urchins, seaweed, shellfish,
or other aquatic species or products of such
species; or
(B) for purposes of section 109 and chapter
12, aquaculture activities consisting of
raising for market any species or product
described in subparagraph (A).
(7B) The term ``commercial fishing vessel'' means a
vessel used by a family fisherman to carry out a
commercial fishing operation.
(8) The term ``consumer debt'' means debt incurred
by an individual primarily for a personal, family, or
household purpose.
(9) The term ``corporation''--
(A) includes--
(i) association having a power or
privilege that a private corporation,
but not an individual or a partnership,
possesses;
(ii) partnership association
organized under a law that makes only
the capital subscribed responsible for
the debts of such association;
(iii) joint-stock company;
(iv) unincorporated company or
association; or
(v) business trust; but
(B) does not include limited partnership.
(10) The term ``creditor'' means--
(A) entity that has a claim against the
debtor that arose at the time of or before the
order for relief concerning the debtor;
(B) entity that has a claim against the
estate of a kind specified in section 348(d),
502(f), 502(g), 502(h) or 502(i) of this title;
or
(C) entity that has a community claim.
(10A) The term ``current monthly income''--
(A) means the average monthly income from
all sources that the debtor receives (or in a
joint case the debtor and the debtor's spouse
receive) without regard to whether such income
is taxable income, derived during the 6-month
period ending on--
(i) the last day of the calendar
month immediately preceding the date of
the commencement of the case if the
debtor files the schedule of current
income required by section
521(a)(1)(B)(ii); or
(ii) the date on which current
income is determined by the court for
purposes of this title if the debtor
does not file the schedule of current
income required by section
521(a)(1)(B)(ii); and
(B) includes any amount paid by any entity
other than the debtor (or in a joint case the
debtor and the debtor's spouse), on a regular
basis for the household expenses of the debtor
or the debtor's dependents (and in a joint case
the debtor's spouse if not otherwise a
dependent), but excludes benefits received
under the Social Security Act, payments to
victims of war crimes or crimes against
humanity on account of their status as victims
of such crimes, and payments to victims of
international terrorism (as defined in section
2331 of title 18) or domestic terrorism (as
defined in section 2331 of title 18) on account
of their status as victims of such terrorism.
(11) The term ``custodian'' means--
(A) receiver or trustee of any of the
property of the debtor, appointed in a case or
proceeding not under this title;
(B) assignee under a general assignment for
the benefit of the debtor's creditors; or
(C) trustee, receiver, or agent under
applicable law, or under a contract, that is
appointed or authorized to take charge of
property of the debtor for the purpose of
enforcing a lien against such property, or for
the purpose of general administration of such
property for the benefit of the debtor's
creditors.
(12) The term ``debt'' means liability on a claim.
(12A) The term ``debt relief agency'' means any
person who provides any bankruptcy assistance to an
assisted person in return for the payment of money or
other valuable consideration, or who is a bankruptcy
petition preparer under section 110, but does not
include--
(A) any person who is an officer, director,
employee, or agent of a person who provides
such assistance or of the bankruptcy petition
preparer;
(B) a nonprofit organization that is exempt
from taxation under section 501(c)(3) of the
Internal Revenue Code of 1986;
(C) a creditor of such assisted person, to
the extent that the creditor is assisting such
assisted person to restructure any debt owed by
such assisted person to the creditor;
(D) a depository institution (as defined in
section 3 of the Federal Deposit Insurance Act)
or any Federal credit union or State credit
union (as those terms are defined in section
101 of the Federal Credit Union Act), or any
affiliate or subsidiary of such depository
institution or credit union; or
(E) an author, publisher, distributor, or
seller of works subject to copyright protection
under title 17, when acting in such capacity.
(13) The term ``debtor'' means person or
municipality concerning which a case under this title
has been commenced.
(13A) The term ``debtor's principal residence''--
(A) means a residential structure if used
as the principal residence by the debtor,
including incidental property, without regard
to whether that structure is attached to real
property; and
(B) includes an individual condominium or
cooperative unit, a mobile or manufactured
home, or trailer if used as the principal
residence by the debtor.
(14) The term ``disinterested person'' means a
person that--
(A) is not a creditor, an equity security
holder, or an insider;
(B) is not and was not, within 2 years
before the date of the filing of the petition,
a director, officer, or employee of the debtor;
and
(C) does not have an interest materially
adverse to the interest of the estate or of any
class of creditors or equity security holders,
by reason of any direct or indirect
relationship to, connection with, or interest
in, the debtor, or for any other reason.
(14A) The term ``domestic support obligation''
means a debt that accrues before, on, or after the date
of the order for relief in a case under this title,
including interest that accrues on that debt as
provided under applicable nonbankruptcy law
notwithstanding any other provision of this title, that
is--
(A) owed to or recoverable by--
(i) a spouse, former spouse, or
child of the debtor or such child's
parent, legal guardian, or responsible
relative; or
(ii) a governmental unit;
(B) in the nature of alimony, maintenance,
or support (including assistance provided by a
governmental unit) of such spouse, former
spouse, or child of the debtor or such child's
parent, without regard to whether such debt is
expressly so designated;
(C) established or subject to establishment
before, on, or after the date of the order for
relief in a case under this title, by reason of
applicable provisions of--
(i) a separation agreement, divorce
decree, or property settlement
agreement;
(ii) an order of a court of record;
or
(iii) a determination made in
accordance with applicable
nonbankruptcy law by a governmental
unit; and
(D) not assigned to a nongovernmental
entity, unless that obligation is assigned
voluntarily by the spouse, former spouse, child
of the debtor, or such child's parent, legal
guardian, or responsible relative for the
purpose of collecting the debt.
(15) The term ``entity'' includes person, estate,
trust, governmental unit, and United States trustee.
(16) The term ``equity security'' means--
(A) share in a corporation, whether or not
transferable or denominated ``stock'', or
similar security;
(B) interest of a limited partner in a
limited partnership; or
(C) warrant or right, other than a right to
convert, to purchase, sell, or subscribe to a
share, security, or interest of a kind
specified in subparagraph (A) or (B) of this
paragraph.
(17) The term ``equity security holder'' means
holder of an equity security of the debtor.
(18) The term ``family farmer'' means--
(A) individual or individual and spouse
engaged in a farming operation whose aggregate
debts do not exceed $3,237,000 and not less
than 50 percent of whose aggregate
noncontingent, liquidated debts (excluding a
debt for the principal residence of such
individual or such individual and spouse unless
such debt arises out of a farming operation),
on the date the case is filed, arise out of a
farming operation owned or operated by such
individual or such individual and spouse, and
such individual or such individual and spouse
receive from such farming operation more than
50 percent of such individual's or such
individual and spouse's gross income for--
(i) the taxable year preceding; or
(ii) each of the 2d and 3d taxable
years preceding;
the taxable year in which the case concerning
such individual or such individual and spouse
was filed; or
(B) corporation or partnership in which
more than 50 percent of the outstanding stock
or equity is held by one family, or by one
family and the relatives of the members of such
family, and such family or such relatives
conduct the farming operation, and
(i) more than 80 percent of the
value of its assets consists of assets
related to the farming operation;
(ii) its aggregate debts do not
exceed $3,237,000 and not less than 50
percent of its aggregate noncontingent,
liquidated debts (excluding a debt for
one dwelling which is owned by such
corporation or partnership and which a
shareholder or partner maintains as a
principal residence, unless such debt
arises out of a farming operation), on
the date the case is filed, arise out
of the farming operation owned or
operated by such corporation or such
partnership; and
(iii) if such corporation issues
stock, such stock is not publicly
traded.
(19) The term ``family farmer with regular annual
income'' means family farmer whose annual income is
sufficiently stable and regular to enable such family
farmer to make payments under a plan under chapter 12
of this title.
(19A) The term ``family fisherman'' means--
(A) an individual or individual and spouse
engaged in a commercial fishing operation--
(i) whose aggregate debts do not
exceed $1,500,000 and not less than 80
percent of whose aggregate
noncontingent, liquidated debts
(excluding a debt for the principal
residence of such individual or such
individual and spouse, unless such debt
arises out of a commercial fishing
operation), on the date the case is
filed, arise out of a commercial
fishing operation owned or operated by
such individual or such individual and
spouse; and
(ii) who receive from such
commercial fishing operation more than
50 percent of such individual's or such
individual's and spouse's gross income
for the taxable year preceding the
taxable year in which the case
concerning such individual or such
individual and spouse was filed; or
(B) a corporation or partnership--
(i) in which more than 50 percent
of the outstanding stock or equity is
held by--
(I) 1 family that conducts
the commercial fishing
operation; or
(II) 1 family and the
relatives of the members of
such family, and such family or
such relatives conduct the
commercial fishing operation;
and
(ii)(I) more than 80 percent of the
value of its assets consists of assets
related to the commercial fishing
operation;
(II) its aggregate debts do not
exceed $1,500,000 and not less than 80
percent of its aggregate noncontingent,
liquidated debts (excluding a debt for
1 dwelling which is owned by such
corporation or partnership and which a
shareholder or partner maintains as a
principal residence, unless such debt
arises out of a commercial fishing
operation), on the date the case is
filed, arise out of a commercial
fishing operation owned or operated by
such corporation or such partnership;
and
(III) if such corporation issues
stock, such stock is not publicly
traded.
(19B) The term ``family fisherman with regular
annual income'' means a family fisherman whose annual
income is sufficiently stable and regular to enable
such family fisherman to make payments under a plan
under chapter 12 of this title.
(20) The term ``farmer'' means (except when such
term appears in the term ``family farmer'') person that
received more than 80 percent of such person's gross
income during the taxable year of such person
immediately preceding the taxable year of such person
during which the case under this title concerning such
person was commenced from a farming operation owned or
operated by such person.
(21) The term ``farming operation'' includes
farming, tillage of the soil, dairy farming, ranching,
production or raising of crops, poultry, or livestock,
and production of poultry or livestock products in an
unmanufactured state.
(21A) The term ``farmout agreement'' means a
written agreement in which--
(A) the owner of a right to drill, produce,
or operate liquid or gaseous hydrocarbons on
property agrees or has agreed to transfer or
assign all or a part of such right to another
entity; and
(B) such other entity (either directly or
through its agents or its assigns), as
consideration, agrees to perform drilling,
reworking, recompleting, testing, or similar or
related operations, to develop or produce
liquid or gaseous hydrocarbons on the property.
(21B) The term ``Federal depository institutions
regulatory agency'' means--
(A) with respect to an insured depository
institution (as defined in section 3(c)(2) of
the Federal Deposit Insurance Act) for which no
conservator or receiver has been appointed, the
appropriate Federal banking agency (as defined
in section 3(q) of such Act);
(B) with respect to an insured credit union
(including an insured credit union for which
the National Credit Union Administration has
been appointed conservator or liquidating
agent), the National Credit Union
Administration;
(C) with respect to any insured depository
institution for which the Resolution Trust
Corporation has been appointed conservator or
receiver, the Resolution Trust Corporation; and
(D) with respect to any insured depository
institution for which the Federal Deposit
Insurance Corporation has been appointed
conservator or receiver, the Federal Deposit
Insurance Corporation.
(22) The term ``financial institution'' means--
(A) a Federal reserve bank, or an entity
that is a commercial or savings bank,
industrial savings bank, savings and loan
association, trust company, federally-insured
credit union, or receiver, liquidating agent,
or conservator for such entity and, when any
such Federal reserve bank, receiver,
liquidating agent, conservator or entity is
acting as agent or custodian for a customer
(whether or not a ``customer'', as defined in
section 741) in connection with a securities
contract (as defined in section 741) such
customer; or
(B) in connection with a securities
contract (as defined in section 741) an
investment company registered under the
Investment Company Act of 1940.
(22A) The term ``financial participant'' means--
(A) an entity that, at the time it enters
into a securities contract, commodity contract,
swap agreement, repurchase agreement, or
forward contract, or at the time of the date of
the filing of the petition, has one or more
agreements or transactions described in
paragraph (1), (2), (3), (4), (5), or (6) of
section 561(a) with the debtor or any other
entity (other than an affiliate) of a total
gross dollar value of not less than
$1,000,000,000 in notional or actual principal
amount outstanding (aggregated across
counterparties) at such time or on any day
during the 15-month period preceding the date
of the filing of the petition, or has gross
mark-to-market positions of not less than
$100,000,000 (aggregated across counterparties)
in one or more such agreements or transactions
with the debtor or any other entity (other than
an affiliate) at such time or on any day during
the 15-month period preceding the date of the
filing of the petition; or
(B) a clearing organization (as defined in
section 402 of the Federal Deposit Insurance
Corporation Improvement Act of 1991).
(23) The term ``foreign proceeding'' means a
collective judicial or administrative proceeding in a
foreign country, including an interim proceeding, under
a law relating to insolvency or adjustment of debt in
which proceeding the assets and affairs of the debtor
are subject to control or supervision by a foreign
court, for the purpose of reorganization or
liquidation.
(24) The term ``foreign representative'' means a
person or body, including a person or body appointed on
an interim basis, authorized in a foreign proceeding to
administer the reorganization or the liquidation of the
debtor's assets or affairs or to act as a
representative of such foreign proceeding.
(25) The term ``forward contract'' means--
(A) a contract (other than a commodity
contract, as defined in section 761) for the
purchase, sale, or transfer of a commodity, as
defined in section 761(8) of this title, or any
similar good, article, service, right, or
interest which is presently or in the future
becomes the subject of dealing in the forward
contract trade, or product or byproduct
thereof, with a maturity date more than two
days after the date the contract is entered
into, including, but not limited to, a
repurchase or reverse repurchase transaction
(whether or not such repurchase or reverse
repurchase transaction is a ``repurchase
agreement'', as defined in this section)
consignment, lease, swap, hedge transaction,
deposit, loan, option, allocated transaction,
unallocated transaction, or any other similar
agreement;
(B) any combination of agreements or
transactions referred to in subparagraphs (A)
and (C);
(C) any option to enter into an agreement
or transaction referred to in subparagraph (A)
or (B);
(D) a master agreement that provides for an
agreement or transaction referred to in
subparagraph (A), (B), or (C), together with
all supplements to any such master agreement,
without regard to whether such master agreement
provides for an agreement or transaction that
is not a forward contract under this paragraph,
except that such master agreement shall be
considered to be a forward contract under this
paragraph only with respect to each agreement
or transaction under such master agreement that
is referred to in subparagraph (A), (B), or
(C); or
(E) any security agreement or arrangement,
or other credit enhancement related to any
agreement or transaction referred to in
subparagraph (A), (B), (C), or (D), including
any guarantee or reimbursement obligation by or
to a forward contract merchant or financial
participant in connection with any agreement or
transaction referred to in any such
subparagraph, but not to exceed the damages in
connection with any such agreement or
transaction, measured in accordance with
section 562.
(26) The term ``forward contract merchant'' means a
Federal reserve bank, or an entity the business of
which consists in whole or in part of entering into
forward contracts as or with merchants in a commodity
(as defined in section 761) or any similar good,
article, service, right, or interest which is presently
or in the future becomes the subject of dealing in the
forward contract trade.
(27) The term ``governmental unit'' means United
States; State; Commonwealth; District; Territory;
municipality; foreign state; department, agency, or
instrumentality of the United States (but not a United
States trustee while serving as a trustee in a case
under this title), a State, a Commonwealth, a District,
a Territory, a municipality, or a foreign state; or
other foreign or domestic government.
(27A) The term ``health care business''--
(A) means any public or private entity
(without regard to whether that entity is
organized for profit or not for profit) that is
primarily engaged in offering to the general
public facilities and services for--
(i) the diagnosis or treatment of
injury, deformity, or disease; and
(ii) surgical, drug treatment,
psychiatric, or obstetric care; and
(B) includes--
(i) any--
(I) general or specialized
hospital;
(II) ancillary ambulatory,
emergency, or surgical
treatment facility;
(III) hospice;
(IV) home health agency;
and
(V) other health care
institution that is similar to
an entity referred to in
subclause (I), (II), (III), or
(IV); and
(ii) any long-term care facility,
including any--
(I) skilled nursing
facility;
(II) intermediate care
facility;
(III) assisted living
facility;
(IV) home for the aged;
(V) domiciliary care
facility; and
(VI) health care
institution that is related to
a facility referred to in
subclause (I), (II), (III),
(IV), or (V), if that
institution is primarily
engaged in offering room,
board, laundry, or personal
assistance with activities of
daily living and incidentals to
activities of daily living.
(27B) The term ``incidental property'' means, with
respect to a debtor's principal residence--
(A) property commonly conveyed with a
principal residence in the area where the real
property is located;
(B) all easements, rights, appurtenances,
fixtures, rents, royalties, mineral rights, oil
or gas rights or profits, water rights, escrow
funds, or insurance proceeds; and
(C) all replacements or additions.
(28) The term ``indenture'' means mortgage, deed of
trust, or indenture, under which there is outstanding a
security, other than a voting-trust certificate,
constituting a claim against the debtor, a claim
secured by a lien on any of the debtor's property, or
an equity security of the debtor.
(29) The term ``indenture trustee'' means trustee
under an indenture.
(30) The term ``individual with regular income''
means individual whose income is sufficiently stable
and regular to enable such individual to make payments
under a plan under chapter 13 of this title, other than
a stockbroker or a commodity broker.
(31) The term ``insider'' includes--
(A) if the debtor is an individual--
(i) relative of the debtor or of a
general partner of the debtor;
(ii) partnership in which the
debtor is a general partner;
(iii) general partner of the
debtor; or
(iv) corporation of which the
debtor is a director, officer, or
person in control;
(B) if the debtor is a corporation--
(i) director of the debtor;
(ii) officer of the debtor;
(iii) person in control of the
debtor;
(iv) partnership in which the
debtor is a general partner;
(v) general partner of the debtor;
or
(vi) relative of a general partner,
director, officer, or person in control
of the debtor;
(C) if the debtor is a partnership--
(i) general partner in the debtor;
(ii) relative of a general partner
in, general partner of, or person in
control of the debtor;
(iii) partnership in which the
debtor is a general partner;
(iv) general partner of the debtor;
or
(v) person in control of the
debtor;
(D) if the debtor is a municipality,
elected official of the debtor or relative of
an elected official of the debtor;
(E) affiliate, or insider of an affiliate
as if such affiliate were the debtor; and
(F) managing agent of the debtor.
(32) The term ``insolvent'' means--
(A) with reference to an entity other than
a partnership and a municipality, financial
condition such that the sum of such entity's
debts is greater than all of such entity's
property, at a fair valuation, exclusive of--
(i) property transferred,
concealed, or removed with intent to
hinder, delay, or defraud such entity's
creditors; and
(ii) property that may be exempted
from property of the estate under
section 522 of this title;
(B) with reference to a partnership,
financial condition such that the sum of such
partnership's debts is greater than the
aggregate of, at a fair valuation--
(i) all of such partnership's
property, exclusive of property of the
kind specified in subparagraph (A)(i)
of this paragraph; and
(ii) the sum of the excess of the
value of each general partner's
nonpartnership property, exclusive of
property of the kind specified in
subparagraph (A) of this paragraph,
over such partner's nonpartnership
debts; and
(C) with reference to a municipality,
financial condition such that the municipality
is--
(i) generally not paying its debts
as they become due unless such debts
are the subject of a bona fide dispute;
or
(ii) unable to pay its debts as
they become due.
(33) The term ``institution-affiliated party''--
(A) with respect to an insured depository
institution (as defined in section 3(c)(2) of
the Federal Deposit Insurance Act), has the
meaning given it in section 3(u) of the Federal
Deposit Insurance Act; and
(B) with respect to an insured credit
union, has the meaning given it in section
206(r) of the Federal Credit Union Act.
(34) The term ``insured credit union'' has the
meaning given it in section 101(7) of the Federal
Credit Union Act.
(35) The term ``insured depository institution''--
(A) has the meaning given it in section
3(c)(2) of the Federal Deposit Insurance Act;
and
(B) includes an insured credit union
(except in the case of paragraphs (21B) and
(33)(A) of this subsection).
(35A) The term ``intellectual property'' means--
(A) trade secret;
(B) invention, process, design, or plant
protected under title 35;
(C) patent application;
(D) plant variety;
(E) work of authorship protected under
title 17; [or]
(F) mask work protected under chapter 9 of
[title 17;] title 17; or
(G) a trademark, service mark, or trade
name, as those terms are defined in section 45
of the Act of July 5, 1946 (commonly referred
to as the ``Trademark Act of 1946'') (15 U.S.C.
1127);
to the extent protected by applicable nonbankruptcy
law.
(36) The term ``judicial lien'' means lien obtained
by judgment, levy, sequestration, or other legal or
equitable process or proceeding.
(37) The term ``lien'' means charge against or
interest in property to secure payment of a debt or
performance of an obligation.
(38) The term ``margin payment'' means, for
purposes of the forward contract provisions of this
title, payment or deposit of cash, a security or other
property, that is commonly known in the forward
contract trade as original margin, initial margin,
maintenance margin, or variation margin, including
mark-to-market payments, or variation payments.
(38A) The term ``master netting agreement''--
(A) means an agreement providing for the
exercise of rights, including rights of
netting, setoff, liquidation, termination,
acceleration, or close out, under or in
connection with one or more contracts that are
described in any one or more of paragraphs (1)
through (5) of section 561(a), or any security
agreement or arrangement or other credit
enhancement related to one or more of the
foregoing, including any guarantee or
reimbursement obligation related to 1 or more
of the foregoing; and
(B) if the agreement contains provisions
relating to agreements or transactions that are
not contracts described in paragraphs (1)
through (5) of section 561(a), shall be deemed
to be a master netting agreement only with
respect to those agreements or transactions
that are described in any one or more of
paragraphs (1) through (5) of section 561(a).
(38B) The term ``master netting agreement
participant'' means an entity that, at any time before
the date of the filing of the petition, is a party to
an outstanding master netting agreement with the
debtor.
(39) The term ``mask work'' has the meaning given
it in section 901(a)(2) of title 17.
(39A) The term ``median family income'' means for
any year--
(A) the median family income both
calculated and reported by the Bureau of the
Census in the then most recent year; and
(B) if not so calculated and reported in
the then current year, adjusted annually after
such most recent year until the next year in
which median family income is both calculated
and reported by the Bureau of the Census, to
reflect the percentage change in the Consumer
Price Index for All Urban Consumers during the
period of years occurring after such most
recent year and before such current year.
(40) The term ``municipality'' means political
subdivision or public agency or instrumentality of a
State.
(40A) The term ``patient'' means any individual who
obtains or receives services from a health care
business.
(40B) The term ``patient records'' means any record
relating to a patient, including a written document or
a record recorded in a magnetic, optical, or other form
of electronic medium.
(41) The term ``person'' includes individual,
partnership, and corporation, but does not include
governmental unit, except that a governmental unit
that--
(A) acquires an asset from a person--
(i) as a result of the operation of
a loan guarantee agreement; or
(ii) as receiver or liquidating
agent of a person;
(B) is a guarantor of a pension benefit
payable by or on behalf of the debtor or an
affiliate of the debtor; or
(C) is the legal or beneficial owner of an
asset of--
(i) an employee pension benefit
plan that is a governmental plan, as
defined in section 414(d) of the
Internal Revenue Code of 1986; or
(ii) an eligible deferred
compensation plan, as defined in
section 457(b) of the Internal Revenue
Code of 1986;
shall be considered, for purposes of section 1102 of
this title, to be a person with respect to such asset
or such benefit.
(41A) The term ``personally identifiable
information'' means--
(A) if provided by an individual to the
debtor in connection with obtaining a product
or a service from the debtor primarily for
personal, family, or household purposes--
(i) the first name (or initial) and
last name of such individual, whether
given at birth or time of adoption, or
resulting from a lawful change of name;
(ii) the geographical address of a
physical place of residence of such
individual;
(iii) an electronic address
(including an e-mail address) of such
individual;
(iv) a telephone number dedicated
to contacting such individual at such
physical place of residence;
(v) a social security account
number issued to such individual; or
(vi) the account number of a credit
card issued to such individual; or
(B) if identified in connection with 1 or
more of the items of information specified in
subparagraph (A)--
(i) a birth date, the number of a
certificate of birth or adoption, or a
place of birth; or
(ii) any other information
concerning an identified individual
that, if disclosed, will result in
contacting or identifying such
individual physically or
electronically.
(42) The term ``petition'' means petition filed
under section 301, 302, 303 and 1504 of this title, as
the case may be, commencing a case under this title.
(42A) The term ``production payment'' means a term
overriding royalty satisfiable in cash or in kind--
(A) contingent on the production of a
liquid or gaseous hydrocarbon from particular
real property; and
(B) from a specified volume, or a specified
value, from the liquid or gaseous hydrocarbon
produced from such property, and determined
without regard to production costs.
(43) The term ``purchaser'' means transferee of a
voluntary transfer, and includes immediate or mediate
transferee of such a transferee.
(44) The term ``railroad'' means common carrier by
railroad engaged in the transportation of individuals
or property or owner of trackage facilities leased by
such a common carrier.
(45) The term ``relative'' means individual related
by affinity or consanguinity within the third degree as
determined by the common law, or individual in a step
or adoptive relationship within such third degree.
(46) The term ``repo participant'' means an entity
that, at any time before the filing of the petition,
has an outstanding repurchase agreement with the
debtor.
(47) The term ``repurchase agreement'' (which
definition also applies to a reverse repurchase
agreement)--
(A) means--
(i) an agreement, including related
terms, which provides for the transfer
of one or more certificates of deposit,
mortgage related securities (as defined
in section 3 of the Securities Exchange
Act of 1934), mortgage loans, interests
in mortgage related securities or
mortgage loans, eligible bankers'
acceptances, qualified foreign
government securities (defined as a
security that is a direct obligation
of, or that is fully guaranteed by, the
central government of a member of the
Organization for Economic Cooperation
and Development), or securities that
are direct obligations of, or that are
fully guaranteed by, the United States
or any agency of the United States
against the transfer of funds by the
transferee of such certificates of
deposit, eligible bankers' acceptances,
securities, mortgage loans, or
interests, with a simultaneous
agreement by such transferee to
transfer to the transferor thereof
certificates of deposit, eligible
bankers' acceptance, securities,
mortgage loans, or interests of the
kind described in this clause, at a
date certain not later than 1 year
after such transfer or on demand,
against the transfer of funds;
(ii) any combination of agreements
or transactions referred to in clauses
(i) and (iii);
(iii) an option to enter into an
agreement or transaction referred to in
clause (i) or (ii);
(iv) a master agreement that
provides for an agreement or
transaction referred to in clause (i),
(ii), or (iii), together with all
supplements to any such master
agreement, without regard to whether
such master agreement provides for an
agreement or transaction that is not a
repurchase agreement under this
paragraph, except that such master
agreement shall be considered to be a
repurchase agreement under this
paragraph only with respect to each
agreement or transaction under the
master agreement that is referred to in
clause (i), (ii), or (iii); or
(v) any security agreement or
arrangement or other credit enhancement
related to any agreement or transaction
referred to in clause (i), (ii), (iii),
or (iv), including any guarantee or
reimbursement obligation by or to a
repo participant or financial
participant in connection with any
agreement or transaction referred to in
any such clause, but not to exceed the
damages in connection with any such
agreement or transaction, measured in
accordance with section 562 of this
title; and
(B) does not include a repurchase
obligation under a participation in a
commercial mortgage loan.
(48) The term ``securities clearing agency'' means
person that is registered as a clearing agency under
section 17A of the Securities Exchange Act of 1934, or
exempt from such registration under such section
pursuant to an order of the Securities and Exchange
Commission, or whose business is confined to the
performance of functions of a clearing agency with
respect to exempted securities, as defined in section
3(a)(12) of such Act for the purposes of such section
17A.
(48A) The term ``securities self regulatory
organization'' means either a securities association
registered with the Securities and Exchange Commission
under section 15A of the Securities Exchange Act of
1934 or a national securities exchange registered with
the Securities and Exchange Commission under section 6
of the Securities Exchange Act of 1934.
(49) The term ``security''--
(A) includes--
(i) note;
(ii) stock;
(iii) treasury stock;
(iv) bond;
(v) debenture;
(vi) collateral trust certificate;
(vii) pre-organization certificate
or subscription;
(viii) transferable share;
(ix) voting-trust certificate;
(x) certificate of deposit;
(xi) certificate of deposit for
security;
(xii) investment contract or
certificate of interest or
participation in a profit-sharing
agreement or in an oil, gas, or mineral
royalty or lease, if such contract or
interest is required to be the subject
of a registration statement filed with
the Securities and Exchange Commission
under the provisions of the Securities
Act of 1933, or is exempt under section
3(b) of such Act from the requirement
to file such a statement;
(xiii) interest of a limited
partner in a limited partnership;
(xiv) other claim or interest
commonly known as ``security''; and
(xv) certificate of interest or
participation in, temporary or interim
certificate for, receipt for, or
warrant or right to subscribe to or
purchase or sell, a security; but
(B) does not include--
(i) currency, check, draft, bill of
exchange, or bank letter of credit;
(ii) leverage transaction, as
defined in section 761 of this title;
(iii) commodity futures contract or
forward contract;
(iv) option, warrant, or right to
subscribe to or purchase or sell a
commodity futures contract;
(v) option to purchase or sell a
commodity;
(vi) contract or certificate of a
kind specified in subparagraph (A)(xii)
of this paragraph that is not required
to be the subject of a registration
statement filed with the Securities and
Exchange Commission and is not exempt
under section 3(b) of the Securities
Act of 1933 from the requirement to
file such a statement; or
(vii) debt or evidence of
indebtedness for goods sold and
delivered or services rendered.
(50) The term ``security agreement'' means
agreement that creates or provides for a security
interest.
(51) The term ``security interest'' means lien
created by an agreement.
(51A) The term ``settlement payment'' means, for
purposes of the forward contract provisions of this
title, a preliminary settlement payment, a partial
settlement payment, an interim settlement payment, a
settlement payment on account, a final settlement
payment, a net settlement payment, or any other similar
payment commonly used in the forward contract trade.
(51B) The term ``single asset real estate'' means
real property constituting a single property or
project, other than residential real property with
fewer than 4 residential units, which generates
substantially all of the gross income of a debtor who
is not a family farmer and on which no substantial
business is being conducted by a debtor other than the
business of operating the real property and activities
incidental thereto.
(51C) The term ``small business case'' means a case
filed under chapter 11 of this title in which the
debtor is a small business debtor.
(51D) The term ``small business debtor''--
(A) subject to subparagraph (B), means a
person engaged in commercial or business
activities (including any affiliate of such
person that is also a debtor under this title
and excluding a person whose primary activity
is the business of owning or operating real
property or activities incidental thereto) that
has aggregate noncontingent liquidated secured
and unsecured debts as of the date of the
filing of the petition or the date of the order
for relief in an amount not more than
$2,000,000 (excluding debts owed to 1 or more
affiliates or insiders) for a case in which the
United States trustee has not appointed under
section 1102(a)(1) a committee of unsecured
creditors or where the court has determined
that the committee of unsecured creditors is
not sufficiently active and representative to
provide effective oversight of the debtor; and
(B) does not include any member of a group
of affiliated debtors that has aggregate
noncontingent liquidated secured and unsecured
debts in an amount greater than $2,000,000
(excluding debt owed to 1 or more affiliates or
insiders).
(52) The term ``State'' includes the District of
Columbia and Puerto Rico, except for the purpose of
defining who may be a debtor under chapter 9 of this
title.
(53) The term ``statutory lien'' means lien arising
solely by force of a statute on specified circumstances
or conditions, or lien of distress for rent, whether or
not statutory, but does not include security interest
or judicial lien, whether or not such interest or lien
is provided by or is dependent on a statute and whether
or not such interest or lien is made fully effective by
statute.
(53A) The term ``stockbroker'' means person--
(A) with respect to which there is a
customer, as defined in section 741 of this
title; and
(B) that is engaged in the business of
effecting transactions in securities--
(i) for the account of others; or
(ii) with members of the general
public, from or for such person's own
account.
(53B) The term ``swap agreement''--
(A) means--
(i) any agreement, including the
terms and conditions incorporated by
reference in such agreement, which is--
(I) an interest rate swap,
option, future, or forward
agreement, including a rate
floor, rate cap, rate collar,
cross-currency rate swap, and
basis swap;
(II) a spot, same day-
tomorrow, tomorrow-next,
forward, or other foreign
exchange, precious metals, or
other commodity agreement;
(III) a currency swap,
option, future, or forward
agreement;
(IV) an equity index or
equity swap, option, future, or
forward agreement;
(V) a debt index or debt
swap, option, future, or
forward agreement;
(VI) a total return, credit
spread or credit swap, option,
future, or forward agreement;
(VII) a commodity index or
a commodity swap, option,
future, or forward agreement;
(VIII) a weather swap,
option, future, or forward
agreement;
(IX) an emissions swap,
option, future, or forward
agreement; or
(X) an inflation swap,
option, future, or forward
agreement;
(ii) any agreement or transaction
that is similar to any other agreement
or transaction referred to in this
paragraph and that--
(I) is of a type that has
been, is presently, or in the
future becomes, the subject of
recurrent dealings in the swap
or other derivatives markets
(including terms and conditions
incorporated by reference
therein); and
(II) is a forward, swap,
future, option, or spot
transaction on one or more
rates, currencies, commodities,
equity securities, or other
equity instruments, debt
securities or other debt
instruments, quantitative
measures associated with an
occurrence, extent of an
occurrence, or contingency
associated with a financial,
commercial, or economic
consequence, or economic or
financial indices or measures
of economic or financial risk
or value;
(iii) any combination of agreements
or transactions referred to in this
subparagraph;
(iv) any option to enter into an
agreement or transaction referred to in
this subparagraph;
(v) a master agreement that
provides for an agreement or
transaction referred to in clause (i),
(ii), (iii), or (iv), together with all
supplements to any such master
agreement, and without regard to
whether the master agreement contains
an agreement or transaction that is not
a swap agreement under this paragraph,
except that the master agreement shall
be considered to be a swap agreement
under this paragraph only with respect
to each agreement or transaction under
the master agreement that is referred
to in clause (i), (ii), (iii), or (iv);
or
(vi) any security agreement or
arrangement or other credit enhancement
related to any agreements or
transactions referred to in clause (i)
through (v), including any guarantee or
reimbursement obligation by or to a
swap participant or financial
participant in connection with any
agreement or transaction referred to in
any such clause, but not to exceed the
damages in connection with any such
agreement or transaction, measured in
accordance with section 562; and
(B) is applicable for purposes of this
title only, and shall not be construed or
applied so as to challenge or affect the
characterization, definition, or treatment of
any swap agreement under any other statute,
regulation, or rule, including the Gramm-Leach-
Bliley Act, the Legal Certainty for Bank
Products Act of 2000, the securities laws (as
such term is defined in section 3(a)(47) of the
Securities Exchange Act of 1934) and the
Commodity Exchange Act.
(53C) The term ``swap participant'' means an entity
that, at any time before the filing of the petition,
has an outstanding swap agreement with the debtor.
(56A) The term ``term overriding royalty'' means an
interest in liquid or gaseous hydrocarbons in place or
to be produced from particular real property that
entitles the owner thereof to a share of production, or
the value thereof, for a term limited by time,
quantity, or value realized.
(53D) The term ``timeshare plan'' means and shall
include that interest purchased in any arrangement,
plan, scheme, or similar device, but not including
exchange programs, whether by membership, agreement,
tenancy in common, sale, lease, deed, rental agreement,
license, right to use agreement, or by any other means,
whereby a purchaser, in exchange for consideration,
receives a right to use accommodations, facilities, or
recreational sites, whether improved or unimproved, for
a specific period of time less than a full year during
any given year, but not necessarily for consecutive
years, and which extends for a period of more than
three years. A ``timeshare interest'' is that interest
purchased in a timeshare plan which grants the
purchaser the right to use and occupy accommodations,
facilities, or recreational sites, whether improved or
unimproved, pursuant to a timeshare plan.
(54) The term ``transfer'' means--
(A) the creation of a lien;
(B) the retention of title as a security
interest;
(C) the foreclosure of a debtor's equity of
redemption; or
(D) each mode, direct or indirect, absolute
or conditional, voluntary or involuntary, of
disposing of or parting with--
(i) property; or
(ii) an interest in property.
(54A) The term ``uninsured State member bank''
means a State member bank (as defined in section 3 of
the Federal Deposit Insurance Act) the deposits of
which are not insured by the Federal Deposit Insurance
Corporation.
(55) The term ``United States'', when used in a
geographical sense, includes all locations where the
judicial jurisdiction of the United States extends,
including territories and possessions of the United
States.
* * * * * * *
CHAPTER 3--CASE ADMINISTRATION
* * * * * * *
Subchapter IV--ADMINISTRATIVE POWERS
* * * * * * *
Sec. 365. Executory contracts and unexpired leases
(a) Except as provided in sections 765 and 766 of this
title and in subsections (b), (c), and (d) of this section, the
trustee, subject to the court's approval, may assume or reject
any executory contract or unexpired lease of the debtor.
(b)(1) If there has been a default in an executory contract
or unexpired lease of the debtor, the trustee may not assume
such contract or lease unless, at the time of assumption of
such contract or lease, the trustee--
(A) cures, or provides adequate assurance that the
trustee will promptly cure, such default other than a
default that is a breach of a provision relating to the
satisfaction of any provision (other than a penalty
rate or penalty provision) relating to a default
arising from any failure to perform nonmonetary
obligations under an unexpired lease of real property,
if it is impossible for the trustee to cure such
default by performing nonmonetary acts at and after the
time of assumption, except that if such default arises
from a failure to operate in accordance with a
nonresidential real property lease, then such default
shall be cured by performance at and after the time of
assumption in accordance with such lease, and pecuniary
losses resulting from such default shall be compensated
in accordance with the provisions of this paragraph;
(B) compensates, or provides adequate assurance
that the trustee will promptly compensate, a party
other than the debtor to such contract or lease, for
any actual pecuniary loss to such party resulting from
such default; and
(C) provides adequate assurance of future
performance under such contract or lease.
(2) Paragraph (1) of this subsection does not apply to a
default that is a breach of a provision relating to--
(A) the insolvency or financial condition of the
debtor at any time before the closing of the case;
(B) the commencement of a case under this title;
(C) the appointment of or taking possession by a
trustee in a case under this title or a custodian
before such commencement; or
(D) the satisfaction of any penalty rate or penalty
provision relating to a default arising from any
failure by the debtor to perform nonmonetary
obligations under the executory contract or unexpired
lease.
(3) For the purposes of paragraph (1) of this subsection
and paragraph (2)(B) of subsection (f), adequate assurance of
future performance of a lease of real property in a shopping
center includes adequate assurance--
(A) of the source of rent and other consideration
due under such lease, and in the case of an assignment,
that the financial condition and operating performance
of the proposed assignee and its guarantors, if any,
shall be similar to the financial condition and
operating performance of the debtor and its guarantors,
if any, as of the time the debtor became the lessee
under the lease;
(B) that any percentage rent due under such lease
will not decline substantially;
(C) that assumption or assignment of such lease is
subject to all the provisions thereof, including (but
not limited to) provisions such as a radius, location,
use, or exclusivity provision, and will not breach any
such provision contained in any other lease, financing
agreement, or master agreement relating to such
shopping center; and
(D) that assumption or assignment of such lease
will not disrupt any tenant mix or balance in such
shopping center.
(4) Notwithstanding any other provision of this section, if
there has been a default in an unexpired lease of the debtor,
other than a default of a kind specified in paragraph (2) of
this subsection, the trustee may not require a lessor to
provide services or supplies incidental to such lease before
assumption of such lease unless the lessor is compensated under
the terms of such lease for any services and supplies provided
under such lease before assumption of such lease.
(c) The trustee may not assume or assign any executory
contract or unexpired lease of the debtor, whether or not such
contract or lease prohibits or restricts assignment of rights
or delegation of duties, if--
(1)(A) applicable law excuses a party, other than
the debtor, to such contract or lease from accepting
performance from or rendering performance to an entity
other than the debtor or the debtor in possession,
whether or not such contract or lease prohibits or
restricts assignment of rights or delegation of duties;
and
(B) such party does not consent to such assumption
or assignment; or
(2) such contract is a contract to make a loan, or
extend other debt financing or financial
accommodations, to or for the benefit of the debtor, or
to issue a security of the debtor; or
(3) such lease is of nonresidential real property
and has been terminated under applicable nonbankruptcy
law prior to the order for relief.
(d)(1) In a case under chapter 7 of this title, if the
trustee does not assume or reject an executory contract or
unexpired lease of residential real property or of personal
property of the debtor within 60 days after the order for
relief, or within such additional time as the court, for cause,
within such 60-day period, fixes, then such contract or lease
is deemed rejected.
(2) In a case under chapter 9, 11, 12, or 13 of this title,
the trustee may assume or reject an executory contract or
unexpired lease of residential real property or of personal
property of the debtor at any time before the confirmation of a
plan but the court, on the request of any party to such
contract or lease, may order the trustee to determine within a
specified period of time whether to assume or reject such
contract or lease.
(3) The trustee shall timely perform all the obligations of
the debtor, except those specified in section 365(b)(2),
arising from and after the order for relief under any unexpired
lease of nonresidential real property, until such lease is
assumed or rejected, notwithstanding section 503(b)(1) of this
title. The court may extend, for cause, the time for
performance of any such obligation that arises within 60 days
after the date of the order for relief, but the time for
performance shall not be extended beyond such 60-day period.
This subsection shall not be deemed to affect the trustee's
obligations under the provisions of subsection (b) or (f) of
this section. Acceptance of any such performance does not
constitute waiver or relinquishment of the lessor's rights
under such lease or under this title.
(4)(A) Subject to subparagraph (B), an unexpired lease of
nonresidential real property under which the debtor is the
lessee shall be deemed rejected, and the trustee shall
immediately surrender that nonresidential real property to the
lessor, if the trustee does not assume or reject the unexpired
lease by the earlier of--
(i) the date that is 120 days after the date of the
order for relief; or
(ii) the date of the entry of an order confirming a
plan.
(B)(i) The court may extend the period determined under
subparagraph (A), prior to the expiration of the 120-day
period, for 90 days on the motion of the trustee or lessor for
cause.
(ii) If the court grants an extension under clause (i), the
court may grant a subsequent extension only upon prior written
consent of the lessor in each instance.
(5) The trustee shall timely perform all of the obligations
of the debtor, except those specified in section 365(b)(2),
first arising from or after 60 days after the order for relief
in a case under chapter 11 of this title under an unexpired
lease of personal property (other than personal property leased
to an individual primarily for personal, family, or household
purposes), until such lease is assumed or rejected
notwithstanding section 503(b)(1) of this title, unless the
court, after notice and a hearing and based on the equities of
the case, orders otherwise with respect to the obligations or
timely performance thereof. This subsection shall not be deemed
to affect the trustee's obligations under the provisions of
subsection (b) or (f). Acceptance of any such performance does
not constitute waiver or relinquishment of the lessor's rights
under such lease or under this title.
(e)(1) Notwithstanding a provision in an executory contract
or unexpired lease, or in applicable law, an executory contract
or unexpired lease of the debtor may not be terminated or
modified, and any right or obligation under such contract or
lease may not be terminated or modified, at any time after the
commencement of the case solely because of a provision in such
contract or lease that is conditioned on--
(A) the insolvency or financial condition of the
debtor at any time before the closing of the case;
(B) the commencement of a case under this title; or
(C) the appointment of or taking possession by a
trustee in a case under this title or a custodian
before such commencement.
(2) Paragraph (1) of this subsection does not apply to an
executory contract or unexpired lease of the debtor, whether or
not such contract or lease prohibits or restricts assignment of
rights or delegation of duties, if--
(A)(i) applicable law excuses a party, other than
the debtor, to such contract or lease from accepting
performance from or rendering performance to the
trustee or to an assignee of such contract or lease,
whether or not such contract or lease prohibits or
restricts assignment of rights or delegation of duties;
and
(ii) such party does not consent to such assumption
or assignment; or
(B) such contract is a contract to make a loan, or
extend other debt financing or financial
accommodations, to or for the benefit of the debtor, or
to issue a security of the debtor.
(f)(1) Except as provided in subsections (b) and (c) of
this section, notwithstanding a provision in an executory
contract or unexpired lease of the debtor, or in applicable
law, that prohibits, restricts, or conditions the assignment of
such contract or lease, the trustee may assign such contract or
lease under paragraph (2) of this subsection.
(2) The trustee may assign an executory contract or
unexpired lease of the debtor only if--
(A) the trustee assumes such contract or lease in
accordance with the provisions of this section; and
(B) adequate assurance of future performance by the
assignee of such contract or lease is provided, whether
or not there has been a default in such contract or
lease.
(3) Notwithstanding a provision in an executory contract or
unexpired lease of the debtor, or in applicable law that
terminates or modifies, or permits a party other than the
debtor to terminate or modify, such contract or lease or a
right or obligation under such contract or lease on account of
an assignment of such contract or lease, such contract, lease,
right, or obligation may not be terminated or modified under
such provision because of the assumption or assignment of such
contract or lease by the trustee.
(g) Except as provided in subsections (h)(2) and (i)(2) of
this section, the rejection of an executory contract or
unexpired lease of the debtor constitutes a breach of such
contract or lease--
(1) if such contract or lease has not been assumed
under this section or under a plan confirmed under
chapter 9, 11, 12, or 13 of this title, immediately
before the date of the filing of the petition; or
(2) if such contract or lease has been assumed
under this section or under a plan confirmed under
chapter 9, 11, 12, or 13 of this title--
(A) if before such rejection the case has
not been converted under section 1112, 1208, or
1307 of this title, at the time of such
rejection; or
(B) if before such rejection the case has
been converted under section 1112, 1208, or
1307 of this title--
(i) immediately before the date of
such conversion, if such contract or
lease was assumed before such
conversion; or
(ii) at the time of such rejection,
if such contract or lease was assumed
after such conversion.
(h)(1)(A) If the trustee rejects an unexpired lease of real
property under which the debtor is the lessor and--
(i) if the rejection by the trustee amounts to such
a breach as would entitle the lessee to treat such
lease as terminated by virtue of its terms, applicable
nonbankruptcy law, or any agreement made by the lessee,
then the lessee under such lease may treat such lease
as terminated by the rejection; or
(ii) if the term of such lease has commenced, the
lessee may retain its rights under such lease
(including rights such as those relating to the amount
and timing of payment of rent and other amounts payable
by the lessee and any right of use, possession, quiet
enjoyment, subletting, assignment, or hypothecation)
that are in or appurtenant to the real property for the
balance of the term of such lease and for any renewal
or extension of such rights to the extent that such
rights are enforceable under applicable nonbankruptcy
law.
(B) If the lessee retains its rights under subparagraph
(A)(ii), the lessee may offset against the rent reserved under
such lease for the balance of the term after the date of the
rejection of such lease and for the term of any renewal or
extension of such lease, the value of any damage caused by the
nonperformance after the date of such rejection, of any
obligation of the debtor under such lease, but the lessee shall
not have any other right against the estate or the debtor on
account of any damage occurring after such date caused by such
nonperformance.
(C) The rejection of a lease of real property in a shopping
center with respect to which the lessee elects to retain its
rights under subparagraph (A)(ii) does not affect the
enforceability under applicable nonbankruptcy law of any
provision in the lease pertaining to radius, location, use,
exclusivity, or tenant mix or balance.
(D) In this paragraph, ``lessee'' includes any successor,
assign, or mortgagee permitted under the terms of such lease.
(2)(A) If the trustee rejects a timeshare interest under a
timeshare plan under which the debtor is the timeshare interest
seller and--
(i) if the rejection amounts to such a breach as
would entitle the timeshare interest purchaser to treat
the timeshare plan as terminated under its terms,
applicable nonbankruptcy law, or any agreement made by
timeshare interest purchaser, the timeshare interest
purchaser under the timeshare plan may treat the
timeshare plan as terminated by such rejection; or
(ii) if the term of such timeshare interest has
commenced, then the timeshare interest purchaser may
retain its rights in such timeshare interest for the
balance of such term and for any term of renewal or
extension of such timeshare interest to the extent that
such rights are enforceable under applicable
nonbankruptcy law.
(B) If the timeshare interest purchaser retains its rights
under subparagraph (A), such timeshare interest purchaser may
offset against the moneys due for such timeshare interest for
the balance of the term after the date of the rejection of such
timeshare interest, and the term of any renewal or extension of
such timeshare interest, the value of any damage caused by the
nonperformance after the date of such rejection, of any
obligation of the debtor under such timeshare plan, but the
timeshare interest purchaser shall not have any right against
the estate or the debtor on account of any damage occurring
after such date caused by such nonperformance.
(i)(1) If the trustee rejects an executory contract of the
debtor for the sale of real property or for the sale of a
timeshare interest under a timeshare plan, under which the
purchaser is in possession, such purchaser may treat such
contract as terminated, or, in the alternative, may remain in
possession of such real property or timeshare interest.
(2) If such purchaser remains in possession--
(A) such purchaser shall continue to make all
payments due under such contract, but may, offset
against such payments any damages occurring after the
date of the rejection of such contract caused by the
nonperformance of any obligation of the debtor after
such date, but such purchaser does not have any rights
against the estate on account of any damages arising
after such date from such rejection, other than such
offset; and
(B) the trustee shall deliver title to such
purchaser in accordance with the provisions of such
contract, but is relieved of all other obligations to
perform under such contract.
(j) A purchaser that treats an executory contract as
terminated under subsection (i) of this section, or a party
whose executory contract to purchase real property from the
debtor is rejected and under which such party is not in
possession, has a lien on the interest of the debtor in such
property for the recovery of any portion of the purchase price
that such purchaser or party has paid.
(k) Assignment by the trustee to an entity of a contract or
lease assumed under this section relieves the trustee and the
estate from any liability for any breach of such contract or
lease occurring after such assignment.
(l) If an unexpired lease under which the debtor is the
lessee is assigned pursuant to this section, the lessor of the
property may require a deposit or other security for the
performance of the debtor's obligations under the lease
substantially the same as would have been required by the
landlord upon the initial leasing to a similar tenant.
(m) For purposes of this section 365 and sections 541(b)(2)
and 362(b)(10), leases of real property shall include any
rental agreement to use real property.
(n)(1) If the trustee rejects an executory contract under
which the debtor is a licensor of a right to intellectual
property, the licensee under such contract may elect--
(A) to treat such contract as terminated by such
rejection if such rejection by the trustee amounts to
such a breach as would entitle the licensee to treat
such contract as terminated by virtue of its own terms,
applicable nonbankruptcy law, or an agreement made by
the licensee with another entity; or
(B) to retain its rights (including a right to
enforce any exclusivity provision of such contract, but
excluding any other right under applicable
nonbankruptcy law to specific performance of such
contract) under such contract and under any agreement
supplementary to such contract, to such intellectual
property (including any embodiment of such intellectual
property to the extent protected by applicable
nonbankruptcy law), as such rights existed immediately
before the case commenced, for--
(i) the duration of such contract; and
(ii) any period for which such contract may
be extended by the licensee as of right under
applicable nonbankruptcy law.
(2) If the licensee elects to retain its rights, as
described in paragraph (1)(B) of this subsection, under such
contract--
(A) the trustee shall allow the licensee to
exercise such rights;
(B) the licensee shall make all [royalty payments]
royalty or other payments due under such contract for
the duration of such contract and for any period
described in paragraph (1)(B) of this subsection for
which the licensee extends such contract; [and]
(C) the licensee shall be deemed to waive--
(i) any right of setoff it may have with
respect to such contract under this title or
applicable nonbankruptcy law; and
(ii) any claim allowable under section
503(b) of this title arising from the
performance of such contract[.]; and
(D) in the case of a trademark, service mark, or
trade name, the licensee shall not be relieved of any
of its obligations to maintain the quality of the
products and services offered under or in connection
with the licensed trademark, service mark, or trade
name, and the trustee shall retain the right to oversee
and enforce quality control for such products or
services, or both.
(3) If the licensee elects to retain its rights, as
described in paragraph (1)(B) of this subsection, then on the
written request of the licensee the trustee shall--
(A) to the extent provided in such contract, or any
agreement supplementary to such contract, provide to
the licensee any intellectual property (including such
embodiment) held by the trustee; and
(B) not interfere with the rights of the licensee
as provided in such contract, or any agreement
supplementary to such contract, to such intellectual
property (including such embodiment) including any
right to obtain such intellectual property (or such
embodiment) from another entity.
(4) Unless and until the trustee rejects such contract, on
the written request of the licensee the trustee shall--
(A) to the extent provided in such contract or any
agreement supplementary to such contract--
(i) perform such contract; or
(ii) provide to the licensee such
intellectual property (including any embodiment
of such intellectual property to the extent
protected by applicable nonbankruptcy law) held
by the trustee; and
(B) not interfere with the rights of the licensee
as provided in such contract, or any agreement
supplementary to such contract, to such intellectual
property (including such embodiment), including any
right to obtain such intellectual property (or such
embodiment) from another entity.
(o) In a case under chapter 11 of this title, the trustee
shall be deemed to have assumed (consistent with the debtor's
other obligations under section 507), and shall immediately
cure any deficit under, any commitment by the debtor to a
Federal depository institutions regulatory agency (or
predecessor to such agency) to maintain the capital of an
insured depository institution, and any claim for a subsequent
breach of the obligations thereunder shall be entitled to
priority under section 507. This subsection shall not extend
any commitment that would otherwise be terminated by any act of
such an agency.
(p)(1) If a lease of personal property is rejected or not
timely assumed by the trustee under subsection (d), the leased
property is no longer property of the estate and the stay under
section 362(a) is automatically terminated.
(2)(A) If the debtor in a case under chapter 7 is an
individual, the debtor may notify the creditor in writing that
the debtor desires to assume the lease. Upon being so notified,
the creditor may, at its option, notify the debtor that it is
willing to have the lease assumed by the debtor and may
condition such assumption on cure of any outstanding default on
terms set by the contract.
(B) If, not later than 30 days after notice is provided
under subparagraph (A), the debtor notifies the lessor in
writing that the lease is assumed, the liability under the
lease will be assumed by the debtor and not by the estate.
(C) The stay under section 362 and the injunction under
section 524(a)(2) shall not be violated by notification of the
debtor and negotiation of cure under this subsection.
(3) In a case under chapter 11 in which the debtor is an
individual and in a case under chapter 13, if the debtor is the
lessee with respect to personal property and the lease is not
assumed in the plan confirmed by the court, the lease is deemed
rejected as of the conclusion of the hearing on confirmation.
If the lease is rejected, the stay under section 362 and any
stay under section 1301 is automatically terminated with
respect to the property subject to the lease.
* * * * * * *
CHAPTER 15--ANCILLARY AND OTHER CROSS-BORDER CASES
* * * * * * *
Subchapter III--RECOGNITION OF A FOREIGN PROCEEDING AND RELIEF
* * * * * * *
Sec. 1522. Protection of creditors and other interested persons
(a) The court may grant relief under section 1519 or 1521,
or may modify or terminate relief under subsection (c), only if
the interests of the creditors and other interested entities,
including the debtor, are sufficiently protected.
(b) The court may subject relief granted under section 1519
or 1521, or the operation of the debtor's business under
section 1520(a)(3), to conditions it considers appropriate,
including the giving of security or the filing of a bond.
(c) The court may, at the request of the foreign
representative or an entity affected by relief granted under
section 1519 or 1521, or at its own motion, modify or terminate
such relief.
(d) Section 1104(d) shall apply to the appointment of an
examiner under this chapter. Any examiner shall comply with the
qualification requirements imposed on a trustee by section 322.
(e) Section 365(n) shall apply to cases under this chapter.
If the foreign representative rejects or repudiates a contract
under which the debtor is a licensor of intellectual property,
the licensee under such contract shall be entitled to make the
election and exercise the rights described in section 365(n).
* * * * * * *
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LEAHY-SMITH AMERICA INVENTS ACT
* * * * * * *
SEC. 10. FEE SETTING AUTHORITY.
(a) Fee Setting.--
(1) In general.--The Director may set or adjust by
rule any fee established, authorized, or charged under
title 35, United States Code, or the Trademark Act of
1946 (15 U.S.C. 1051 et seq.), for any services
performed by or materials furnished by, the Office,
subject to paragraph (2).
(2) Fees to recover costs.--Fees may be set or
adjusted under paragraph (1) only to recover the
aggregate estimated costs to the Office for processing,
activities, services, and materials relating to patents
(in the case of patent fees) and trademarks (in the
case of trademark fees), including administrative costs
of the Office with respect to such patent or trademark
fees (as the case may be).
(b) Small and Micro Entities.--The fees set or adjusted
under subsection (a) for filing, searching, examining, issuing,
appealing, and maintaining patent applications and patents
shall be reduced by 50 percent with respect to the application
of such fees to any small entity that qualifies for reduced
fees under section 41(h)(1) of title 35, United States Code,
and shall be reduced by 75 percent with respect to the
application of such fees to any micro entity as defined in
section 123 of that title (as added by subsection (g) of this
section).
(c) Reduction of Fees in Certain Fiscal Years.--In each
fiscal year, the Director--
(1) shall consult with the Patent Public Advisory
Committee and the Trademark Public Advisory Committee
on the advisability of reducing any fees described in
subsection (a); and
(2) after the consultation required under paragraph
(1), may reduce such fees.
(d) Role of the Public Advisory Committee.--The Director
shall--
(1) not less than 45 days before publishing any
proposed fee under subsection (a) in the Federal
Register, submit the proposed fee to the Patent Public
Advisory Committee or the Trademark Public Advisory
Committee, or both, as appropriate;
(2)(A) provide the relevant advisory committee
described in paragraph (1) a 30-day period following
the submission of any proposed fee, in which to
deliberate, consider, and comment on such proposal;
(B) require that, during that 30-day
period, the relevant advisory committee hold a
public hearing relating to such proposal; and
(C) assist the relevant advisory committee
in carrying out that public hearing, including
by offering the use of the resources of the
Office to notify and promote the hearing to the
public and interested stakeholders;
(3) require the relevant advisory committee to make
available to the public a written report setting forth
in detail the comments, advice, and recommendations of
the committee regarding the proposed fee; and
(4) consider and analyze any comments, advice, or
recommendations received from the relevant advisory
committee before setting or adjusting (as the case may
be) the fee.
(e) Publication in the Federal Register.--
(1) Publication and rationale.--The Director
shall--
(A) publish any proposed fee change under
this section in the Federal Register;
(B) include, in such publication, the
specific rationale and purpose for the
proposal, including the possible expectations
or benefits resulting from the proposed change;
and
(C) notify, through the Chair and Ranking
Member of the Committees on the Judiciary of
the Senate and the House of Representatives,
the Congress of the proposed change not later
than the date on which the proposed change is
published under subparagraph (A).
(2) Public comment period.--The Director shall, in
the publication under paragraph (1), provide the public
a period of not less than 45 days in which to submit
comments on the proposed change in fees.
(3) Publication of final rule.--The final rule
setting or adjusting a fee under this section shall be
published in the Federal Register and in the Official
Gazette of the Patent and Trademark Office.
(4) Congressional comment period.--A fee set or
adjusted under subsection (a) may not become
effective--
(A) before the end of the 45-day period
beginning on the day after the date on which
the Director publishes the final rule adjusting
or setting the fee under paragraph (3); or
(B) if a law is enacted disapproving such
fee.
(5) Rule of construction.--Rules prescribed under
this section shall not diminish--
(A) the rights of an applicant for a patent
under title 35, United States Code, or for a
mark under the Trademark Act of 1946; or
(B) any rights under a ratified treaty.
(f) Retention of Authority.--The Director retains the
authority under subsection (a) to set or adjust fees only
during such period as the Patent and Trademark Office remains
an agency within the Department of Commerce.
(g) [omitted-amendatory]
(h) Electronic Filing Incentive.--
(1) In general.--Notwithstanding any other
provision of this section, an additional fee of $400
shall be established for each application for an
original patent, except for a design, plant, or
provisional application, that is not filed by
electronic means as prescribed by the Director. The fee
established by this subsection shall be reduced by 50
percent for small entities that qualify for reduced
fees under section 41(h)(1) of title 35, United States
Code. All fees paid under this subsection shall be
deposited in the Treasury as an offsetting receipt that
shall not be available for obligation or expenditure.
(2) Effective date.--This subsection shall take
effect upon the expiration of the 60-day period
beginning on the date of the enactment of this Act.
(i) Effective Date; Sunset.--
(1) Effective date.--Except as provided in
subsection (h), this section and the amendments made by
this section shall take effect on the date of the
enactment of this Act.
(2) Sunset.--The authority of the Director to set
or adjust any fee under subsection (a) shall terminate
upon the expiration of the [7-year] 17-year period
beginning on the date of the enactment of this Act.
(3) Prior regulations not affected.--The
termination of authority under this subsection shall
not affect any regulations issued under this section
before the effective date of such termination or any
rulemaking proceeding for the issuance of regulations
under this section that is pending on such date.
* * * * * * *
SEC. 18. TRANSITIONAL PROGRAM FOR COVERED BUSINESS METHOD PATENTS.
(a) Transitional Program.--
(1) Establishment.--Not later than the date that is
1 year after the date of the enactment of this Act, the
Director shall issue regulations establishing and
implementing a transitional post-grant review
proceeding for review of the validity of covered
business method patents. The transitional proceeding
implemented pursuant to this subsection shall be
regarded as, and shall employ the standards and
procedures of, a post-grant review under chapter 32 of
title 35, United States Code, subject to the following:
(A) [Section 321(c)] Sections 321(c) and
326(a)(13) of title 35, United States Code, and
subsections (b), (e)(2), and (f) of section 325
of such title shall not apply to a transitional
proceeding.
(B) A person may not file a petition for a
transitional proceeding with respect to a
covered business method patent unless the
person or the person's real party in interest
or privy has been sued for infringement of the
patent or has been charged with infringement
under that patent.
(C) A petitioner in a transitional
proceeding who challenges the validity of 1 or
more claims in a covered business method patent
on a ground raised under section 102 or 103 of
title 35, United States Code, as in effect on
the day before the effective date set forth in
section 3(n)(1), may support such ground only
on the basis of--
(i) prior art that is described by
[section 102(a)] subsection (a) or (e)
of section 102 of such title (as in
effect on the day before such effective
date); or
(ii) prior art that--
(I) discloses the invention
more than 1 year before the
date of the application for
patent in the United States;
and
(II) would be described by
section 102(a) of such title
(as in effect on the day before
the effective date set forth in
section 3(n)(1)) if the
disclosure had been made by
another before the invention
thereof by the applicant for
patent.
(D) The petitioner in a transitional
proceeding that results in a final written
decision under section 328(a) of title 35,
United States Code, with respect to a claim in
a covered business method patent, or the
petitioner's real party in interest, may not
assert, either in a civil action arising in
whole or in part under section 1338 of title
28, United States Code, or in a proceeding
before the International Trade Commission under
section 337 of the Tariff Act of 1930 (19
U.S.C. 1337), that the claim is invalid on any
ground that the petitioner raised during that
transitional proceeding.
(E) The Director may institute a
transitional proceeding only for a patent that
is a covered business method patent.
(2) Effective date.--The regulations issued under
paragraph (1) shall take effect upon the expiration of
the 1-year period beginning on the date of the
enactment of this Act and shall apply to any covered
business method patent issued before, on, or after that
effective date, except that the regulations shall not
apply to a patent described in section 6(f)(2)(A) of
this Act during the period in which a petition for
post-grant review of that patent would satisfy the
requirements of section 321(c) of title 35, United
States Code.
(3) Sunset.--
(A) In general.--This subsection, and the
regulations issued under this subsection, are
repealed effective upon the expiration of the
8-year period beginning on the date that the
regulations issued under to paragraph (1) take
effect.
(B) Applicability.--Notwithstanding
subparagraph (A), this subsection and the
regulations issued under this subsection shall
continue to apply, after the date of the repeal
under subparagraph (A), to any petition for a
transitional proceeding that is filed before
the date of such repeal.
(b) Request for Stay.--
(1) In general.--If a party seeks a stay of a civil
action alleging infringement of a patent under section
281 of title 35, United States Code, relating to a
transitional proceeding for that patent, the court
shall decide whether to enter a stay based on--
(A) whether a stay, or the denial thereof,
will simplify the issues in question and
streamline the trial;
(B) whether discovery is complete and
whether a trial date has been set;
(C) whether a stay, or the denial thereof,
would unduly prejudice the nonmoving party or
present a clear tactical advantage for the
moving party; and
(D) whether a stay, or the denial thereof,
will reduce the burden of litigation on the
parties and on the court.
(2) Review.--A party may take an immediate
interlocutory appeal from a district court's decision
under paragraph (1). The United States Court of Appeals
for the Federal Circuit shall review the district
court's decision to ensure consistent application of
established precedent, and such review may be de novo.
(c) ATM Exemption for Venue Purposes.--In an action for
infringement under section 281 of title 35, United States Code,
of a covered business method patent, an automated teller
machine shall not be deemed to be a regular and established
place of business for purposes of section 1400(b) of title 28,
United States Code.
(d) Definition.--
(1) In general.--For purposes of this section, the
term ``covered business method patent'' means a patent
that claims a method or corresponding apparatus for
performing data processing or other operations used in
the practice, administration, or management of a
financial product or service, except that the term does
not include patents for technological inventions.
(2) Regulations.--To assist in implementing the
transitional proceeding authorized by this section, the
Director shall issue regulations for determining
whether a patent is for a technological invention.
(e) Rule of Construction.--Nothing in this section shall be
construed as amending or interpreting categories of patent-
eligible subject matter set forth under section 101 of title
35, United States Code.
* * * * * * *
----------
PUBLIC LAW 111-349
AN ACT To establish a pilot program in certain United States district
courts to encourage enhancement of expertise in patent cases among
district judges.
SECTION 1. PILOT PROGRAM IN CERTAIN DISTRICT COURTS.
(a) Establishment.--
(1) In general.--There is established a program, in
each of the United States district courts designated
under subsection (b), under which--
(A) those district judges of that district
court who request to hear cases under which 1
or more issues arising under any Act of
Congress relating to patents or plant variety
protection are required to be decided, are
designated by the chief judge of the court to
hear those cases;
(B) cases described in subparagraph (A) are
randomly assigned to the judges of the district
court, regardless of whether the judges are
designated under subparagraph (A);
(C) a judge not designated under
subparagraph (A) to whom a case is assigned
under subparagraph (B) may decline to accept
the case; and
(D) a case declined under subparagraph (C)
is randomly reassigned to 1 of those judges of
the court designated under subparagraph (A).
(2) Senior judges.--Senior judges of a district
court may be designated under paragraph (1)(A) if at
least 1 judge of the court in regular active service is
also so designated.
(3) Right to transfer cases preserved.--This
section shall not be construed to limit the ability of
a judge to request the reassignment of or otherwise
transfer a case to which the judge is assigned under
this section, in accordance with otherwise applicable
rules of the court.
(b) Designation.--
(1) In general.--Not later than 6 months after the
date of the enactment of this Act, the Director of the
Administrative Office of the United States Courts shall
designate not less than 6 United States district
courts, in at least 3 different judicial circuits, in
which the program established under subsection (a) will
be carried out.
(2) Criteria for designations.--
(A) In general.--The Director shall make
designations under paragraph (1) from--
(i) the 15 district courts in which
the largest number of patent and plant
variety protection cases were filed in
the most recent calendar year that has
ended; or
(ii) the district courts that have
adopted, or certified to the Director
the intention to adopt, local rules for
patent and plant variety protection
cases.
(B) Selection of courts.--From amongst the
district courts that satisfy the criteria for
designation under this subsection, the Director
shall select--
(i) 3 district courts that each
have at least 10 district judges
authorized to be appointed by the
President, whether under section 133(a)
of title 28, United States Code, or on
a temporary basis under any other
provision of law, and at least 3 judges
of the court have made the request
under subsection (a)(1)(A); and
(ii) 3 district courts that each
have fewer than 10 district judges
authorized to be appointed by the
President, whether under section 133(a)
of title 28, United States Code, or on
a temporary basis under any other
provision of law, and at least 2 judges
of the court have made the request
under subsection (a)(1)(A).
[(c) Duration.--The program established under subsection
(a) shall terminate 10 years after the end of the 6-month
period described in subsection (b).]
(c) Duration.--The program established under subsection (a)
shall be maintained using existing resources, and shall
terminate 20 years after the end of the 6-month period
described in subsection (b).
(d) Applicability.--The program established under
subsection (a) shall apply in a district court designated under
subsection (b) only to cases commenced on or after the date of
such designation.
(e) Reports to Congress.--
(1) In general.--At the times specified in
paragraph (2), the Director of the Administrative
Office of the United States Courts, in consultation
with the chief judge of each of the district courts
designated under subsection (b) and the Director of the
Federal Judicial Center, shall submit to the Committee
on the Judiciary of the House of Representatives and
the Committee on the Judiciary of the Senate a report
on the pilot program established under subsection (a).
The report shall include--
(A) an analysis of the extent to which the
program has succeeded in developing expertise
in patent and plant variety protection cases
among the district judges of the district
courts so designated;
(B) an analysis of the extent to which the
program has improved the efficiency of the
courts involved by reason of such expertise;
(C) with respect to patent cases handled by
the judges designated pursuant to subsection
(a)(1)(A) and judges not so designated, a
comparison between the 2 groups of judges with
respect to--
(i) the rate of reversal by the
Court of Appeals for the Federal
Circuit, of such cases on the issues of
claim construction and substantive
patent law; and
(ii) the period of time elapsed
from the date on which a case is filed
to the date on which trial begins or
summary judgment is entered;
(D) a discussion of any evidence indicating
that litigants select certain of the judicial
districts designated under subsection (b) in an
attempt to ensure a given outcome; and
(E) an analysis of whether the pilot
program should be extended to other district
courts, or should be made permanent and apply
to all district courts.
(2) Timetable for reports.--The times referred to
in paragraph (1) are--
(A) not later than the date that is 5 years
and 3 months after the end of the 6-month
period described in subsection (b); and
(B) not later than 5 years after the date
described in subparagraph (A).
(3) Periodic reports.--The Director of the
Administrative Office of the United States Courts, in
consultation with the chief judge of each of the
district courts designated under subsection (b) and the
Director of the Federal Judicial Center, shall keep the
committees referred to in paragraph (1) informed, on a
periodic basis while the pilot program is in effect,
with respect to the matters referred to in
subparagraphs (A) through (E) of paragraph (1).
* * * * * * *
----------
PATENT LAW TREATIES IMPLEMENTATION ACT OF 2012
* * * * * * *
TITLE II--PATENT LAW TREATY IMPLEMENTATION
* * * * * * *
SEC. 202. CONFORMING AMENDMENTS.
(a) In General.--Section 171 of title 35, United States
Code, is amended--
(1) by striking ``Whoever'' and inserting ``(a) In
General.--Whoever'';
(2) by striking ``The provisions'' and inserting
``(b) Applicability of This Title.--The provisions'';
and
(3) by adding at the end the following:
``(c) Filing Date.--The filing date of an application for
patent for design shall be the date on which the specification
as prescribed by section 112 and any required drawings are
filed.''.
(b) Relief in Respect of Time Limits and Reinstatement of
Right.--Title 35, United States Code, is amended--
(1) in section 41--
(A) in subsection (a), by striking
paragraph (7) and inserting the following:
``(7) Revival fees.--On filing each petition for
the revival of an abandoned application for a patent,
for the delayed payment of the fee for issuing each
patent, for the delayed response by the patent owner in
any reexamination proceeding, for the delayed payment
of the fee for maintaining a patent in force, for the
delayed submission of a priority or benefit claim, or
for the extension of the 12-month period for filing a
subsequent application, $1,700.00. The Director may
refund any part of the fee specified in this paragraph,
in exceptional circumstances as determined by the
Director''; and
(B) in subsection (c), by striking
paragraph (1) and inserting the following:
``(1) Acceptance.--The Director may accept the
payment of any maintenance fee required by subsection
(b) after the 6-month grace period if the delay is
shown to the satisfaction of the Director to have been
unintentional. The Director may require the payment of
the fee specified in subsection (a)(7) as a condition
of accepting payment of any maintenance fee after the
6-month grace period. If the Director accepts payment
of a maintenance fee after the 6-month grace period,
the patent shall be considered as not having expired at
the end of the grace period.'';
(2) in section 119(b)(2), in the second sentence,
by striking ``including the payment of a surcharge''
and inserting ``including the requirement for payment
of the fee specified in section 41(a)(7)'';
(3) in section 120, in the fourth sentence, by
striking ``including the payment of a surcharge'' and
inserting ``including the requirement for payment of
the fee specified in section 41(a)(7)'';
(4) in section 122(b)(2)(B)(iii), in the second
sentence, by striking ``, unless it is shown'' and all
that follows through ``unintentional'';
(5) in section 133, by striking ``, unless it be
shown'' and all that follows through ``unavoidable'';
(6) by striking section 151 and inserting the
following:'';
[(7) in section 361, by striking subsection (c) and
inserting the following:
[``(c) International applications filed in the Patent and
Trademark Office shall be filed in the English language, or an
English translation shall be filed within such later time as
may be fixed by the Director.'';]
[(8)] (7) in section 364, by striking subsection
(b) and inserting the following:
``(b) An applicant's failure to act within prescribed time
limits in connection with requirements pertaining to an
international application may be excused as provided in the
treaty and the Regulations.''; and
[(9)] (8) in section 371(d), in the third sentence,
by striking ``, unless it be shown to the satisfaction
of the Director that such failure to comply was
unavoidable''.
* * * * * * *
----------
ACT OF JULY 5, 1946
* * * * * * *
TITLE VI--REMEDIES
* * * * * * *
Sec. 39. (a) The district and territorial courts of the
United States shall have original jurisdiction, the courts of
appeals of the United States (other than the United States
Court of Appeals for the Federal Circuit) and the United States
Court of Appeals for the District of Columbia shall have
appellate jurisdiction, of all actions arising [under this Act]
under this Act (except as provided in section 1295(a)(4) of
title 28, United States Code), without regard to the amount in
controversy or to diversity or lack of diversity of the
citizenship of the parties.
(b) No State or other jurisdiction of the United States or
any political subdivision or any agency thereof may require
alteration of a registered mark, or require that additional
trademarks, service marks, trade names, or corporate names that
may be associated with or incorporated into the registered mark
be displayed in the mark in a manner differing from the display
of such additional trademarks, service marks, trade names, or
corporate names contemplated by the registered mark as
exhibited in the certificate of registration issued by the
United States Patent and Trademark Office.
* * * * * * *
Dissenting Views
While we support reasonable changes to improve and enhance
the patent system, we cannot support the changes included in
H.R. 9 which, taken as a whole, will undermine our Nation's
patent system.
Without question, the problem of abusive patent litigation
and the exploitation of the patent process demand a solution.
Congress should respond with an approach that is effective and
that targets the sources of this problem. Unfortunately, H.R.
9, the ``Innovation Act,'' is the wrong approach. The bill is
overly broad, unbalanced, and will impede rather than promote
innovation. In particular, we oppose the legislation because
the bill: (1) includes one-sided changes to our civil justice
system that limit the rights of all patent holders and fails to
target so-called ``patent trolls;'' (2) fails to effectively
address the extortionate use of demand letters; (3) does not
fully address abuse of post grant proceedings at the U.S.
Patent and Trademark Office (USPTO); (4) continues fee
diversion from the USPTO; and (5) ignores the changing
landscape in patent litigation.
These concerns are shared by a broad cross-section of
stakeholders in the patent system, representing a vast and
diverse range of industry interests. These include
organizations on behalf of the life sciences industries, the
higher education community, agricultural interests,
entrepreneurs, inventors, small businesses, venture
capitalists, the patent law community, experts in civil
litigation, the Federal judiciary, and constitutional and
property rights advocates. Specifically, they include the
Biotechnology Industry Organization (BIO), the Pharmaceutical
Research and Manufacturers Association (PhRMA), the Medical
Device Manufacturers Association (MDMA), the National Venture
Capital Association (NVCA), the American Association for
Justice (AAJ), the Association of American Universities (AAU),
the American Council on Education (ACE), the Association of
American Medical Colleges (AAMC), the Association of Public and
Land-grant Universities (APLU), the Council of 1890
Universities, the Association of University Technology Managers
(AUTM), the Council on Governmental Relations (COGR), the
Coalition for 21st Century Patent Reform (21C), the Innovation
Alliance (IA), the American Intellectual Property Law
Association (AIPLA), the Institute of Electrical and
Electronics Engineers-USA (IEEE-USA), the National Small
Business Association (NSBA), the Small Business Technology
Council (SBTC), the Alliance for U.S. Startups and Inventors
for Jobs (USIJ), the California Life Sciences Association
(CLSA), Entrepreneurs for Growth, Research!America, the U.S.
Business & Industry Council, VentureOhio, the Inventor's
Project, the California Association of Wheat Growers, the
California Farm Bureau Federation, the Western Agricultural
Processors Association, the Judicial Conference of the United
States, the American Bar Association (ABA), the Federal Bar
Association, the Federal Circuit Bar Association, Heritage
Action, the American Conservative Union, the Club for Growth,
and the Eagle Forum, among many others.\1\
---------------------------------------------------------------------------
\1\These and other well-regarded groups and individuals have
expressed concerns with the bill. The following materials are on file
with the House of Representatives Committee on the Judiciary,
Democratic Staff, and are accessible on the minority website: Statement
of PhRMA (June 11, 2015) (announcing its opposition to H.R. 9); News
Release from BIO (June 11, 2015) (urging ``Members of Congress to
oppose the Innovation Act''); Statement of Kevin Rhodes, Chairman of
21C and Chief Intellectual Property Counsel of 3M Company (June 12,
2015) (urging that ``H.R. 9 as reported by the House Judiciary
Committee not be brought to the House Floor''); Letter from Brian
Pomper, Exec. Dir. of IA, to Rep. Bob Goodlatte, Chairman, H. Comm. on
the Judiciary, & Rep. John Conyers, Jr., Ranking Member, H. Comm. on
the Judiciary (June 10, 2015) (``The Innovation Alliance must continue
to oppose the revised H.R. 9''); Letter from Sharon A. Israel, Pres. of
AIPLA, to Rep. Bob Goodlatte, Chairman, H. Comm. on the Judiciary, &
Rep. John Conyers, Jr., Ranking Member, H. Comm. on the Judiciary (June
10, 2015) (``the [manager's amendment does] not achieve the desired
balance of interests or alleviate the concerns we raised in our April
16, 2015 letter''); Letter from Linda Lipsen, CEO of AAJ, to Rep. Bob
Goodlatte, Chairman, H. Comm. on the Judiciary, & Rep. John Conyers,
Jr., Ranking Member, H. Comm. on the Judiciary (June 10, 2015)
(submitting its ``letter in strong opposition to H.R. 9''); Letter from
James A. Jefferies, Pres. of IEEE-USA, to Rep. Bob Goodlatte, Chairman,
H. Comm. on the Judiciary, & Rep. John Conyers, Jr., Ranking Member, H.
Comm. on the Judiciary (June 10, 2015) (``H.R. 9 as introduced will
have a significant negative impact on Americans' ability to continue
unsurpassed innovation.''); Statement from Mark Leahey, Pres. and CEO
of MDMA (June 10, 2015) (announcing its opposition to H.R. 9); Letter
from Bobby Franklin, Pres. and CEO of NVCA, to Rep. Bob Goodlatte,
Chairman, H. Comm. on the Judiciary, & Rep. John Conyers, Jr., Ranking
Member, H. Comm. on the Judiciary (June 10, 2015) (``On behalf of
`NVCA', I am writing to express our opposition to H.R. 9, as it is
currently written.''); Statement from AAU, ACE, AAMC, APLU, AUTM, and
COGR (June 10, 2015) (``We unfortunately must oppose the
legislation.''); Letter from Juliette Bell, Chair of the 1890 Council
of Universities, and RoSusan D. Bartee, Interim Vice President of
Access and Success, to Rep. G.K. Butterfield, Chairman of the
Congressional Black Caucus (July 17, 2015) (``We urge your support for
addressing patent troll abuses in a measured and balanced way and thus
your opposition to H.R. 9''); Letter from Todd McCracken, Pres. and CEO
of the NSBA, to Rep. Michael Burgess & Rep. Marcy Kaptur (May 26, 2015)
(opposing the Innovation Act); Letter from Robert N. Schmidt, Co-Chair
of SBTC to Rep. Bob Goodlatte, Chairman, H. Comm. on the Judiciary
(June 10, 2015) (``writing to oppose H.R. 9''); Letter from Charles
Giancarlo, Chairman of the Board of Advisors for USIJ, to Rep. Bob
Goodlatte, Chairman, H. Comm. on the Judiciary, & Rep. John Conyers,
Jr., Ranking Member, H. Comm. on the Judiciary (June 10, 2015)
(``Without specific reforms to sections of the Innovation Act . . .
USIJ must continue to strongly oppose the bill.''); Statement from CLSA
(June 12, 2015) (``CLSA must therefore strongly urge members of our
California congressional delegation to oppose the legislation.'');
Letter from Mary Woolley, President and CEO of Research!America, to
Rep. Bob Goodlatte, Chairman, H. Comm. on the Judiciary, Rep. John
Conyers, Jr., Ranking Member, H. Comm. on the Judiciary, Sen. Charles
Grassley, Chairman, S. Comm. on the Judiciary, & Sen. Patrick Leahy,
Ranking Member, S. Comm. on the Judiciary (July 15, 2015) (several
issues ``merit further consideration and remedial action before
legislation reaches the House or Senate floor.''); Letter from John
McIlwraith, Chairman of VentureOhio, to Rep. John Boehner, Speaker of
the House (May 20, 2015) (``VentureOhio does not support the current
version of H.R. 9 and its overly broad provisions.''); Letter from
California's agricultural community to Rep. Bob Goodlatte (May 21,
2015) (``The Innovation Act/H.R. 9 actually reduces protections for
patent holders and could ultimately weaken U.S. patents overall.'');
Letter from James C. Duff, Secretary of the Judicial Conference of the
United States, to Rep. John Conyers, Jr., Ranking Member, H. Comm. on
the Judiciary (May 28, 2015) (listing concerns with proposed rules for
patent cases and the proposed expansion and extension of the patent
pilot program); Letter from Matthew B. Moreland, Pres. of the Federal
Bar Association, to Rep. Bob Goodlatte, Chairman, H. Comm. on the
Judiciary, & Rep. John Conyers, Jr., Ranking Member, H. Comm. on the
Judiciary (Mar. 26, 2015) (``[T]he necessity for legislation that
overlaps with actions within the authority of the judiciary appears ill
advised.''); Letter from James E. Brookshire, Exec. Dir. of the Federal
Circuit Bar Association, to Rep. Bob Goodlatte, Chairman, H. Comm. on
the Judiciary, & Rep. John Conyers, Jr., Ranking Member, H. Comm. on
the Judiciary (Feb. 20, 2015) (``H.R. 9 has now become both unnecessary
and . . . problematic.''); Statement of Michael A. Needham, CEO of
Heritage Action (July 20, 2015) (``Heritage Action opposes H.R. 9. The
bill should not come to the floor.''); Letter from Phyllis Schlafly,
Chair of the Eagle Forum, to Rep. Bob Goodlatte, Chairman, H. Comm. on
the Judiciary, & Rep. John Conyers, Jr., Ranking Member, H. Comm. on
the Judiciary (June 10, 2015) (``Eagle Forum must oppose the
`Innovation Act' and we urge Judiciary Committee members to vote
against H.R. 9.''); General Letter from Dan Schneider, Exec. Dir. of
the American Conservative Union (June 10, 2015) (urging Members to
``[p]lease vote `NO' on H.R. 9''); and Letter from 25 conservative
advocates to Rep. John Boehner, Speaker of the House, Rep. Nancy
Pelosi, Minority Leader of the House, Sen. Mitch McConnell, Sen.
Majority Leader, and Sen. Harry Reid, Sen. Minority Leader (Mar. 11,
2015) (``We ask that you support innovation and a strong patent system
by opposing the `Innovation Act' and stopping any such bill from
reaching the floor.'').
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For these reasons, and those described below, we
respectfully dissent and urge our colleagues to reject this
flawed legislation.
BACKGROUND OF ABUSIVE PATENT LITIGATION
H.R. 9 attempts to respond to abuses and asymmetries in the
patent system by changing court rules and procedures for patent
cases. Bad actors in the patent system, often referred to as
``patent trolls,'' own vague patents and use litigation, or the
threat of litigation, to coerce a quick settlement from
legitimate inventors.\2\ Their typical behavior includes
sending out hundreds of vague patent infringement demand
letters, offering a quick settlement, and when the recipients
of the demand letters do not settle, the bad actors sometimes
file lawsuits.\3\ Once in litigation, the so-called ``patent
trolls'' generally seek to drive up costs through extensive
discovery, hoping to encourage the defendant to settle even a
frivolous claim early, rather than paying the significant costs
that litigation may entail.\4\
---------------------------------------------------------------------------
\2\See Patent Reform: Protecting American Innovators and Job
Creators from Abusive Patent Litigation: Hearing Before the H. Comm. on
the Judiciary, 114th Cong. 8 (2015) [hereinafter Mar. 25, 2015 Hearing]
(testimony of Mark Griffin, General Counsel, Overstock.com).
\3\See id. at 17 (testimony of Kathryn Underwood, Pres. and CEO,
Ledyard National Bank).
\4\See id. at 9 (testimony of Griffin).
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CONCERNS WITH H.R. 9
I. THE INNOVATION ACT LIMITS THE RIGHTS OF ALL PATENT HOLDERS, NOT JUST
SO-CALLED ``PATENT TROLLS,'' AND PRESENTS OTHER POLICY CONCERNS
We support a targeted approach to curbing abusive patent
litigation practices. However, the Innovation Act is overly
broad and goes well beyond the problem of abusive patent
litigation. It could harm legitimate patent holders and
individual inventors by potentially weakening every single
patent in America. Among its most pernicious provisions, the
bill would:
LImpose burdensome pleading requirements for
plaintiffs that exceed what is required in other civil
cases and which demand details plaintiffs may not know
before conducting discovery (Section 3(a));
LDiscourage, through a presumptive fee
shifting standard, small businesses and individual
inventors from bringing meritorious lawsuits because
the risk of having to pay the other side's court costs
may outweigh the benefits of winning (Section 3(b));
LDeter investments by venture capitalists in
entrepreneurs, start-ups, and individual inventors
through harsh joinder rules that may make the investors
liable for paying attorneys' fees (Section 3(c));
LLimit discovery for plaintiffs that will lead
to costly litigation and case delays (Section 3(d));
and
LImproperly shield some of the most culpable
infringers through an over-broad stay of litigation for
end users of infringing products (Section 5).
A. LThe Bill's Heightened Pleading Requirements Will Deny Legitimate
Inventors Access to the Courts
We oppose the heightened pleading requirements established
by section 3(a) of the bill because they are unfair to all
patent holders; are drafted in a one-sided manner; will prolong
litigation; and are unnecessary because the courts are already
addressing the issue.
Supporters of the Innovation Act contend that plaintiffs in
patent cases are not required to provide sufficient detail in
their complaints to give defendants fair notice of what patents
the defendants are alleged to have infringed and how the
patents have been infringed. However, the information required
by the heightened pleading standards in H.R. 9 is unduly
burdensome on patent owners because the information may not be
available to the patent holders at the time of the filing.\5\
As the NSBA explains, the bill's heightened pleading standards
``essentially requir[e] the inventor trying to protect her
patent'' to ``prove her case before filing a case.''\6\
Furthermore, as MDMA points out, ``[t]he combination of
heightened pleadings and limited discovery is a `double
jeopardy' of sorts that requires a petitioner to guess at
detailed facts that may not be in their possession (e.g., how a
product is manufactured), and then be penalized by not being
able to obtain the facts, even those that may establish clear
infringement.''\7\ AIPLA expressed its concern about this
provision as well, writing that ``statutorily imposing detailed
pleading requirements, as in the current draft, may deter
legitimate infringement actions.''\8\
---------------------------------------------------------------------------
\5\Often the specific information required under this section may
only be obtained through discovery which typically cannot be obtained
prior to filing a complaint or other pleading. Even though the bill
relieves a claimant of the obligation to provide the level of detail
required if the information ``is not reasonably accessible'', there is
no guidance for making that determination.
\6\Letter from Todd McCracken, Pres. and CEO of NSBA to Rep. John
Boehner, Speaker of the House, and Rep. Nancy Pelosi, Minority Leader
of the House (May 18, 2015) (on file with the H. Comm. on the
Judiciary, Democratic Staff).
\7\Letter from Mark B. Leahey, Pres. and CEO of MDMA, to Rep. Bob
Goodlatte, Chairman, H. Comm. on the Judiciary, & Rep. John Conyers,
Jr., Ranking Member, H. Comm. on the Judiciary (Apr. 14, 2015)
[hereinafter MDMA April 14, 2015 Letter] (on file with the H. Comm. on
the Judiciary, Democratic Staff).
\8\Letter from Sharon A. Israel, Pres. of AIPLA, to Rep. Bob
Goodlatte, Chairman, H. Comm. on the Judiciary, & Rep. John Conyers,
Jr., Ranking Member, H. Comm. on the Judiciary (Apr. 16, 2015)
[hereinafter AIPLA April 16, 2015 Letter] (on file with the H. Comm. on
the Judiciary, Democratic Staff).
---------------------------------------------------------------------------
Second, section 3(a) is drafted in a one-sided manner. As
the ABA noted in writing about H.R. 3309, the ``Innovation
Act,'' upon which H.R. 9 is modeled, the subsection applies
``only to parties asserting patent infringement, either as a
plaintiff or as a defendant counterclaimant [but] does not
provide any corresponding heightened pleading standards for
asserting non-infringement or invalidity in a complaint or
counterclaim for Declaratory Judgment.''\9\ Under this
provision, a small inventor will be required to provide
detailed information in their complaint. However, an alleged
infringer does not bear the same burden to explain with
specificity to that inventor why they believe they have not
infringed the patent or why they believe the patent is invalid.
As IEEE-USA has written, ``[s]ince most patent infringement
complaints draw a counter-claim of patent invalidity, any such
counter-claim should also be pleaded with comparable
particularity (e.g., citing applied prior art references to all
claim terms) that would support the invalidity
contention.''\10\ In addition, BIO has noted that the pleading
requirements in H.R. 9, ``remain overly burdensome and will
impede the ability of all patent owners to timely bring suit to
protect against infringement. We believe that the new language
regarding identification of claims is too ambiguous and does
not provide sufficient guidance to parties or courts on what a
sufficient complaint would require, creating too many
opportunities for abusive motions by accused infringers
challenging the sufficiency of complaints and delaying
enforcement against them.''\11\
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\9\American Bar Association Section of Intellectual Property Law,
2013 Fall Council Meeting, Innovation Act Task Force Resolutions and
Reports, at 5, Nov. 8, 2013.
\10\Letter from Marc T. Apter, Pres. of IEEE-USA to Rep. Robert
Goodlatte, Chairman, H. Comm. on the Judiciary, & Rep. John Conyers,
Jr., Ranking Member, H. Comm. on the Judiciary (Nov. 19, 2013) (on file
with the H. Comm. on the Judiciary, Democratic Staff).
\11\Letter from James C. Greenwood, Pres. and CEO of BIO, to Rep.
John Conyers, Jr., Ranking Member, H. Comm. on the Judiciary (June 19,
2015) [hereinafter BIO June 19, 2015 Letter] (on file with the H. Comm.
on the Judiciary, Democratic Staff).
---------------------------------------------------------------------------
Third, although the stated goal of the legislation is to
reduce and shorten litigation, the heightened pleading
requirement may well have the opposite effect by fostering
litigation over whether the patent owner has met the heightened
pleading standard or had reasonable access to the required
information if they admittedly did not comply. AAJ has noted
that the ``excessively-detailed pleadings'' required under the
bill ``would lead to additional litigation and challenges even
before the case begins.''\12\ In addition, IA has warned that
H.R. 9's ``overly broad and burdensome'' pleadings requirements
will impose ``massive costs and delays in patent cases'' to
both plaintiffs and defendants.\13\ In the same vein, AIPLA
explained that ``[t]hese requirements could raise enforcement
costs and prolong litigation by increasing preliminary motion
practice, among other things.''\14\ Similarly, 21C contends
that ``this provision is also likely to raise costs and prolong
case resolutions by fostering more preliminary motion
practice.''\15\ The ABA, commenting on similar provisions in S.
1137, the ``Protecting American Talent and Entrepreneurship
(PATENT) Act,'' suggested that heightened pleading requirements
will ``generate extensive motion practice, resulting in
increased delays and expenses of the proceedings.''\16\
Recognizing the particular burden that these requirements would
place on individuals and small entities, Representative Scott
Peters (D-CA) offered an amendment during the markup of H.R. 9
to exempt small businesses, independent inventors, and non-
profit organizations from section 3(a), but it was rejected by
voice vote.\17\
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\12\Letter from Linda Lipsen, CEO of AAJ, to Rep. Bob Goodlatte,
Chairman, H. Comm. on the Judiciary, & Rep. John Conyers, Jr., Ranking
Member, H. Comm. on the Judiciary (June 10, 2015) [hereinafter AAJ June
10, 2015 Letter] (on file with the H. Comm. on the Judiciary,
Democratic Staff).
\13\Letter from Brian Pomper, Exec. Dir. of IA, to Rep. Bob
Goodlatte, Chairman, H. Comm. on the Judiciary, & Rep. John Conyers,
Jr., Ranking Member, H. Comm. on the Judiciary (June 10, 2015) (on file
with the H. Comm. on the Judiciary, Democratic Staff).
\14\AIPLA April 16, 2015 Letter.
\15\Summary of 21C's Positions on Provisions of the Innovation Act
of 2015, at 5, available at http://patentsmatter.com/issue/pdfs/
20150316_21CKeyProvisionsChartTalkingPoints.pdf [hereinafter 21C
Position Summary on H.R. 9].
\16\Letter from William C. Hubbard, Pres. of the American Bar
Assocation, to Sen. Chuck Grassley, Chairman, S. Comm. on the
Judiciary, & Sen. Patrick Leahy, Ranking Member, S. Comm. on the
Judiciary (June 1, 2015) (on file with the H. Comm. on the Judiciary,
Democratic Staff).
\17\Unofficial Tr. of Markup of H.R. 9, ``The Innovation Act,'' by
the H. Comm on the Judiciary, 114th Cong. at 158 (June 11, 2015)
[hereinafter H.R. 9 Markup Unofficial Transcript] (Amendment #15 by
Representative Scott H. Peters) (failed by voice vote), available at
http://
judiciary.house.gov/_cache/files/ec171c22-04d4-4c0f-91ac-8b6ecc5859f1/
06.11.15-markup-
transcript.pdf.
---------------------------------------------------------------------------
Finally, as with many other provisions in section 3, it is
unnecessary for Congress to change the pleadings requirements
because the federal judiciary is already addressing the issue.
The Supreme Court has approved the Judicial Conference's
recommendation under the Rules Enabling Act\18\ to eliminate
Form 18\19\ of the Federal Rules of Civil Procedure, which
provides for very basic notice pleading in patent cases.\20\
This change will take effect on December 1, 2015, unless
Congress acts to reject, modify, or defer it.\21\ When Form 18
is eliminated, patent infringement suits will be subject to the
already heightened pleading requirements provided for under the
Supreme Court's decisions in Bell Atlantic v. Twombly\22\ and
Ashcroft v. Iqbal.\23\ In these cases, the Court held that
plaintiffs must include enough facts in their complaint to show
that their claim is ``plausible on its face.''\24\ As the
Federal Bar Association has explained, ``[f]reed from the
strictures of Form 18, the judiciary will be able to develop a
body of common law as to the proper pleading standard under the
evolving Twombly/Iqbal standard. The federal judiciary should
be given the chance to do so.''\25\
---------------------------------------------------------------------------
\18\28 U.S.C. Sec. Sec. 2071-77 (2015).
\19\Fed. R. Civ. P. 84 provides: ``The forms in the Appendix
suffice under these rules and illustrate the simplicity and brevity
that these rules contemplate.'' Form 18 in the Appendix is the template
for a complaint for patent infringement.
\20\See Amendments to the Federal Rules of Civil Procedure Adopted
by the Supreme Court of the United States pursuant to Section 2072 of
Title 28, United States Code (Apr. 29, 2015) [hereinafter Supreme Court
Adopts Rules Changes], available at http://www.supremecourt.gov/orders/
courtorders/frcv15%28update%29_1823.pdf; Judicial Conference of the
United States.
\21\Id.
\22\550 U.S. 544 (2007).
\23\556 U.S. 662 (2009).
\24\Leslie Gordon, For Federal Plaintiffs, Twombly and Iqbal Still
Present a Catch-22, ABA Journal, Jan. 1, 2011, available at http://
abajournal.com/magazine/article/for_federal_plaintiffs_
twombly_and_iqbal_still_present_a_catch-22.
\25\Letter from Matthew B. Moreland, Pres. of the Federal Bar
Association, to Rep. Bob Goodlatte, Chairman, H. Comm. on the
Judiciary, & Rep. John Conyers, Jr., Ranking Member, H. Comm. on the
Judiciary (Mar. 26, 2015) [hereinafter Federal Bar Association Mar. 26,
2015 Letter] (on file with the H. Comm. on the Judiciary, Democratic
Staff).
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B. LThe Bill's Fee Shifting Standard Will Favor Wealthy Parties and
will Chill Potential Meritorious Claims
We oppose section 3(b)'s fee shifting requirement because
it will favor wealthy corporate parties over individual
inventors; deprives courts of discretion; is drafted in an
over-broad manner to apply beyond patent infringement actions;
would lead to increased litigation costs; and is unnecessary
because the Federal courts have already made it easier for
prevailing parties to be awarded fees.
Supporters of the Innovation Act claim that abusive
litigation can be deterred if bad actors face a significant
risk that they will be forced to pay the other party's
attorneys' fees and court costs if they are found to have
brought a frivolous case. To the extent that fee shifting can,
in fact, deter abusive litigation, H.R. 9's provision goes too
far. Instead of requiring that fees be shifted in exceptional
cases, as set forth in current law, this provision would create
a presumption of fee shifting in every single case, not just
cases involving so-called ``patent trolls.'' The non-prevailing
party will carry the burden of establishing that fees should
not be imposed.
Our first concern is that fee-shifting always favors the
party with greater financial resources, and thus could chill
potential meritorious claims. Enacting a mandatory regime into
our patent law system is not only unfair to independent
inventors and entrepreneurs, it would set a dangerous precedent
in our civil justice system generally. AAJ calls section 3(b) a
``drastic provision that would have a significant impact on who
can bring a patent case. The parties who would be affected are
the small inventors who would now be less likely to sue for
patent infringement out of fear of losing and not being able to
pay the vast attorney fees of the infringing party.''\26\
Similarly, MDMA has warned that ``[f]aced with the prospect of
having to cover the legal expenses of larger companies, start-
up companies with limited capital either will not bring
otherwise meritorious cases against infringers of their patents
or will be forced into early settlements when defending against
alleged infringement.''\27\
---------------------------------------------------------------------------
\26\AAJ June 10, 2015 Letter.
\27\MDMA April 14, 2015 Letter.
---------------------------------------------------------------------------
The dangerous nature of this provision was highlighted in
an article by the American Enterprise Institute discussing H.R.
3309, upon which H.R. 9 is modeled. The article noted:
By shifting the burden of proof onto the losing party,
it will require courts to examine the justification of
each and every case. . . . it won't be just patent
trolls who pay but, at times, the legitimate companies
who occasionally are found to infringe [patent trolls']
patents. . . . [O]ur unique justice system, dedicated
as it is to allowing every American person and company
its `day in court' would be immutably changed in the
area of patent litigation. We'd be one step closer to
adopting the loser-pays model.\28\
---------------------------------------------------------------------------
\28\Patent troll legislation: a closer look (pt. 2)--fee shifting,
Tech Policy Daily, Nov. 26, 2013, available at http://
www.techpolicydaily.com/technology/patent-troll-legislation-closer-
look-pt-2-fee-shifting.
In this regard, we would dispute the Majority's assertion
that section 3(b) is fairly based on the Equal Access to
Justice Act (EAJA).\29\ EAJA was developed as a means to allow
private citizens to obtain legal fees when they prevail in
litigation against the U.S. government, not to serve as a model
for fee shifting in private lawsuits.
---------------------------------------------------------------------------
\29\See H.R. 9 Markup Unofficial Transcript, at 88-89 (statement of
Chairman Bob Goodlatte).
---------------------------------------------------------------------------
Further, although the bill purports to align itself with
EAJA, the fees and expenses scheme established by EAJA is far
more balanced than section 3(b). For example, EAJA permits the
court ``in its discretion [to] reduce . . . or deny an award,
to the extent that the prevailing party . . . engaged in
conduct which unduly and unreasonably protracted the final
resolution of the matter in controversy.''\30\ H.R. 9 provides
the court no such balance or flexibility.
---------------------------------------------------------------------------
\30\28 U.S.C. Sec. 2412(d)(1)(c) (2015).
---------------------------------------------------------------------------
During the markup of H.R. 9, Representative Henry C.
``Hank'' Johnson, Jr. (D-GA) offered an amendment to substitute
the more reasonable fee shifting provision contained in the
Senate's PATENT Act, which would have required the prevailing
party to bear the burden of demonstrating that it is entitled
to fees. The amendment would have also adopted a more
reasonable standard for determining whether fees are
appropriate, i.e., whether the position and conduct of the non-
prevailing party were objectively reasonable. In addition, the
amendment would have exempted positions or actions that are de
minimus or are not material to the consideration or outcome of
the litigation. Unfortunately, the amendment failed, by a vote
of 10 to 22.\31\
---------------------------------------------------------------------------
\31\See H.R. 9 Markup Unofficial Transcript, at 105 (Amendment #5
by Rep. Henry C. ``Hank'' Johnson, Jr.).
---------------------------------------------------------------------------
Third, section 3(b) is drafted in an overly broad manner.
The higher education community, writing about H.R. 3309, upon
which H.R. 9 is modeled, noted that the language is so broad
that it could potentially apply:
to any civil action in which any party asserts a claim
for relief arising under any Act of Congress relating
to patents. That scope sweeps in over 25 statutes
containing patent law clauses, including the Space Act,
the Atomic Energy Act, the Non-Nuclear R&D Act as well
as all titles of the omnibus bills in which the Bayh-
Dole Act and amendments became law. The breadth of the
proposed amendment will impair parties' ordinary
enforcement procedures and litigation activities
outside the scope of abusive patent litigation.\32\
---------------------------------------------------------------------------
\32\Statement from the Higher Education Community on H.R. 3309, The
Innovation Act (Nov. 8, 2013) (on file with the H. Comm. on the
Judiciary, Democratic Staff).
The higher education community has more recently warned
that H.R. 9's fee shifting provision would ``substantially
increase the financial risks associated with patent enforcement
and consequently discourage universities and other patent
holders lacking extensive litigation resources from
legitimately defending their intellectual property.''\33\
Moreover, they note that ``[t]his amplified risk would deter
potential licensees and venture capitalists from investing in
university patents, reducing the number of research discoveries
that advance to the marketplace.''\34\ This concern was echoed
by a coalition of more than 140 universities.\35\ The
universities comprising the Big Ten Conference also expressed
concern, writing that the fee shifting and joinder provisions
together ``would have the effect of making patent licensing
negotiations more complex and likely discourage at least some
of our members from licensing their inventions at all. In
addition, these provisions would make litigation so potentially
risky that few legitimate patent holders without deep pockets
would dare risk doing so.''\36\ To ensure that universities are
not unfairly burdened by H.R. 9's fee shifting requirements,
Representative David Cicilline (D-RI) offered an amendment
during the markup to clarify that the bill's exception for
special circumstances that would make an award unjust should
include severe economic hardship to an institution of higher
education or a university technology transfer organization.
Unfortunately, the amendment failed by a voice vote.\37\
---------------------------------------------------------------------------
\33\Higher Education Association Statement on Scheduled House
Judiciary Committee Markup of Innovation Act (H.R. 9) June 10, 2015.
\34\Id.
\35\Letter from American universities and associated technology
transfer foundations and organizations to Sen. Chuck Grassley,
Chairman, S. Comm. on the Judiciary, Sen. Patrick Leahy, Ranking
Member, S. Comm. on the Judiciary, Rep. Bob Goodlatte, Chairman, H.
Comm. on the Judiciary, & Rep. John Conyers, Jr., Ranking Member, H.
Comm. on the Judiciary (Feb. 24, 2015) (on file with the H. Comm. on
the Judiciary, Democratic Staff).
\36\Letter from the Big Ten Conference to Rep. John Conyers, Jr.
(Jan. 20, 2015) (on file with the H. Comm. on the Judiciary, Democratic
Staff).
\37\H.R. 9 Markup Unofficial Transcript, at 137 (Amendment #13 of
Rep. David N. Cicilline) (failed by voice vote).
---------------------------------------------------------------------------
Fourth, the mandatory nature of H.R. 9's fee shifting
provision will lead to increased litigation costs for all
parties. As AIPLA explains, ``requiring courts to make an
attorneys' fees award determination in every case could
unnecessarily prolong litigation and increase costs.''\38\ The
Federal Bar Association also notes that ``[a] fee shifting
presumption not only raises concerns about access to the
courts, it encourages satellite disputes about fee-shifting
because prevailing parties have a strong incentive to force the
opposing party to rebut the presumption in situations where
they would not otherwise seek a fee award.''\39\ In addition,
the inclusion of language defining a non-prevailing party as
one who offers a ``covenant not to sue'' may also have the
effect of increasing litigation, with 21C stating that
``[s]imply put, this provision would not advance the interests
of prompt and efficient resolution of patent disputes.''\40\
---------------------------------------------------------------------------
\38\AIPLA Apr. 16, 2015 Letter.
\39\Federal Bar Association Mar. 26, 2015 Letter.
\40\21C Position Summary on H.R. 9, at 7.
---------------------------------------------------------------------------
Fifth, the fee shifting provision is again wholly
unnecessary after the Supreme Court issued two decisions last
year, Octane Fitness, LLC v. ICON Health & Fitness\41\ and
Highmark Inc. v. Allcare Health Mgmt. Sys. Inc.,\42\ that
significantly lowered the threshold for when courts should
award fees. Since those decisions, lower courts have awarded
fees at a dramatically higher rate\43\ and patent litigation
filings have plummeted.\44\ Whatever deterrent effect fee
shifting may have on abusive litigation has been adequately
addressed by the courts, and any legislative action,
particularly the drastic provisions contained in H.R. 9, are
clearly unncessary.
---------------------------------------------------------------------------
\41\134 S. Ct. 1749 (2014).
\42\134 S. Ct. 1744 (2014).
\43\See Mallun Yen, Fee Shifting Before and After the Supreme Court
Decisions, Inside Counsel, Feb. 25, 2015 (reporting that in the 8
months prior to Octane Fitness and Highmark fees were awarded in 6 of
the 31 cases in which they were requested while in the 8 months after
the decision fees were awarded in 21 of the 43 cases in which they were
requested) [hereinafter Mallun Yen, Fee Shifting Before and After the
Supreme Court Decisions]; Posting of Hannah Jiam to PatentlyO.com,
Emerging Trends Post-Octane Fitness (May 13, 2015), available at http:/
/patentlyo.com/patent/2015/05/emerging-octane-fitness.html [hereinafter
Hannah Jiam, Emerging Trends Post-Octane Fitness].
\44\Some reports put the decrease in filings since 2013 as high as
40%. See Letter from ACE, AAMC, AAU, APLU, AUTM, BIO, IA, MDMA, PhRMA,
and USBIC Educational Forum to Rep. Bob Goodlatte, Chairman, H. Comm.
on the Judiciary, Rep. John Conyers, Jr., Ranking Member, H. Comm. on
the Judiciary, Sen. Patrick Leahy, Chairman, S. Comm. on the Judiciary,
& Sen. Chuck Grassley, Ranking Member, S. Comm. on the Judiciary (Dec.
10, 2014) [hereinafter Patent Protections Coalition Letter] (on file
with the H. Comm. on the Judiciary, Democratic Staff); Letter from
Charles Giancarlo, Chairman of the Board of Advisors for USIJ, to Rep.
Bob Goodlatte, Chairman, H. Comm. on the Judiciary, Rep. John Conyers,
Jr., Ranking Member, H. Comm. on the Judiciary, Sen. Charles Grassley,
Chairman, S. Comm. on the Judiciary, & Sen. Patrick Leahy, Ranking
Member, S. Comm. On the Judiciary (Feb. 12, 2015) [hereinafter USIJ
February 12, 2015 Letter] (on file with the H. Comm. on the Judiciary,
Democratic Staff).
---------------------------------------------------------------------------
C. LThe Bill's Joinder Provision Will Deter Investments in
Entrepreneurs and Individual Inventors
The joinder provision, included in section 3(c) to help
enforce the fee shifting provision, although improved by the
Manager's Amendment, still raises a host of potential
additional concerns. Among other things, it is drafted in a
one-way manner that only benefits alleged infringers. Deep
pocketed defendants would be guaranteed satisfaction of fee
awards but small companies, startups, and independent inventors
would not be similarly protected when they prevail as
plaintiffs against defendant infringers that hide their assets,
file for bankruptcy, or otherwise evade payment of fee awards.
This provision also raises constitutional concerns because
it creates standing for parties that would otherwise not have
it. In other words, a defendant may join a third-party at the
end of the case for purposes of fee shifting, even though the
third-party had no standing to assert or defend themselves
during the course of the legal proceedings. BIO notes that
``the language is too vague in critical respects and could
potentially sweep in many legitimate patent owners and their
assignees, licensees, and investors'' and will ``chill
investment in areas like biotechnology that require
partnerships and collaborations among researchers, investors,
and companies.''\45\
---------------------------------------------------------------------------
\45\BIO June 19, 2015 Letter.
---------------------------------------------------------------------------
Furthermore, defendants already have other avenues to join
plaintiffs, including through Federal Rules of Civil Procedure
19 and 20. Rule 19 mandates that the court join parties
whenever feasible and Rule 20 permits, but does not require, a
court to join parties.
When combined with H.R. 9's overly expansive fee shifting
provision, the joinder provision could devastate inventors and
their investors, and should be rejected.
D. LThe Bill's Discovery Limitations Invite Abuse and Can be Better
Addressed by the Courts
The legislation's limitations on discovery pending
resolution of certain preliminary motions, as set forth in
section 3(d), are objectionable because they will lead to abuse
and gamesmanship by the parties and can be more properly dealt
with by the courts.
This provision, as modified by the Manager's Amendment, is
an improvement over the bill as introduced, but is still
seriously flawed. According to 21C, section 3(d) ``is a recipe
for delay, gamesmanship and abuse'' because a stay may be
granted based on motions filed a full 3 months after the case
begins.\46\ Similarly, IA warns that the provision ``would
still invite abuse by parties'' because it does not set a
deadline to file preliminary motions or to lift the stay, which
``would invite attorneys to manipulate the discovery stay by
filing triggering motions back to back in order to prolong the
stay.''\47\
---------------------------------------------------------------------------
\46\Press Release, 21C, 21C Opposes H.R, 9, the Innovation Act,
After Yesterday's Markup Tilted the Balance Against All Patent Owners
(June 12, 2015) [hereinafter 21C June 12, 2015 Press Release] (on file
with the H. Comm. on the Judiciary, Democratic Staff).
\47\Fact Sheet from the Innovation Alliance, Other Provisions of
the Managers' Amendment Remain Overbroad and Would Substantially
Devalue Patent Rights [hereinafter Innovation Alliance Fact Sheet on
H.R. 9] (on file with the H. Comm. on the Judiciary, Democratic Staff).
---------------------------------------------------------------------------
BIO also expressed concerns with the discovery stay
provision, especially with regard to the competitive harm
exception, which ``only covers companies with products already
on the market, failing to protect the thousands of start-up
companies on the cusp of commercial marketing from being able
to timely enforce their patents against infringers who are
trying to destroy their businesses before they even make it to
market.''\48\ Likewise, 21C writes that the competitive harm
exception ``was rendered effectively meaningless by an
amendment that requires a preliminary injunction be granted
before discovery may proceed.''\49\
---------------------------------------------------------------------------
\48\BIO June 19, 2015 Letter.
\49\21C June 12, 2015 Press Release.
---------------------------------------------------------------------------
Second, these new limitations on discovery ignore the role
of the courts in setting proper discovery time lines. As IA
notes, ``[j]udges already have significant discretion to manage
discovery including through grant of stays.''\50\ Furthermore,
``[a]dditional legislation is unnecessary and carries potential
to increase costs and delays.''\51\ The Judicial Conference
shares this concern and pointed out that ``the Supreme Court
recently transmitted to Congress a package of revisions to the
Federal Rules of Civil Procedure that aim to reduce discovery
costs and burdens in all civil litigation, including patent
litigation. In light of these pending rule changes, it is not
clear that additional discovery reforms are necessary at this
time.''\52\
---------------------------------------------------------------------------
\50\Innovation Alliance Fact Sheet on H.R. 9.
\51\Id.
\52\Letter from James C. Duff, Secretary of the Judicial Conference
of the United States, to Rep. John Conyers, Jr., Ranking Member, H.
Comm. on the Judiciary (May 28, 2015).
---------------------------------------------------------------------------
E. LThe Bill's Customer Stay Provision Could Deprive Legitimate Patent
Owners of Meaningful Relief
We support the concept of a true customer stay that enables
end users and small businesses to have lawsuits against them
stayed pending resolution of litigation against an upstream
manufacturer who is better positioned to defend the lawsuit.
However, some stakeholders have expressed serious concerns
about section 5 of H.R. 9, as drafted, because it is over-broad
and often would improperly shield the most culpable infringers
from litigation, effectively denying patent owners a remedy for
infringement.
Rather than being targeted at true end users, section 5
could sweep in many large companies and retailers who, as a
matter of policy, should not receive a stay. For example, it
would protect both sophisticated device makers that reap huge
profits by incorporating infringing components into their
products and large retailers who sell infringing knock-off
products at the expense of the patent owner.\53\ In testimony
before the Subcommittee on Courts, Intellectual Property, and
the Internet, Bryan Pate, CEO of Elliptigo, stated that ``the
stay begs to be abused by infringers and will have the
unintended result of crippling the ability of American
businesses to fight manufacturers that copy their patented
products and flood U.S. markets with cheap, poor quality knock-
offs.''\54\
---------------------------------------------------------------------------
\53\See Mar. 25, 2015 Hearing (testimony of Bryan Pate, CEO of
Elliptigo).
\54\See id.
---------------------------------------------------------------------------
Although we think that protecting innocent end users from
frivolous litigation is a worthy objective, IA warns that the
provision would have ``unintended consequences''\55\ because it
``fails to ensure that only truly `innocent' end users of
products receive a stay, and that a stay will only be granted
if the upstream manufacturer is directly infringing a
patent.''\56\ IEEE-USA also opposes this provision because, as
currently drafted, it ``creates an exemption for many points in
a distribution chain and makes enforcement essentially
impossible for some classes of infringing exports.''\57\
---------------------------------------------------------------------------
\55\Fact Sheet, Innovation Alliance, Priority Concerns with H.R. 9
Manager's Amendment [Innovation Alliance Priority Concerns] (on file
with the H. Comm. on the Judiciary, Democratic Staff).
\56\Id.
\57\Letter from James A. Jefferies, Pres. of IEEE-USA, to Rep. Bob
Goodlatte, Chairman, H. Comm. on the Judiciary, & Rep. John Conyers,
Jr., Ranking Member, H. Comm. on the Judiciary (June 10, 2015).
---------------------------------------------------------------------------
We also have concerns that where the manufacturer of an
infringing component of a larger product is located overseas,
it will be difficult, or even impossible, to enforce a U.S.
judgment against it.\58\ Even where a patent owner could obtain
jurisdiction over a ``covered manufacturer,'' courts in certain
foreign jurisdictions are unlikely to recognize a U.S.
judgment, and collection mechanisms could be ineffective or
non-existent as a practical matter.
---------------------------------------------------------------------------
\58\See Mar. 25, 2015 Hearing (testimony of Bryan Pate, CEO of
Elliptigo).
---------------------------------------------------------------------------
Patent owners' ability to obtain relief for infringement
could also be impaired if they were forced to defend their
rights against manufacturers upstream in a supply chain. A
manufacturer of a component of a larger product is likely to be
only an indirect infringer of a patent when the patent is not
infringed until the component is incorporated into a larger
system.\59\ The Supreme Court has made it extremely difficult
to bring indirect infringement actions, including by adding
knowledge requirements that are not required to prove direct
infringement.\60\ Proving indirect infringement also requires
proof of direct infringement.\61\ However, H.R. 9 would grant a
stay to the direct infringer, thereby forcing patent owners to
prove indirect infringement against upstream manufacturers
while their real case of direct infringement by the covered
customer is stayed. Ultimately, this could leave large
companies that profit most from the infringement at issue free
to continue infringing without consequences while their case is
stayed, leaving patent owners without any recourse for the most
damaging aspects of the ongoing infringement.
---------------------------------------------------------------------------
\59\See, e.g., 35 U.S.C. Sec. 271(b), (c) (2015); Arris Group, Inc.
v. British Telecomms. PLC, 639 F. 3d 1368, 1376 n.8 (Fed. Cir. 2011)
(``Claims which recite a `system,' `apparatus,' `combination,' or the
like are all analytically similar in the sense that their claim
limitations include elements rather than method steps. All such claims
can be contributorily infringed by a component supplier.''; SynQor,
Inc. v. Artesyn Techs., Inc., 709 F.3d 1365, 1373 (Fed. Cir. 2013)
(``SynQor asserted claims for induced and contributory infringement
under 35 U.S.C. Sec. 271(b) and (c), alleging Defendants sold the power
supply components with knowledge that they would be used in, or were
especially made to be used in, infringing systems imported into the
United States.''); see generally, TecSec, Inc. v. IBM, 731 F.3d 1336,
1351 (Fed. Cir. 2013) (``An act of infringement occurs when all of the
elements of a claimed product or method are met by the accused device
or process. This is the familiar ``all elements'' rule.'').
\60\See Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060
(2011).
\61\Limelight Networks, Inc. v. Akamai Technologies, Inc., 134 S.
Ct. 2111, 2117 (2014).
---------------------------------------------------------------------------
We are eager to work with our colleagues to ensure that
small businesses and true end users receive appropriate stays
of litigation. Indeed, during the markup, we supported an
amendment by Representative Scott Peters that would have
limited the definition of covered customers under this
provision to a small business concern, as defined by section 3
of the Small Business Act, but the amendment was withdrawn.\62\
However, as drafted, the customer stay provision in H.R. 9 is
over-broad. It goes far beyond protecting innocent end users at
the end of a supply chain and could instead give large
businesses--who profit most from the sale or incorporation of
infringing products and inflict the most harm on patent
owners--what is in effect a shield against meritorious
litigation.\63\
---------------------------------------------------------------------------
\62\H.R. 9 Markup Unofficial Transcript (Amendment #23 by
Representative Scott H. Peters).
\63\See Letter from Brian Pomper, Exec. Dir. of IA, to Rep. Bob
Goodlatte, Chairman, H. Comm. on the Judiciary, & Rep. John Conyers,
Jr., Ranking Member, H. Comm. on the Judiciary (June 10, 2015).
---------------------------------------------------------------------------
F. LThe Bill Includes Extraneous Measures That Were Not Given Proper
Consideration
H.R. 9 includes a number of provisions that are unrelated
to the bill's goal of curbing abusive litigation, but which
have important policy implications. These range from
significant changes in the post-grant review (PGR) proceeding
at the USPTO to a troubling change in bankruptcy law. None of
these provisions were the subject of a hearing or any
deliberative process, and demand more consideration before
being included in any patent reform legislation.
i. LH.R. 9 Makes a Controversial Change to the Estoppel
Provision in Post-Grant Review Proceedings
Section 9 of the bill sets forth technical corrections to
the Leahy-Smith America Invents Act. Subsection (a) contains an
amendment to 35 U.S.C. Sec. 325(e)(2), which relates to PGR, by
striking the words ``or reasonably could have raised.'' This
clause was added to the Patent Act by the Leahy-Smith America
Invents Act (AIA).
Currently, a participant in a PGR proceeding is prohibited
from asserting in a subsequent civil action any claims that
were ``raised or reasonably could have raised'' during the PGR
proceeding. The striking of the clause by Section 9(a) would
effectively prohibit only those claims that a participant
actually raised in the PGR proceeding.
Supporters of this change state that it is needed to
correct a so-called ``scrivener's error'' in the drafting of
the AIA.\64\ Setting aside aspersions of blame for the
inclusion of the language in the AIA, section 9(a) is
controversial and therefore not a mere technical change.\65\
Then-Ranking Member of the Senate Judiciary Committee Senator
Chuck Grassley has indicated ``hopefully nobody will try to use
technical or clarifying language to get something done that
they couldn't get done during the 6 years that this process was
being negotiated.''\66\ Former Senator Tom Coburn similarly
stated that he supported ``a pure technical correction bill,
but anything that significantly changes the estoppel provisions
in the bill we passed needs to have the full consideration of
all the stakeholders and all the members of this Committee
before we would do that.''\67\ Further, a technical corrections
bill to the AIA was enacted 16 months after enactment of the
AIA, and it did not include language similar to H.R. 9's
Section 9(a).\68\
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\64\H.R. 9 Markup Unofficial Transcript, at 167 (statement of
Chairman Bob Goodlatte).
\65\Robert L. Stoll, Maintaining Post-Grant Review Estoppel in the
America Invents Act: A Call for Legislative Restraint, 2012 Patently-O
Patent Law Review 23-25.
\66\Oversight of the U.S. Patent and Trademark Office: Hearing on
the Implementation of the Leahy-Smith America Invents Act and Int'l
Harmonization Effort Before the S. Comm. on the Judiciary, 112th Cong.
3 (June 20, 2012) (statement of Sen. Chuck Grassley, Ranking Member, S.
Comm. on the Judiciary).
\67\Id. at 17 (statement of Sen. Tom Coburn).
\68\Leahy-Smith America Invents Technical Corrections, Pub. L. No.
112-274 (2013).
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Additional Congressional review of this issue is necessary
before making such a controversial change through legislation.
ii. LH.R. 9 Overrides Important Bankruptcy Policy
Section 6(e) makes three substantive amendments to the
Bankruptcy Code. Of particular concern is section 6(e)(1) which
amends section 1522 of the Bankruptcy Code. Bankruptcy Code
section 1522 specifies various protections for creditors and
other interested persons in chapter 15 cross-border insolvency
cases.\69\ By way of background, chapter 15 of the Bankruptcy
Code\70\ codifies the Model Law on Cross-Border Insolvency
(Model Law) promulgated by the United Nations Commission on
International Trade Law.\71\ Chapter 15 reflects a very
carefully crafted international agreement that guides
bankruptcy courts throughout the world about how to manage
transnational insolvencies implicating the laws of other
nations. To achieve the law's goal of reciprocal recognition,
cooperation is fostered inter alia through ``fair and efficient
administration of cross-border insolvencies that protects the
interests of all creditors, and other interested entities,
including the debtor.''\72\
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\69\11 U.S.C. Sec. 1522 (2015).
\70\Enacted in 2005, chapter 15 is intended to ``provide effective
mechanisms for dealing with cases of cross-border insolvency'' through
various statutorily mandated objectives. 11 U.S.C. Sec. 1501(a) (2015).
\71\The text of the Model Law and the Report of UNCITRAL on its
adoption are found at U.N. G.A., 52d Sess., Supp. No. 17 (A/52/17). As
explained in this Committee's report that accompanied the legislation
which led to the enactment of chapter 15, ``[c]ases brought under
chapter 15 are intended to be ancillary to cases brought in a debtor's
home country, unless a full United States bankruptcy case is brought
under another chapter.'' H. Rep. No. 109-31, at 105-06 (2005).
\72\11 U.S.C. Sec. 1501(a)(3) (2015).
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Specifically, section 6(e)(1) would make section 365(n) of
the Bankruptcy Code, which sets forth the rights of a licensee
pursuant to an intellectual property executory contract that is
rejected in a bankruptcy case, applicable to chapter 15
cases.\73\ Pursuant to section 6(e)(1), a U.S. court would be
required to apply Bankruptcy Code section 365(n) to ``foreign
main proceedings,'' a type of chapter 15 case ``pending in the
country where the debtor has the center of its main
interests.''\74\
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\73\11 U.S.C. Sec. 365(n) (2015).
\74\11 U.S.C. Sec. 1506 (2015).
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Unfortunately, section 6(e), by adding a provision to
chapter 15 that deals with a special situation, would alter a
fundamental principle of chapter 15, namely, that it not favor
a particular country's law. As the nonpartisan National
Bankruptcy Conference observed with respect to a similar
provision included in legislation considered in the last
Congress, the provision ``violates the principle of uniformity
that makes the Model Law a valuable mechanism for greater legal
certainty for trade and investment.''\75\ This change
effectively imposes U.S. law whether or not it should apply to
a particular license. For example, a U.S. bankruptcy court
would be required to apply U.S. law to a license owned by a
foreign company and issued under another country's law even if
the intellectual property that is the subject of the license
agreement is not located in the U.S.
---------------------------------------------------------------------------
\75\Memorandum from the International Aspects Comm. to the National
Bankruptcy Conference Exec. Comm. 2 (Nov. 12, 2013) (on file with the
Judiciary Committee Democratic Staff).
---------------------------------------------------------------------------
In addition, section 6(e)(2)(A) amends Bankruptcy Code
section 101(35A), which defines the term ``intellectual
property.''\76\ The bill expands this definition to include a
trademark, service mark, and trade name, as those terms are
defined in the Trademark Act of 1946.\77\ We note, however,
that the Committee has not to any meaningful degree examined
the policy ramifications of expanding the Bankruptcy Code's
definition of intellectual property. As a result of the changes
made by H.R. 9, such a definition would apply to all forms of
bankruptcy relief, not just chapter 15. Thus, it would apply to
chapter 7 (liquidation), chapter 9 (municipal), chapter 11
(business reorganization), chapter 12 (family farmer
reorganization), and chapter 13 (individual reorganization)
bankruptcy cases.
---------------------------------------------------------------------------
\76\11 U.S.C. Sec. 101(35A) (2015).
\77\15 U.S.C. Sec. 1127 (2015).
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Finally, section 6(e)(2)(B) amends Bankruptcy Code section
365(n)(2), to impose an affirmative duty on the licensee to
maintain the quality of the products and services offered under
or in connection with the licensed trademark, service mark, or
trade name. And, it provides that the debtor-licensor retains
its right to oversee and enforce quality control for such
products or services. As with section 6(e)(1), this provision
would apply to all types of bankruptcy cases.
Congress should carefully consider the effects of these
provisions on the Bankruptcy Code before including them in this
legislation.
II. THE INNOVATION ACT DOES NOT EFFECTIVELY ADDRESS THE DECEPTIVE USE
OF DEMAND LETTERS, STOP ABUSE OF POST-GRANT PROCEEDINGS AT THE USPTO,
OR IMPROVE PATENT EXAMINATION QUALITY AT THE USPTO
To the extent there are asymmetries in the patent
litigation system, H.R.9 does not effectively address the root
causes of such problems.
The Innovation Act fails to take an effective approach to
curtail the problem of abusive demand letters based on vague
patents. In addition, the bill does nothing to ensure that the
USPTO has all of the resources it needs to train its examiners
to stop issuing vague patents in the first place. And, H.R. 9
does not prevent further abuses targeting the biopharmaceutical
industries of post-grant proceedings at the USPTO.
A. LCongress Must Make a Serious Effort to Stop the Extortionate Use of
Demand Letters
Because civil litigation can be costly, would-be plaintiffs
often notify by letter would-be defendants of an issue that
could be resolved outside of court amicably. In the context of
the patent system, the patent holder's pre-suit notification
letter typically includes details about the patent the
recipient is alleged to be infringing and either requests the
recipient to stop infringing the patent or offers the recipient
a licensing arrangement. This process sometimes helps the
parties avoid litigation.
Nevertheless, some patent holders have abused the process
by sending letters to end users having no knowledge that the
off-the-shelf products they are using may be allegedly
infringing a patent. And, these bad actors have no intent to
litigate if a licensing arrangement cannot be completed.\78\
Their intent is only to intimidate and extort settlements from
small and medium sized businesses such as credit unions,\79\
community banks,\80\ and retailers.\81\ These bad actors
``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.''\82\ Essentially, the
``demand letters are in all reality thinly-veiled threat
letters that use excessive legal jargon and litigation scare
tactics to trick recipients into cutting big checks, even if no
infringement has occurred.''\83\
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\78\``Trolls also send deceptive patent infringement letters
demanding a licensing fee with no intention to ever file a lawsuit.''
The Innovation Act: Hearing on H.R. 3309 Before the H. Comm. on the
Judiciary, 113th Cong. 247 (Oct. 29, 2013) [hereinafter Innovation Act
2013 Hearing] (letter for the record from David French, Senior Vice
Pres. of Government Relations at the National Retail Federation).
\79\``A growing number of credit unions are reporting receipt of
demand letters from law firms representing `patent trollers' claiming
patent infringement with an option to settle or face litigation.'' Id.
at 266 (letter for the record from Brad Thaler, Vice Pres. of
Legislative Affairs at the National Association of Federal Credit
Unions).
\80\``Vaguely-worded demand letters wreak havoc on small businesses
where every dollar counts.'' Mar. 25, 2015 Hearing, at 17 (written
statement of Underwood).
\81\``As primary targets of the trolls, retailers seek an effective
resolution to this abusive patent litigation strategy by trolls.''
Innovation Act 2013 Hearing, at 247 (letter for the record from David
French, Senior Vice Pres. of Government Relations at the National
Retail Federation).
\82\Id. at 2 (statement of Chairman Bob Goodlatte).
\83\H.R. 9 Markup Unofficial Transcript, at 126 (statement of
Representative Tom Marino).
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Several witnesses at Committee hearings, as well as other
stakeholders, have called for Congress to legislate an end to
the abusive use of deceptive demand letters.\84\ In response,
several legislative proposals have been introduced that could
effectively curtail the abuse.\85\
---------------------------------------------------------------------------
\84\Letter from James A. Jefferies, Pres. of IEEE-USA, to Rep. Bob
Goodlatte, Chairman, H. Comm. on the Judiciary, & Rep. John Conyers,
Jr., Ranking Member, H. Comm. on the Judiciary) (June 10, 2015)
(``Abusive demand letters are the lynchpin of the entire troll business
model. Enacting carefully targeted fixes provides time to carefully
evaluate further targeted measures that may be needed.''); Letter from
the Electronic Frontier Foundation, Engine Advocacy, Public Knowledge,
and the R Street Institute, to Rep. Fred Upton, Chairman, H. Comm. on
Energy & Commerce, & Rep. Frank Pallone, Jr., Ranking Member, H. Comm
on Energy & Commerce (Apr. 28, 2015) (``Abusive patent demand letters
are a major problem today, and we support legislation that curbs such
abuses and strongly protects the public.''); Letter from Phyllis
Schlafly, Chair, Eagle Forum, to Rep. Michael Burgess, Chairman,
Subcomm. on Commerce, Manufacturing, & Trade of the H. Comm. on Energy
& Commerce, & Rep. Jan Schakowsky, Ranking Member, Subcomm. on
Commerce, Manufacturing, & Trade of the H. Comm. on Energy & Commerce
(Apr. 22, 2015) (``We also favor relieving mom-and-pop retailers of the
abusive use of demand letters that make false, misleading claims of
patent infringement by components of off-the-shelf goods.''); Mar. 25,
2015 Hearing, at 57 (testimony of Underwood) (``I think reforming the
demand letter process is key to stopping most of these frivolous
attempts to extort money from small businesses.''); Mar. 25, 2015
Hearing at 59 (testimony of Mark Griffin, General Counsel of
Overstock.com, Inc.) (``Demand letters are a problem, and that problem
should be fixed.''); Mar. 25, 2015 Hearing, at 49 (testimony of Bryan
Pate, CEO of ElliptiGO, Inc.) (``Well, I think the demand letter is a
great place to focus just listening to the conversation and reading the
testimony. It still seems to be the crux of where these extortion
settlements come from, and it seems to be an unfair business
practice.''); Innovation Act 2013 Hearing, at 247 (letter for the
record from David French, Senior Vice Pres. of Government Relations at
the National Retail Federation) (``It is important to the retail
community that legislation addressing patent litigation reform also
addresses the misleading correspondence trolls use.'').
\85\H.R. 1896, the Demand Letter Transparency Act of 2015; H.R.
2045, the Targeting Rogue and Opaque Letters Act of 2015; S. 632, the
Support Technology and Research for Our Nation's Growth Patents Act of
2015; and S. 1137, the Protecting American Talent and Entrepreneurship
Act of 2015.
---------------------------------------------------------------------------
Unfortunately, H.R. 9 is not one of those proposals. The
bill contains three provisions targeting the use of demand
letters: a sense of Congress that it is an abuse of the patent
system to send out purposely evasive demand letters;\86\ new
language barring plaintiffs from enhanced damages for willful
infringement if preceded by a vague demand letter in the pre-
suit notification stage;\87\ and a requirement that the USPTO
conduct a study on the prevalence of the sending of patent
demand letters and their negative effect on the
marketplace.\88\
---------------------------------------------------------------------------
\86\H.R. 9, Sec. 3(e).
\87\H.R. 9, Sec. 3(f). ``This provision is designed to make the
award of enhanced damages more difficult in situations where
`purposefully evasive demand letters' or other defective pre-suit
notification efforts have been undertaken by the patent owner.'' The
Innovation Act: Hearing on H.R. 9 Before the H. Comm. on the Judiciary,
114th Cong. (Apr. 14, 2015) [hereinafter Innovation Act 2015 Hearing]
(written statement of Robert A. Armitage, at 14).
\88\H.R. 9, Sec. 8(e).
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These provisions are not serious efforts to address the
demand letter issue. The bill will not deter the sending of the
letters because it focuses on the litigation stage and many of
the bad actors never intend to litigate.\89\ Congress should
take a more thorough and effective approach than H.R. 9. Such
an approach should carefully balance the needs of legitimate
patent holders to protect their patents from infringement while
stopping the prevalent use of deceptive demand letters.
---------------------------------------------------------------------------
\89\``This [legislation] only refers to demand letters once we are
in litigation.'' Mar. 25, 2015 Hearing, at 59 (statement of Rep. Ted
Deutch).
---------------------------------------------------------------------------
B. LPatent Reform Legislation Should Effectively Rein in Abuses of
Post-grant Proceedings at the USPTO
The AIA created new post-grant proceedings before the
Patent Trial and Appeal Board (PTAB), including inter partes
review (IPR) and PGR proceedings. They were intended to be
efficient and fair for patent owners and challengers. And they
``were designed to provide a quicker, cost-effective
alternative to district court litigation.''\90\
---------------------------------------------------------------------------
\90\BIO June 19, 2015 Letter.
---------------------------------------------------------------------------
These proceedings, however, have turned out to be arguably
unfair for many patent owners. Recent statistics reveal that
the PTAB grants approximately 75% of petitions\91\ and finds at
least some challenged claims unpatentable in nearly 85% of
final written decisions.\92\ These one-sided statistics have
drawn bad actors to abuse the proceedings. ``Litigants are
subverting a well-intended but unfairly implemented system of
adjudicating patents for their financial gain and to the
detriment of innovation, investment and our economy.''\93\ For
example, hedge funds have shorted the stock of
biopharmaceuticals and then filed IPR petitions to drive down
share prices.\94\ According to PhRMA, ``[i]f this abuse is not
addressed, the end result will be to discourage the investment
needed to develop new treatments and cures for patients.''\95\
---------------------------------------------------------------------------
\91\Patent Trial and Appeal Board AIA Progress, Statistics,
available at http://www.uspto.gov/sites/default/files/documents/
aia_statistics_06-18-2015.pdf.
\92\Patent Public Adv. Comm. Quarterly Meeting, Patent Trial and
Appeal Board Update,
at 13, 15, available at http://www.uspto.gov/sites/default/files/
documents/20150219_PPAC_
PTAB_Update.pdf.
\93\The PATENT Act: Finding Effective Solutions to Address Abusive
Patent Practices: Hearing on S. 1137 Before the S. Comm. on the
Judiciary, 114th Cong. (May 7, 2015) (written statement of Henry Hadad,
Senior Vice Pres. and Deputy General Counsel-Intellectual Property for
Bristol-Myers Squibb, at 4).
\94\Innovation Act 2015 Hearing (written statement of Hans Sauer,
Deputy General Counsel for Intellectual Property, at 1). The cases
hedge funds have filed include: Coalition for Affordable Drugs
(ADROCA), LLC. v. ACORDA Therapeutics, INC., Petition for Inter Partes
Review of U.S. Patent No. 8,663,685 (February 11, 2015); Coalition for
Affordable Drugs (ADROCA), LLC. v. ACORDA Therapeutics, INC., Petition
for Inter Partes Review of U.S. Patent No. 8,007,826 (February 27,
2015); Coalition for Affordable Drug (ADROCA), LLC. v. Shire, INC.,
Petition for Inter Partes Review of U.S. Patent No. 6,773,720 (April 1,
2015); Coalition for Affordable Drugs II, LLC. v. NPS Pharmaceuticals,
INC., Inter Partes Review of U.S. Patent No. 7,056,886 (April 1, 2015);
Coalition for Affordable Drugs III, LLC. v. Jazz Pharmaceuticals, INC.,
Petition for Inter Partes Review of U.S. Patent No. 7,895,059 (April 6,
2015); Coalition for Affordable Drugs IV, LLC. v. Pharmacyclics, INC.,
Petition for Inter Partes Review of U.S. Patent No. 8,754,090 (April
20, 2015); Coalition for Affordable Drugs V, LLC. v. Biogen IDEC
International GmbH, Petition for Inter Partes Review of U.S. Patent No.
8,759,393 (April 22, 2015); Coalition for Affordable Drugs IV, LLC. v.
Celgene Corporation, Petition for Inter Partes Review of U.S. Patent
No. 6,045,501 (April 22, 2015); Coalition for Affordable Drugs II, LLC.
v. NPS Pharmaceuticals, Petition for Inter Partes Review of U.S. Patent
No. 7,056,886 (April 23, 2015); Coalition for Affordable Drugs VI, LLC.
v. Celgene, Petition for Inter Partes Review of U.S. Patent No.
6,315,720 (April 23, 2015); Coalition for Affordable Drugs VI, LLC. v.
Celgene Corporation, Petition for Inter Partes Review of U.S. Patent
No. 6,315,720 (April 23, 2015); Coalition for Affordable Drugs VI, LLC.
v. Celgene Corporation, Petition for Inter Partes Review of U.S. Patent
No. 6,315,720 (April 23, 2015); Coalition for Affordable Drugs V, LLC
v. Biogen MA, Inc., Petition for Inter Partes Review of U.S. Patent
No.8,399,514 (May 1, 2015).
\95\Statement of PhRMA (June 11, 2015) [hereinafter PhRMA June 11,
2015 Statement] (on file with the House Committee on the Judiciary,
Democratic Staff).
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Unfortunately, H.R. 9 does not effectively prevent further
abuse of the IPR and PGR proceedings. The bill requires that
challengers in IPR and PGR proceedings certify that they ``do
not own or will not require a financial instrument'' as a hedge
against any decrease in the market value of the stock of the
patent owner it is challenging.\96\ However, this language is
too narrowly tailored to address what has actually been
occurring: where a hedge fund sells or shorts the stock of the
patent holder before filing for the IPR or PGR of the patent
holder's patent. It also would not cover situations where the
challenger ``tips off'' a friend, colleague, or family member
to sell or short the stock of the patent holder before the
hedge fund files for IPR or PGR.
---------------------------------------------------------------------------
\96\H.R. 9, Sec. 9(b)(1) and 9(b)(2).
---------------------------------------------------------------------------
21C states that the bill ``falls short in terms of
meaningful reforms to the procedures used'' at the USPTO in IPR
and PGR proceedings.\97\ BIO,\98\ PhRMA,\99\
Research!America,\100\ and more than 90 patient advocacy
organizations\101\ concur.
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\97\21C June 12, 2015 Press Release.
\98\``BIO appreciates the IPR reforms in the bill, but we believe
they are insufficient to address the fundamental problems and abuses
within the IPR system.'' BIO June 19, 2015 Letter.
\99\``Unfortunately, the bill as approved fails to address the
serious problems with the Inter Partes Review process (IPR) at the
Patent and Trademark Office (PTO), which is a top priority of PhRMA and
the entire biopharmaceutical industry.'' PhRMA June 11, 2015 Statement.
\100\Letter from Mary Woolley, President and CEO of
Research!America, to Rep. Bob Goodlatte, Chairman, H. Comm. on the
Judiciary, Rep. John Conyers, Jr., Ranking Member, H. Comm. on the
Judiciary, Sen. Charles Grassley, Chairman, S. Comm. on the Judiciary,
& Sen. Patrick Leahy, Ranking Member, S. Comm. on the Judiciary (July
15, 2015) (on file with the H. Comm. on the Judiciary, Democratic
Staff).
\101\Letter from over 90 patient advocacy organizations to Rep. Bob
Goodlatte, Chairman, H. Comm. on the Judiciary, Rep. John Conyers, Jr.,
Ranking Member, H. Comm. on the Judiciary, Sen. Charles Grassley,
Chairman, S. Comm. on the Judiciary, & Sen. Patrick Leahy, Ranking
Member, S. Comm. on the Judiciary (May 21, 2015) (on file with the H.
Comm. on the Judiciary, Democratic Staff).
---------------------------------------------------------------------------
For those reasons, Representative Mimi Walters (R-CA)
offered, but later withdrew, an amendment at the Committee
markup of H.R. 9 to exclude biopharmaceutical patents covering
approved drug and biological products from IPR
proceedings.\102\ Several Members spoke in favor of the
amendment\103\ and Chairman Bob Goodlatte assured them that
this issue would be addressed.\104\ Since the Committee's
markup of H.R. 9, 79 members have urged that Congress address
the issue along the lines of Rep. Walters' amendment before the
bill is considered on the floor.\105\ Until an effective
solution is incorporated into H.R. 9, the legislation continues
to fail at protecting patent holders from abuses in post-grant
proceedings at the USPTO.
---------------------------------------------------------------------------
\102\H.R. 9 Markup Unofficial Transcript, at 112 (Amendment #12 of
Representative Mimi Walters).
\103\Id. at 115-119, 171-175 (statements of Reps. Doug Collins,
Henry C. ``Hank'' Johnson, Jr., Zoe Lofgren, & Scott H. Peters).
\104\Id, at 114, 174-175 (statements of Chairman Bob Goodlatte).
\105\Letter signed by 79 Representatives to Rep. John Boehner,
Speaker of the House, Rep. Nancy Pelosi, Minority Leader of the House,
Rep. Kevin McCarthy, Majority Leader of the House, & Rep. Steny Hoyer,
Minority Whip of the House (July 24, 2015) (on file with the H. Comm.
on the Judiciary, Democratic Staff).
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C. LAny Legislation to Reform the Patent System Must Improve Patent
Examination Quality by Ending Fee Diversion
H.R. 9 fails to improve patent examination quality because
it does not prevent the continuing diversion of fees from the
USPTO. When the Judiciary Committee reported the AIA in 2011,
there was bipartisan consensus that diverting user fees from
the USPTO to the Treasury to be used for purposes unrelated to
the services and functions of the USPTO undermined the USPTO's
efforts to reduce its backlog.\106\ For that reason, the AIA
included a provision which created a permanent revolving fund
for the USPTO.\107\ Unfortunately, the provision was
substantially altered by replacing the permanent revolving fund
with a much weaker reserve fund before the AIA was brought to
the floor.\108\
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\106\Unofficial Tr. of Markup of H.R. 1249, ``The America Invents
Act,'' by the H. Comm on the Judiciary, 112th Cong. at 45 (Apr. 14,
2011) (statement of Representative Jim Sensenbrenner), available at
http://judiciary.house.gov/_files/hearings/pdf/
04142011MarkupTranscript.pdf. See also H.R. Rep. No. 112-98, pt. 1, at
55 (2011).
\107\H.R. 1249, 112th Cong. Sec. 22 (2011).
\108\Pub. L. No. 112-29, Sec. 22, 125 Stat. 326 (2011).
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The failure to end fee diversion after enactment of the AIA
in 2011 led to nearly $150 million in badly needed user fees
being diverted in Fiscal Year 2013 because of the sequester.
This loss is on top of the estimated $1 billion in fees
diverted over the last two decades.\109\ By failing to provide
patent examiners the resources they need to review and analyze
effectively the hundreds of thousands of complex and
interrelated patent applications they receive every year,
ongoing efforts at the USPTO to keep pace with innovation and
to continue to enhance patent quality will be stymied. This
diversion prevented improvements to IT projects and resulted in
the hiring of about 1000 less patent examiners.\110\
---------------------------------------------------------------------------
\109\``Over the last two decades the government has withheld,
diverted or sequestered about $1 billion in USPTO user fee
collections.'' Letter from Herbert C. Wamsley, Exec. Dir. of the
Intellectual Property Owners Association (IPO), to Rep. John Conyers,
Jr., Ranking Member, H. Comm. on the Judiciary, & Rep. Doug Collins,
Vice Chair of the Subcomm. on Courts, Intellectual Property and the
Internet of the H. Comm. on the Judiciary (April 16, 2015) [hereinafter
IPO Apr. 16, 2015 Letter] (on file with the House Committee on the
Judiciary, Democratic Staff).
\110\IPO Daily News for Friday, Nov. 22, 2013, available at http://
www.ipo.org.
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There is widespread agreement by observers of the system
and stakeholders that this is an unacceptable and harmful
situation. In 2013, former USPTO Director David Kappos
testified at a hearing on the Innovation Act:
Less than 2 years after the passage of the AIA and all
the accompanying focus on USPTO fee diversion, we found
ourselves again looking at an Agency having its
lifeblood, the user fees that come with the work asked
of USPTO by American innovators drained away. I simply
cannot overstate the destruction that is causing, as
the work remains without funding to handle it, creating
an innovation deficit that will require future
generations of innovators to pay into the Agency again
in hopes their fees are paid. Nor will it be possible
for the USPTO to accomplish the mandates of the AIA,
much less the added responsibilities contemplated by
parts of H.R. 3309, without access to the user fees
calculated to meet those challenges.\111\
---------------------------------------------------------------------------
\111\Innovation Act 2013 Hearing, at 40 (written statement of David
J. Kappos, Partner at Cravath, Swaine & Moore LLP) (emphasis added).
AIPLA concurred: ``This denial of fund access had serious
negative consequences, such as the cancellation of much-needed
IT improvements, significant delays in the rollout of satellite
offices, and a slowing down of examiner hiring, all of which
are critical to improvements in quality and pendency.''\112\
Many witnesses at the Committee hearings on abusive patent
litigation have agreed that fee diversion has had a serious
adverse impact on the patent system.\113\
---------------------------------------------------------------------------
\112\Letter from Lisa K. Jorgenson, Exec. Dir. of AIPLA, to House
Committee on the Judiciary Representatives John Conyers, Jr. & Jim
Sensenbrenner, Jr. (April 20, 2015) (on file with the House Committee
on the Judiciary, Democratic Staff).
\113\Innovation Act 2015 Hearing (written statement of Sauer, at
22); Examining Recent Supreme Court Cases in the Patent Arena: Hearing
Before the Subcomm. on Courts, Intellectual Property and the Internet
of the H. Comm. on the Judiciary, 114th Cong. 70 (Feb. 12, 2015)
(testimony of Herb C. Wamsley, Exec. Dir. of IPO; Andrew J. Pincus,
Partner at Mayer Brown, LLP; Krish Gupta, Senior Vice Pres. and Deputy
General Counsel of EMC Corp.).
---------------------------------------------------------------------------
Similarly, 21C has written that there is a continuing need
to prevent ``user fees from being sequestered or diverted to
support other government programs.''\114\ This view is shared
by the IEEE-USA,\115\ IA,\116\ and IPO.\117\
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\114\Letter from Kevin Rhodes, 21C, to Rep. John Conyers, Jr.,
Ranking Member, H. Comm. on the Judiciary, & Rep. F. James
Sensenbrenner, Jr. (Apr. 16, 2015) (on file with the H. Comm. on the
Judiciary, Democratic Staff).
\115\``Our members have long felt that the diversion of revenues
derived from intellectual property applications was a detriment to the
quality of patents and trademarks.'' Letter from James Jefferies, Pres.
of IEEE-USA, to Rep. John Conyers, Ranking Member, H. Comm. on the
Judiciary (Apr. 16, 2015) (on file with the H. Comm. on the Judiciary,
Democratic Staff).
\116\``We have long maintained that ending fee diversion, and
thereby giving the [USPTO] all of the fees it is paid by patent
applicants, is the single most important change policymakers can make
to improve the U.S. patent system.'' Letter from Brian Pomper, Exec.
Dir. of IA, to to Rep. John Conyers, Jr., Ranking Member, H. Comm. on
the Judiciary, & Rep. F. James Sensenbrenner, Jr. (Apr. 16, 2015) (on
file with the H. Comm. on the Judiciary, Democratic Staff).
\117\``The U.S. needs a fully funded USPTO to keep our nation
competitive, encourage innovation, and create new jobs.'' IPO Apr. 16,
2015 Letter.
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Further, ending fee diversion will help prevent so-called
``patent trolls'' from obtaining vague patents to use as a
threat in demand letters or in litigation. MDMA described the
importance of ending fee diversion to combating abusive patent
litigation:
Many complaints about ``patent trolls'' include
allegations that these entities are asserting ``bad
patents'' that should never have been granted. The most
effective action that can be taken to improve patent
quality is to allow the USPTO to retain its revenues to
allow it to improve the examination process, hire more
and better-qualified examiners, increase examiner
training, and upgrade the USPTO's IT infrastructure.
This should be a core element of any legislation aimed
at addressing the ``troll'' problem.\118\
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\118\Letter from Mark B. Leahey, Pres. and CEO of MDMA, to Rep.
John Conyers, Ranking Member, H. Comm. on the Judiciary (June 2, 2015)
(on file with the H. Comm. on the Judiciary, Democratic Staff).
For those reasons, Ranking Member John Conyers, Jr. (D-MI)
offered an amendment at the Committee markup to prevent future
fee diversion from the USPTO. The amendment would have
established a revolving fund in the United States Treasury that
would allow the USPTO to retain and use all of the user fees it
collected by applicants and still provide for Congressional
oversight of the USPTO.\119\ Even though the subject of the
amendment received widespread support by the Members, the
amendment failed because some Members posited that a point of
order would be raised on the floor and hinder passage of the
legislation.\120\
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\119\The amendment is modeled after H.R. 1832, the ``Innovation
Protection Act,'' which Ranking Member Conyers and Representative
Sensenbrenner, along with an evenly divided bipartisan group of 6
additional members, introduced on April 16, 2015. The legislation
currently has 22 cosponsors.
\120\H.R. 9 Markup Unofficial Transcript, at 54 (Amendment #20 of
Ranking Member John Conyers, Jr.) (failed 11-16).
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Failure to include language ending USPTO fee diversion once
and for all belies any serious and responsible effort to reform
and update the patent system.
III. RECENT DEVELOPMENTS MAKE MANY OF THE PROVISIONS IN THE INNOVATION
ACT UNNECESSARY
When a substantially similar version of the Innovation Act
was introduced in October 2013,\121\ the bill was rushed
through the House of Representatives in a matter of weeks.\122\
Since then, the courts and the executive branch have taken a
number of actions to reduce abusive patent litigation,
rendering many of the provisions contained in H.R. 9
unnecessary.
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\121\H.R. 3309, 113th Cong. (2013).
\122\H.R. 3309 was introduced on October 23, 2013 and the House
Committee on the Judiciary held a hearing on the bill on October 29,
2013. Thereafter, the Committee marked up the bill on November 20, 2013
and the House passed the bill on December 5, 2013.
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In addition, H.R. 9 is even more objectionable than the
more deliberate and cautious approach in the Senate's PATENT
Act, which the Senate Committee on the Judiciary recently
reported.\123\ If the House chooses to pursue legislation to
curb abusive patent litigation, it should consider some of the
positive improvements reflected in the Senate's approach.
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\123\The Protecting American Talent and Entrepreneurship (PATENT)
Act: Markup of S. 1137 Before the S. Comm. on the Judiciary, 114th
Cong. (June 4, 2015).
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A. LCourts are Already Awarding Fees at a Much Higher Rate
A centerpiece of H.R. 9 is its mandatory presumptive fee
shifting provision, which will force a non-prevailing party to
demonstrate that it should not bear the court costs and
attorneys' fees of the prevailing party.\124\ Supporters of
this legislation claim that a stronger fee shifting regime is
necessary to deter litigation abuses.\125\ However, two recent
Supreme Court cases make the need for H.R. 9's fee shifting
provision moot.
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\124\H.R. 9, 114th Cong. Sec. 3(b) (2015).
\125\See, e.g., Letter from United for Patent Reform to Sen.
Charles Grassley, Chairman, S. Comm. on the Judiciary, Patrick Leahy,
Ranking Member, S. Comm. on the Judiciary, Rep. Bob Goodlatte,
Chairman, H. Comm. on the Judiciary, & Rep. John Conyers, Jr., Ranking
Member, H. Comm. on the Judiciary (Jan. 15, 2015) (on file with the H.
Comm. on the Judiciary, Democratic Staff).
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Under 35 U.S.C. Sec. 285, a court ``in exceptional cases''
may award reasonable attorneys' fees to a prevailing party in a
patent case. Before 2014, courts rarely awarded fees because of
a strict standard set by the U.S. Court of Appeals for the
Federal Circuit, in Brooks Furniture Mfg., Inc. v. Dutailier
Int'l, Inc.\126\ In its 2014 decision in Octane Fitness,\127\
the Supreme Court held that the standard was unduly rigid. The
Court explained that an ``exceptional'' case is one that merely
``stands out from others with respect to the substantive
strength of a party's litigation position (considering both the
governing law and the facts of the case) or unreasonable manner
in which the case was litigated.''\128\ The decision makes it
easier for a court to award fees.
---------------------------------------------------------------------------
\126\393 F.3d 1378, 1381 (Fed. Cir. 2005).
\127\134 S. Ct. 1749 (2014).
\128\Id. at 1756.
---------------------------------------------------------------------------
On the same day, the Court also ruled, in Highmark,\129\
that the Federal Circuit's review of a district court's fee
award should be reviewed for abuse of discretion rather than de
novo. The decision made it more difficult for the Federal
Circuit to reverse district court decisions on fee awards.
---------------------------------------------------------------------------
\129\134 S. Ct. 1744 (2014).
---------------------------------------------------------------------------
Since the Supreme Court's decisions in these two cases,
courts have been awarding fees at a substantially higher rate.
According to one study, in the 8 months prior to these
decisions, fees were awarded in almost 20% of the cases in
which they were requested. In the 8 months following the
decisions, however, fees were awarded in almost half the cases
in which they were requested.\130\ Another study reported a
jump in cases in which fees were awarded from 13% in the period
analyzed prior to Octane Fitness and Highmark to 43% after
those cases.\131\
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\130\Mallun Yen, Fee Shifting Before and After the Supreme Court
Decisions, Inside Counsel, Feb. 25, 2015 (reporting that in the 8
months prior to Octane Fitness and Highmark fees were awarded in 6 of
the 31 cases in which they were requested while in the 8 months after
the decision fees were awarded in 21 of the 43 cases in which they were
requested).
\131\Posting of Hannah Jiam to PatentlyO.com, Emerging Trends Post-
Octane Fitness (May 13, 2015), available at http://patentlyo.com/
patent/2015/05/emerging-octane-fitness.html.
---------------------------------------------------------------------------
Although we have strong concerns about the impact of loser
pays provisions on legitimate plaintiffs, to the extent that
the threat of fee shifting acts as a deterrent to filing
abusive litigation, the stringent provisions of the Innovation
Act are clearly unnecessary. The Supreme Court loosened the
standard for when fees should be awarded and district courts
have responded, in short order, with a significant increase in
the frequency of fee awards. There is no need for the mandatory
presumptive fee shifting contained in H.R. 9, which would make
fee awards the default rule and discourage inventors from
enforcing their patent rights in court.
B. LPatent Case Filings Have Decreased Significantly Over the Last Year
One of the primary arguments for supporters of H.R. 9 is
that patent litigation rates have skyrocketed. However,
statistics reveal that there has been a dramatic decrease in
the number of patent cases filed, with some reports finding
that infringement cases dropped by as much as 40% between
September 2013 and September 2014.\132\
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\132\See Study by Lex Machina, available at https://lexmachina.com/
2014/10/september-2014-new-patent-case-filings-40-september-2013/
(showing that monthly patent filings decreased by 40% (549 to 329)
between September 2013 and September 2014); Andrew S. Baluch, Esq. and
Eoin Connolly, Attorney fee awards in patent cases after Octane
Fitness, Westlaw Journal Intellectual Property, vol. 21, issue 17 at 14
(Dec. 10, 2014) (finding that at least 40 motions for attorneys' fees
were filed since the Supreme Court decided Octane Fitness and fees were
awarded in 18 of those cases). See also Patent Protections Coalition
Letter; USIJ February 12, 2015 Letter.
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Although a number of factors may be behind this trend, one
important contributor was likely the Supreme Court's decision
in Alice Corp. v. CLS Bank Int'l.\133\ In Alice, the Court held
that simply implementing an abstract idea using a generic
computer is not enough to turn that abstract idea into a
patentable invention.\134\ As a result, the scope of patentable
subject matter for many software-based inventions has been
significantly narrowed.\135\
---------------------------------------------------------------------------
\133\134 S. Ct. 2347 (2014).
\134\Id.
\135\USIJ February 12, 2015 Letter.
---------------------------------------------------------------------------
Consequently, abusive litigants, who often hold this type
of vague and over-broad patent, will have many of their suits
dismissed at an early stage of litigation and the USPTO will
issue fewer of these weak patents going forward.\136\
---------------------------------------------------------------------------
\136\James Bessen, What the Courts Did to Curb Patent Trolling--For
Now, The Atlantic (Dec. 1, 2014).
---------------------------------------------------------------------------
C. LPleading Standards are Already Set to Increase Due to the
Elimination of Form 18
A central provision in H.R. 9 calls for heightened pleading
requirements because defendants contend that plaintiffs in
patent cases are not required to provide sufficient detail in
their complaints to give defendants fair notice of what patents
they are allegedly infringing and how the patents have been
infringed. However, the Federal courts have taken
administrative actions that render this provision in the
Innovation Act unnecessary.
Currently, patent holding plaintiffs merely need to file
Form 18 of the Federal Rules of Civil Procedure as their
complaint. That form requires plaintiffs to include minimal
information. There is widespread agreement that this
requirement provides insufficient notice to defendants.
Fortunately, Form 18 should be eliminated by December 1 of this
year.\137\ After Form 18 is eliminated, patent infringement
suits will be subject to the already heightened pleading
requirements provided for under the Supreme Court's decisions
in Twombly\138\ and Iqbal\139\ that applies to all other civil
actions. Under Twombly and Iqbal, plaintiffs must include
enough facts to show that their claim is ``plausible on its
face.''\140\
---------------------------------------------------------------------------
\137\Supreme Court Adopts Rules Changes; ``Summary of the Report of
the Judicial Conference Committee on Rules of Practice and Procedure
14,'' (Sept. 2014), available at http://www.uscourts.gov/uscourts/
RulesAndPolicies/rules/Reports/ST09-2014.pdf.
\138\550 U.S. 544 (2007).
\139\556 U.S. 662 (2009).
\140\Leslie Gordon, For Federal Plaintiffs, Twombly and Iqbal Still
Present a Catch-22,
ABA Journal, Jan. 1, 2011, available at http://abajournal.com/magazine/
article/for_federal_
plaintiffs_twombly_and_iqbal_still_present_a_catch-22.
---------------------------------------------------------------------------
Once Form 18 is eliminated, the alleged need for H.R. 9's
heightened pleading requirements will be unnecessary and if
allowed to remain, would unfairly burden plaintiffs seeking to
enforce their patent rights by requiring them to provide more
details in their complaints beyond what is required under
Twombly and Iqbal.
D. LDistrict Courts Have Developed Local Case Management Rules
Supporters of H.R. 9 contend that courts hearing patent
cases have not imposed structures to limit discovery and
prevent abuse of the litigation system. However, individual
district courts have taken steps in recent years to lower the
costs and improve the efficiency of patent cases by
establishing local case management rules.
More than 30 courts currently have local case management
rules for patent cases, up from just 12 in 2008, with more
districts expected to follow.\141\ Rather than Congress
legislating burdensome and heavy-handed rules governing patent
litigation that will harm all plaintiffs, we should allow the
courts, which have expertise in managing patent cases, to
continue developing policies that will improve the litigation
process.
---------------------------------------------------------------------------
\141\Dina Hayes & James Lyons, Judges' Use of Case Management to
Effect [sic] Patent Reform, Inside Counsel, Dec. 22, 2014.
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E. LThe USPTO Has Begun an Enhanced Patent Quality Initiative
Innovation Act proponents have expressed concerns that so-
called ``patent trolls'' rely on vague patents for the subjects
of their demand letters and lawsuits. Recognizing that high
quality patents bring certainty and clarity of rights, which
reduces needless litigation and the issuance of vague patents,
the USPTO recently announced an important initiative to enhance
patent quality.\142\
---------------------------------------------------------------------------
\142\Request for Comments on Enhancing Patent Quality, 80 Fed. Reg.
6475 (proposed Feb. 5, 2015).
---------------------------------------------------------------------------
Beginning with a ``Quality Summit'' that was held in March
of this year, the USPTO has proposed a variety of measures,
including increased training of its examiners, better customer
service, and new technology that will significantly improve the
quality of the patents it issues.\143\ These proposed
initiatives join a host of other efforts already underway at
the USPTO to enhance patent quality.\144\ As the agency
continues to increase the quality of the patents it issues,
fewer vague and over-broad patents will be available to bad
actors that seek to abuse the litigation system. Over time,
this will be far more effective than the unfair and unnecessary
measures contained in H.R. 9.
---------------------------------------------------------------------------
\143\Id.
\144\Id.
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F. LH.R. 9 Is More Objectionable than the Senate's PATENT Act
Although S. 1137, the PATENT Act, which the Senate
Judiciary Committee recently reported, still has room for
improvement, we, along with many stakeholders, believe it
provides much stronger protection for legitimate inventors than
H.R. 9.\145\ In particular, S. 1137 requires a prevailing party
to demonstrate that it is entitled to fees. In addition, the
Senate bill would require a court to determine whether the non-
prevailing party's claim and conduct were objectively
reasonable.\146\ H.R. 9, on the other hand, would require a
court to award fees unless it found the non-prevailing party's
position and conduct to be reasonably justified.\147\
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\145\See, e.g., Press Release, 21C, 21C Commends Senate
Introduction of the PATENT Act (April 29, 2015), available at http://
patentsmatter.com/issue/pdfs/21CStatementon
IntroductionoftheSenateBill.pdf; Press Release, PhRMA, PhRMA Response
to Introduction of Senate Patent Bill (April 29, 2015), available at
http://www.phrma.org/media-releases/phrma-
response-to-introduction-of-senate-patent-bill; Press Release, United
for Patent Reform, Bipartisan Senate Judiciary Bill Will Protect
America's Businesses from Continued Patent Troll
Extortion (April 29, 2015), available at http://
www.unitedforpatentreform.com/patent-reform-
news/65/
Press+Release+Bipartisan+Senate+Judiciary+Leadership+Bill+Will+Protect+A
merica+
s+Businesses+From; Press Release, Association of American Universities,
American Council on Education, Association of American Medical
Colleges, Association of Public and Land-grant Universities,
Association of University Technology Managers, and Council on
Government Relations, Higher Education Association Statement on
Introduction of Patent Act (April 30, 2015), available at http://
www.aplu.org/news-and-media/News/higher-education-association-
statement-on-introduction-of-patent-act; Niels Lesniewski, Senate Bill
Gets White House Plaudits, rollcall, May 1, 2015, available at http://
blogs.rollcall.com/white-house/senate-patent-bill-gets-white-house-
plaudits/?dcz=; Editorial, Curbing Abusive Patent Lawsuits, N.Y. Times,
May 6, 2015.
\146\S. 1137, 114th Cong. Sec. 7(b) (2015).
\147\H.R. 9, 114th Cong. Sec. 3(b) (2015).
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On this and a few other issues, the Senate bill is
preferable to the Innovation Act. Instead of pressing forward
with H.R. 9, the House should take up and improve the Senate's
PATENT Act.
DETAILED SECTION-BY-SECTION ANALYSIS OF H.R. 9
The following explains the pertinent provisions of H.R. 9.
Section 3(a) imposes heightened pleading requirements on
parties asserting patent infringement claims whether in an
initial complaint, counterclaim or cross-claim. It requires
patent holders to identify the patents and claims infringed and
to provide more specificity as to how they are infringed.
Current law governing pleading in all civil actions, including
patent infringement claims, is somewhat fluid following the
decisions of the U.S. Supreme Court in Twombly,\148\ and
Iqbal.\149\ Those cases moved away from the traditional
``notice'' pleading regime and moved towards more fact-based
pleading requirements. In addition, Form 18, which calls for
simple notice pleading in patent cases, is set to be eliminated
on December 1 of this year.\150\
---------------------------------------------------------------------------
\148\550 U.S. 544 (2007).
\149\556 U.S. 662 (2009).
\150\Supreme Court Adopts Rules Changes.
---------------------------------------------------------------------------
Section 3(b) amends Section 285 of title 35 to provide that
the court shall award reasonable fees and other expenses to a
prevailing party, unless the court finds that the position and
conduct of the non-prevailing party or parties were reasonably
justified in law and fact or that special circumstances (such
as severe economic hardship to a named inventor) make an award
unjust. Section 3(b) would replace the current discretionary
statutory provision with a mandatory fee-shifting provision.
The language requires that fees shift to the non-prevailing
party unless they can meet the burden of establishing that
their position was ``reasonably justified'' or that ``special
circumstances'' make an award unjust. The provision also
defines a non-prevailing party to include a plaintiff patentee
who ``subsequently unilaterally extends . . . a covenant not to
sue for infringement with respect to the patent or patents at
issue.''
Section 3(c) establishes an additional mechanism for
joinder of additional plaintiffs notwithstanding Federal Rules
of Civil Procedure 19 and 20, which already provide for the
permissive and mandatory joinder of parties, respectively. This
subsection provides that in a civil action arising under any
Act of Congress relating to patents in which fees and other
expenses have been awarded under section 285 to a prevailing
party defendant against an allegation of infringement of a
patent claim, and in which the non-prevailing party alleging
infringement is unable to pay the award of fees and other
expenses, the court shall grant a motion by the prevailing
party to join an interested party if such prevailing party
shows that the non-prevailing party has no substantial interest
in the subject matter at issue other than asserting such patent
claim in litigation.
The court may deny a motion to join an interested party if:
(1) the interested party is not subject to service of process;
or (2) joinder would deprive the court of subject matter
jurisdiction or make venue improper. The court must deny a
motion to join an interested party if: (1) the interested party
did not timely receive the notice required; or (2) within 30
days after receiving the notice required, the interested party
renounces, in writing and with notice to the court and the
parties to the action, any ownership, right, or direct
financial interest that the interested party has in the patent
or patents at issue.
An interested party may not be joined unless it has been
provided actual notice, within 30 days after the expiration of
the time period during which a certification is required to be
filed, that the interested party has been identified in the
initial disclosure. This subsection defines an interested party
to mean a person other than the party alleging infringement
that: (1) is an assignee of the patent or patents at issue; (2)
has a right, including a contingent right, to enforce or
sublicense the patent or patents at issue; or (3) has a direct
financial interest in the patent or patents at issue, including
the right to any part of an award of damages or any part of the
licensing revenue, except that a person with a direct financial
interest does not include: (i) an employee of the party
alleging infringement--(I) whose principal source of income or
employment is employment with the party alleging infringement;
or (II) whose sole financial interest in the patent or patents
at issue is a salary or hourly wage paid by the party alleging
infringement; (ii) an attorney or law firm providing legal
representation in the civil action described in paragraph (1)
if the sole basis for the financial interest of the attorney or
law firm in the patent or patents at issue arises from the
attorney or law firm's receipt of compensation reasonably
related to the provision of the legal representation; or (iii)
a person whose sole financial interest in the patent or patents
at issue is ownership of an equity or security interest in the
party alleging infringement, unless such person also has the
right or ability to direct or control (membership on the board
of directors alone is not sufficient to demonstrate such right
or ability) the civil action.
The term substantial interest in the subsection includes an
interest in the subject matter of a patent at issue if the
party: (1) invented the subject matter; or (2) commercially
practices or implements, made substantial preparations directed
particularly to commercially practicing or implementing, or is
engaged in research and development in, technology in the field
of the subject matter.
This subsection does not apply to an action if the party
alleging infringement files, not later than 45 days after the
date on which the party is served with the intial statement a
certification that: (1) establishes and certifies to the court,
under oath, that the party will have sufficient funds available
to satisfy any award of reasonable attorneys' fees and expenses
under section 285 if an award is assessed; (2) demonstrates
that such party has a substantial interest in the subject
matter at issue other than asserting the patent in the
litigation; or (3) is made under oath that there are no other
interested parties.
Section 3(c) does not apply to a technology transfer
organization whose primary purpose is to facilitate the
commercialization of technologies developed by one or more
institutions of higher education (as defined in section 101(a)
of the Higher Education Act of 1965 (20 U.S.C. 1001 Sec. (a))
if such technology transfer organization is alleging
infringement on behalf of an entity that would not be subject
to this subsection.
Section 3(d) requires a judge, with limited exceptions, to
stay all discovery if the defendant moves within 90 after
service of a complaint to: (1) sever or drop a party for
misjoinder; (2) transfer or dismiss the action due to improper
venue; or (3) dismiss the action pursuant to Federal Rule of
Civil Procedure 12(b). A judge must decide a motion that is the
basis for the stay before deciding any other substantive motion
or issues a scheduling order. Section 3(d) permits discovery
only when necessary for a court to decide a motion to sever,
dismiss a party, or dismiss or transfer the action; when a
preliminary injunction is granted to prevent competitive harm;
or with the consent of the parties. This provision does not
apply to an action that includes a cause of action described
under section 271(e)(2).
Section 3(e) expresses a sense of Congress that it is an
abuse of the patent system and against public policy to send
out evasive demand letters to end users alleging patent
infringement.
Section 3(f) adds a paragraph at the end of section 284 of
title 35 providing that pre-suit notification of infringement
may not be relied on to establish willfulness unless such
notification identifies with particularity the patent and the
accused products or process and explains why a claim is
infringed to the extent possible following a reasonable
inquiry.
Section 3(g)(1) amends section 1400 of title 28 to state
that notwithstanding subsections (b) and (c) of section 1391,
any civil action for patent infringement or any action for a
declaratory judgment that a patent is invalid or not infringed
may be brought only in a judicial district: (1) where the
defendant has its principal place of business or is
incorporated; (2) where the defendant has committed an act of
infringement of a patent in suit and has a regular and
established physical facility that gives rise to the act of
infringement; (3) where the defendant has agreed or consented
to be sued in the instant action; (4) where an inventor named
on the patent in suit conducted research or development that
led to the application for the patent in suit; (5) where a
party has a regular and established physical facility that such
party controls and operates, not primarily for the purpose of
creating venue, and has: (A) engaged in management of
significant research and development of an invention claimed in
a patent in suit prior to the effective filing date of the
patent; (B) manufactured a tangible product that is alleged to
embody an invention claimed in a patent in suit; or (C)
implemented a manufacturing process for a tangible good in
which the process is alleged to embody an invention claimed in
a patent in suit; or (6) for foreign defendants that do not
meet the requirements of paragraphs (1) or (2), according to
section 1391(d) of this title.
Section 3(g)(2) provides that for the purpose of
determining whether relief may issue under section 1651 of
title 28, a clearly and indisputably erroneous denial of a
motion under section 1406(a) to dismiss or transfer a case on
the basis of section 1400(b) shall be deemed to cause
irremediable interim harm.
Section 3(g)(3) provides that if a defendant does not meet
the definition of a retailer under section 296(a)(6) of title
35, as added by section 5 of the bill, solely because the
defendant manufactures or causes the manufacture of the covered
product or process in suit, the retail facilities of such
defendant shall not constitute a regular and established
physical facility for purposes of section 1400(b)(2) of title
28 as added by paragraph (1).
Section 3(g)(4) provides that the dwelling or residence of
an employee or contractor of a defendant who works at such
dwelling or residence shall not constitute a regular and
established physical facility of the defendant for purposes of
section 1400(b)(2) of title 28, as added by paragraph (1).
Section 3(h) applies the amendments made by section 3 to
cases filed on or after the date of enactment of the Innovation
Act, except where the individual subsections of section 3
supply their own effective dates.
Section 4(a) requires a patent owner who asserts an
infringement claim in court to provide detailed information
about all persons or entities having an interest in the patent.
Specifically, the patent owner has an ongoing duty to inform
the parties, the court, and the USPTO of: (1) any assignee of
the patent; (2) any entity with the right to sublicense or
enforce the patent; (3) any entity with any financial interest
in the patent or in the patentee; (4) the ultimate parent
entity of the assignee; (5) a clear and concise description of
the principal business, if any, of the party alleging
infringement; (6) a list of each complaint filed, of which the
party alleging infringement has knowledge; and (7) for each
patent identified, whether a standard-setting body has declared
such patent to be essential, potentially essential, or having
potential to become essential to that standard-setting body,
and whether the United States Government or a foreign
government has imposed specific licensing requirements with
respect to the patent. These requirements shall not apply with
respect to a civil action filed under subsection (a) that
includes a cause of action described under Section 271(e)(2).
The patent owner is encouraged to comply with these
requirements because failure to do so will cause them to
forfeit attorneys' fees under section 285 or pay enhanced
damages. In addition, the patent owner may also be required to
pay the opposing party's costs and attorney's fees incurred to
determine the identity of the real parties at interest in the
patent if the patent owner fails to comply with this section.
Fees may be shifted even if the identity of additional parties
was immaterial to the proceedings and may only be avoided if
the court determines they are ``unjust.''
Section 4(d) states that the amendments made by section 4
shall take effect upon the expiration of the 6-month period
beginning on the date of enactment of the bill and shall apply
to any action for which a complaint is filed on or after such
effective date.
Section 5(a) requires the court to grant a motion to stay
at least the portion of the action against a covered customer
related to infringement of a patent involving a covered product
or covered process if: (1) the covered manufacturer is a party
to the action or to a separate action (in which a party asserts
a claim for relief arising under any Act of Congress relating
to patents) involving the same patent or patent related to the
same covered product or covered process; (2) the covered
customer agrees to be bound as to the issues determined in an
action described in paragraph (1) without a full and fair
opportunity to separately litigate any such issue, but only as
to those issues for which all other elements of the common law
doctrine of issue preclusion are met; (3) the motion for a stay
is brought within 120 days of service of the first infringement
pleading; and (4) in a case where the covered manufacturer has
been made a party to the action on motion by the covered
customer, the covered manufacturer and the covered customer
consent in writing to the stay. A stay entered into under this
section may be lifted upon a grant of a motion based on a
showing that: (1) the action involving the covered manufacturer
will not resolve a major issue in the suit against the covered
customer (such as a covered product or covered process
identified in the motion to lift the stay is not a material
part of the claimed invention or inventions in the patent or
patents in dispute); or (2) the stay unreasonably prejudices or
would be manifestly unjust to the party seeking to lift the
stay.
In the case of a stay entered under this section based on
the participation of the covered manufacturer in a separate
action in subsection (b)(1), a motion may only be granted if
the court determines that the showing required under paragraph
(1) has been made. This section shall not apply to an action
that includes a cause of action described under section
271(e)(2). The court may upon motion, determine that a consent
judgment or an unappealed final order shall not be binding on
the covered customer with respect to one or more of the issues
that gave rise to the stay based on a showing that such consent
judgment or unappealed final order would unreasonably prejudice
or be manifestly unjust to the covered customer in light of the
circumstances of the case if, following the grant of a motion
to stay under this section, the covered manufacturer: (1)
obtains or consents to entry of a consent judgment relating to
such issue that gave rise to the stay; or (2) fails to
prosecute to a final, non-appealable judgment such issue that
gave rise to the stay. Nothing in this section shall be
construed to limit the ability of a court to grant any stay,
expand any stay granted under this section, or grant any motion
to intervene, if otherwise permitted by law.
Currently, manufacturers or suppliers may seek leave to
intervene in patent infringement actions against their
customers or end users. They may also seek a declaratory
judgment where a case or controversy exist, or pursue
administrative legal action against a patent owner.
Section 6(a) requires that not later than 3 months after
the date of enactment of the bill the Director of the
Administrative Office of the United States Courts
(Administrative Office) shall designate not fewer than six of
the district courts of the United States that are participating
in the patent cases pilot program established under section 1
of Public Law 111-349 to develop rules and procedures to
implement proposals to address the asymmetries in discovery
burdens and costs, and to establish case management procedures,
in any civil actions arising under any Act of Congress relating
to patents.
Section 6(b) requires that within 18 months after the
designation by the Director of the Administrative Office of the
six district courts to develop the rules and procedures
pursuant to subsection (a), the six district courts shall
complete the development of the rules and procedures, and begin
to implement them.
Section 6(c) states that after the rules and procedures
developed by the pilot program have been in effect for at least
2 years, the Judicial Conference of the United States (Judicial
Conference), using existing resources, may expand the
application of some or all of those rules and procedures to be
implemented by all the district courts, and the United States
Court of Federal Claims, for any civil action arising under any
Act of Congress relating to patents.
Section 6(d) directs the Supreme Court to eliminate Form 18
(concerning patent pleadings) and authorizes the Court to
replace Form 18 with specific minimum contents.
Section 6(e) makes three substantive amendments to the
Bankruptcy Code. First, section 6(e)(1) amends section 1522 of
the Bankruptcy Code, which specifies various protections for
creditors and other interested persons in chapter 15 cross-
border insolvency cases.\151\ Specifically, section 6(e)(1)
would make section 365(n) of the Bankruptcy Code, which sets
forth the rights of a licensee pursuant to an intellectual
property executory contract that is rejected in a bankruptcy
case, applicable to chapter 15 cases.\152\ Pursuant to section
6(e)(1), a U.S. court would be required to apply Bankruptcy
Code section 365(n) to ``foreign main proceedings,'' a type of
chapter 15 case ``pending in the country where the debtor has
the center of its main interests.''\153\
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\151\11 U.S.C. Sec. 1522 (2015).
\152\11 U.S.C. Sec. 365(n) (2015).
\153\11 U.S.C. Sec. 1506 (2015).
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Section 6(e)(2)(A) amends Bankruptcy Code section 101(35A),
which defines the term ``intellectual property.''\154\ The bill
expands this definition to include a trademark, service mark,
and trade name, as those terms are defined in the Trademark Act
of 1946.\155\ In turn, section 6(e)(2)(B) amends Bankruptcy
Code section 365(n)(2), to impose an affirmative duty on the
licensee to maintain the quality of the products and services
offered under or in connection with the licensed trademark,
service mark, or trade name. And, it provides that the debtor-
licensor retains its right to oversee and enforce quality
control for such products or services.
---------------------------------------------------------------------------
\154\11 U.S.C. Sec. 101(35A) (2015).
\155\15 U.S.C. Sec. 1127 (2015).
---------------------------------------------------------------------------
Section 6(f) states that not later than 12 months after the
date of enactment of the bill, the Judicial Conference, with
assistance of the Director of the Federal Judicial Center and
Director of the Administrative Office, must prepare and
transmit to the Committees on the Judiciary of the Senate and
House of Representatives a report on discovery proceedings in
cases pertaining to litigation involving patent laws in the
United States. The report shall: (1) provide the percentage of
courts that have distinct phases of discovery in the court
rules; (2) provide a description of at least two of the
definitions of such phases; (3) identify by name any court that
does not have such distinct phases and a description of why
such courts have not implemented such phases; (4) provide with
regard to proceedings in courts that have phases, in the cases
of a discovery proceeding that extends beyond the core
documents phases, a description of: (A) what additional
discovery was requested and any consistent pattern or trend in
the reasons or justifications for the request; (B) how much
longer on average, the proceedings lasted than those settled
within the first phase; and (C) any patterns for the courts
that do not have phase rules; and (5) looking at proceedings in
the courts that do not have phase rules, provide a description
of how long, on average, the discovery proceedings last; and
the scope of the requests.
Section 7(a) requires the USPTO to develop educational
resources and outreach programs for small business concerns
arising from patent infringement and abusive patent litigation
practices. The existing small business patent outreach programs
of the office, and relevant offices at the Small Business
Administration and the Minority Business Development Agency,
shall provide education and awareness on abusive patent
litigation practices. The Director may give special
consideration to the unique needs of small firms owned by
disabled veterans, service-disabled veterans, women, and
minority entrepreneurs in planning and executing the outreach
efforts.
Section 7(b) requires the USPTO to develop a website for
small businesses that includes patent transparency information
required under the bill whenever a patentee sues on a patent.
Section 8(a) requires the USPTO, in consultation with the
Secretary of Commerce, the Secretary of Treasury, the Chairman
of the Securities and Exchange Commission, the heads of other
relevant agencies, and interested parties to conduct a study on
oversight of the secondary market for patent transactions to
promote transparency and ethical business practices. The study
is due no later than 18 months after enactment of the bill.
Section 8(b) requires the USPTO, in consultation with the
heads of relevant agencies and interested parties to conduct a
study on patents owned by the U.S. government. The study must
examine how patents are licensed and sold, and any litigation
relating to the licensing or sale of the patents. The study is
due no later than 1 year after enactment of the bill.
Section 8(c) requires the Government Accountability Office
(GAO) to conduct a study on patent quality and access to the
best information during examination. The GAO is also directed
to evaluate the patent examination process at the USPTO and to
assess the available technologies. The GAO study is due no
later than 1 year after enactment of the bill.
Section 8(d) requires an additional study by the
Administrative Office, in consultation with the Director of the
Federal Judicial Center and the Director of the USPTO to
examine the feasibility of developing a pilot program for
patent small claims proceedings in certain judicial districts
within the existing patent pilot program mandated by Public Law
111-349. The study is due no later than 1 year after enactment
of the bill.
Section 8(e) requires the USPTO, in consultation with the
heads of other appropriate agencies, to conduct a study on the
prevalence of the practice of sending patent demand letters in
bad faith and the extent to which the practice may, through
fundamental or deceptive practices, impose a negative impact on
the marketplace. The report is due within 1 year of enactment
of the bill.
Section 8(f) requires the GAO to conduct a study to examine
the quality of business method patents asserted in suits
alleging patent infringement and may include an examination of
any other areas that the Comptroller General determines to be
relevant. The report is due no later than 1 year after
enactment of the bill.
Section 8(g) requires the USPTO, in consultation with the
Secretary of Commerce, the Director of the Administrative
Office, the Director of the Federal Judicial Center, and the
heads of other relevant agencies, to examine the economic
impact of sections 3, 4, and 5 of the bill, and any amendments
made by these sections on the ability of individuals and small
businesses owned by women, veterans, and minorities to assert,
secure, and vindicate the constitutionally guaranteed exclusive
right to inventions and discoveries by such individuals and
small businesses. The report must be submitted no later than 2
years after enactment of the bill.
Section 9(a) deletes ``or reasonably could have raised''
from section 325(e)(2) in the AIA's PGR procedure. The AIA
established this new first window procedure to enable early
challenge of patents. Section 325(e)(2) of the AIA currently
contains an estoppel provision that prohibits a participant in
PGR from asserting claims ``on any ground that the petitioner
raised or reasonably could have raised during that post-grant
review'' in a subsequent civil action. The revision would
prevent a PGR petitioner from raising in a later lawsuit the
claims the petitioner raised in the PGR.
Subsection 9(b) amends section 316(a) of title 35 by
stating that each claim of a patent shall be construed as such
claim would be in a civil action to invalidate a patent under
section 282(b), including construing each claim of the patent
in accordance with the ordinary and customary meaning of such
claim as understood by one of ordinary skill in the art and the
prosecution history pertaining to the patent; and if a court
has previously construed the claim or a claim term in a civil
action in which the patent owner was a party, the USPTO shall
consider such claim construction. This subsection eliminates
the ``Broadest Reasonable Interpretation'' (BRI) standard and
requires that claims of issued patents be construed in PGR and
IPR proceedings under the same standard used in district court.
Patents before the district courts are presumed valid and
subject to a ``clear and convincing'' standard of proof to
establish validity. BRI is an administrative rule that the
USPTO has used and the courts have sanctioned since the 1930's.
After enactment of the AIA, however, the USPTO issued a
rulemaking proceeding to determine the rules of practice to
implement the newly created IPR proceeding, the PGR proceeding,
and the transitional post-grant review proceeding for covered
business method patents (Section 18/CBM program). The final
rule requires the USPTO to apply BRI to construe certain patent
claims before the agency, including those in the new IPR and
PGR proceedings. This subsection, in effect, repeals the agency
rulemaking and replaces the BRI standard with the same standard
used in the district courts.
Subsection (b) also provides that an inter partes review
and post grant review may not be instituted unless the
petitioner certifies that the petitioner and the real parties
in interest of the petitioner: (1) do not own and will not
acquire a financial instrument (including a prepaid variable
forward contract, equity swap, collar, or exchange fund) that
is designed to hedge or offset any decrease in the market value
of an equity security of the patent owner or an affiliate of
the patent owner, during a period following the filing of the
petition to be determined by the Director of the USPTO; and (2)
have not demanded payment, monetary or otherwise from the
patent owner or an affiliate of the patent owner in exchange
for a commitment not to file a petition under section 311 with
respect to the patent that is subject of the petition, unless
the petitioner or the real party in interest of the petitioner
has been sued for or charged with infringement of the patent,
during a period to be determined by the Director of the USPTO.
In addition, subsection (b) states that for serial or
redundant petitions the Director shall designate as
precedential (and may change the designation as the Director
determines to be appropriate), with respect to the application
of subsections (d) and (e) of section 325 of title 35, the
decisions of the Patent Trial and Appeal Board in each of the
following decisions: (A) Dell Inc. v. Electronics and
Telecomms. Research Inst., IPR2015-00549, Paper 10 (PTAB Mar.
26, 2015); (B) Zimmer Holdings, Inc. v. Bonutti Skeletal
Innovations LLC, IPR2014-01080, Paper 17 (PTAB Oct. 31, 2014);
(C) Prism Pharma Co., Ltd. v. Choongwae Pharma Corp., IPR2014-
00315, Paper 14 (PTAB July 8, 2014); (D) Unilever, Inc. v. The
Procter & Gamble Co., IPR2014-00506, Paper 17 (PTAB July 7,
2014).
Further, subsection (b) provides that not later than 1 year
after the date of enactment of the bill, the Director shall
issue regulations to carry out sections 316(a)(15) and
326(a)(14) of title 35, as added by paragraphs (1) and (2).
During the period that begins on the date of the enactment of
the bill and ends on the date of issuance of the regulations, a
petition filed under chapter 31 or 32 of title 35 on or after
the date of enactment of this bill may not be instituted unless
the petitioner certifies that the petitioner and real parties
in interest: (1) do not own a financial instrument described in
sections 316(a)(15) and 326(a)(14) of title 35 as added by
paragraphs (1) and (2), during the 1-week period following the
date on which the petition is filed; and (2) have not demanded
anything of value from the patent owner or an affiliate of the
patent owner during the period between September 16, 2012, and
the date of the filing of the petition.
Subsection (b) also states that except as otherwise
provided, the amendments made by this subsection shall take
effect upon the expiration of the 90 day period beginning on
the date of the enactment of the bill, and shall apply to any
proceeding under chapter 31 or 32 of title 35, as the case may
be, for which the petition for review is filed on or after such
effective date.
Section 9(c) codifies the judicial doctrine against double-
patenting and applies it to patents issued after AIA under the
first to file system. Current law prohibits two types of double
patenting. One type is based on 35 U.S.C. Sec. 101, which has
been construed to disallow multiple patents for the ``same
invention.'' The other type is judicially created. The judicial
doctrine against double patenting prevents a patentee from
prolonging the life of a patent by rejecting claims in a second
patent that are obvious variations from claims in a first
patent.
Section 9(d) redefines and expands the scope of prior art
under the transitional covered business method program and
allows the Director of the USPTO to waive payment of a filing
fee for a transitional proceeding as described under section
18(a) of the AIA.
Section 9(e) states that an action or claim arises under an
Act of Congress relating to patents if such action or claim:
(1) necessarily requires resolution of a disputed question as
to the validity of a patent or the scope of a patent claim; or
(2) is an action or claim for legal malpractice that arises
from an attorney's conduct in relation to an action or claim
arising under an Act of Congress relating to patents. This
provision applies to all cases filed on or after, or pending
on, the date of the enactment of this bill, but not to a case
in which a Federal court has issued a ruling on whether the
case or claim arises under any Act of Congress relating to
patents or plant variety protection before the date of the
enactment of this bill.
Section 9(f) extends the life of the patent pilot program
from 10 to 20 years.
Section 9(g) amends section 3(b)(1) of title 35, to provide
that the Secretary of Commerce, upon nomination by the Director
of the USPTO, shall appoint a Deputy Under Secretary of
Commerce for Intellectual Property and Deputy Director of the
USPTO who shall serve as Acting Director in the event of the
absence or incapacity of the Director or in the event of a
vacancy in the office of the Director of the USPTO.
Section 9(h) makes a series of 11 additional changes it
classifies as ``technical,'' including one that extends the
time limit for bringing disciplinary proceedings before the
USPTO.
Section 9(i) extends USPTO fee setting authority in section
10(i)(2) of the Leahy-Smith America Invents Act for 10 years.
Section 10 provides that, unless otherwise specified in the
bill, the provisions become effective on the date of enactment
and apply to any patent issued or any case filed on or after
the date of enactment.
CONCLUSION
Congress must respond to the problems of abusive patent
litigation in the courts and the gaming of the patent process
at the USPTO, and we are willing to work with any and all
stakeholders and interested parties to develop a fair process
to find common sense solutions. That is why we supported
amendments at the Committee markup to make reasonable
improvements that would protect patent rights, while still
curtailing abusive patent litigation and exploitation of the
patent process. We must take a targeted approach that includes
deterring further abuses of IPR proceedings and ending fee
diversion from the USPTO to ensure adequate hiring, proper
training of examiners, and sustained patent quality. And,
serious patent reform legislation must stop the extortionate
use of deceptive demand letters. Unfortunately, we cannot
support H.R. 9 because it includes changes that go well beyond
the problems of so-called ``patent trolls;'' it creates an
imbalance in the patent system tilted against individual
inventors and small businesses; and it will have a chilling
effect on innovation.
Accordingly, we dissent from H.R. 9 for these reasons and
urge our colleagues to oppose this flawed measure.
Mr. Conyers, Jr.
Ms. Jackson Lee.
Mr. Johnson, Jr.
Mr. Deutch.
Ms. Bass.
Mr. Cicilline.
Mr. Peters.
[all]