Starting in 2011 and going through 2013, patent reforms within the America Invents Act (AIA) went into effect. As you already know, the AIA is the most significant legislative change to U.S. patent law since the Patent Act of 1952. The two most notable changes were adding fast-paced, multi-party “review” proceedings to challenge patents at the U.S. Patent Office (effective Sept. 12, 2012) and converting the U.S. Patent System from a “first to invent” system to a “first to file” system (effective Mar. 16, 2013). That first round of patent reform was many years in the making. Patent reform bills were proposed in one or both houses of Congress every year between 2005 and 2011.
Many agree that U.S. patent reform finally passed, in part, because the most controversial provisions were removed. Detractors thought that those provisions would interfere with the natural development of case law in federal courts and to extricate power from the judiciary. The most controversial provisions sought major changes in patent litigation in U.S. district courts. Among other things, the provisions sought to make changes in pleading requirements, substantially limit patent infringement damages, require interlocutory review of claim construction, and greatly restrict patent venue.
But in the end, moderate versions of some of the changes sought were implemented by the U.S. Supreme Court and the Court of Appeals for the Federal Circuit. Many would agree that the changes made by the judiciary were less extreme than the Congressional proposals. They were also better reasoned and subject to further modification and illustration by the judiciary.
Throughout 2013, various legislative proposals have again been introduced that would dramatically change patent litigation in the courts. This time, the targets in the cross-hairs are patent assertion entities. But many have argued that the legislative proposals again miss the mark, and are overbroad. Most of the legislative proposals would apply to nearly all patent infringement cases, including those involving competitors and start-ups against established companies. The most common provision in all of the 2013 proposals is fee-shifting. The 2013 proposal that has gained the most traction is the Innovation Act (H.R. 3309), sponsored by Rep. Bob Goodlatte (R-Va.). The Innovation Act passed the House in early December of 2013.
The key provisions of the Innovation Act are dramatically heightened pleading requirements for parties asserting patent infringement, limiting discovery to claim construction until the court construes the claims, and presumptive fee-shifting to the losing party.
Due to the expansive nature of the Innovation Act, many have spoken out against the bill. Those include many urging the Senate, and Congress as a whole, to proceed with caution. Among them are senators, current and former judges of the Federal Circuit, and chief intellectual property counsel to Fortune 500 companies.
Reasons for caution are aplenty. First, the Innovation Act is intended to address the “fringe” cases of abusive patent litigation. But the vast majority of patent cases are legitimate disputes between parties over the scope and validity of a patent. There is a substantial risk that the attempts to address the minority of cases will impact the majority in an adverse manner.
Second, the fee-shifting provisions are extreme compared to existing law. They essentially obliterate the American Rule, under which each party is presumed to bear its own attorney’s fees. The provisions are far blunter than what the Supreme Court is likely to do in the two fees cases that are already under a grant of certiorari. Decisions in both cases are expected by late June 2014. Further, a panel at the Federal Circuit in late December (Kilopass Tech., Inc. v. Sidense Corp.) clarified what its fee-shifting law should be, in a message that will no doubt reach the en banc Federal Circuit and the Supreme Court. A prudent approach would be to wait and see what the Supreme Court and Federal Circuit do in this space.
Third, the heightened pleading requirements would make the early stages of a patent infringement action more expensive in all infringement actions, including competitor vs. competitor actions. No reasons have been offered to require more detailed pleadings in such actions.
Fourth, the bifurcation of claim construction discovery to the start of the case is interesting. But many district courts around the country have adopted their own Local Rules based on their preferences and the preferences of their local bar. There is no “one size fits all” approach to patent litigation that works best for every case. And the experience of the Patent Bar generally is that having separate claim construction hearings (a la Markman v. Westview Instruments, Inc., a 1995 Supreme Court decision) has actually made patent litigation more expensive, not less.
Finally, we have not yet seen the full impact of the AIA. For example, the addition of Patent Office review proceedings in patent cases has changed the playing field for patent infringement litigation, and accused infringers have used such reviews extensively against patent assertion entities. Because the first inter partes reviews are just now being decided, we do not yet know the full extent of the introduction of this strategy. Perhaps it is wise to see what impact Patent Reform, Round I has before entering Round II.