House Subcommittee Hearing on “The Impact of Bad Patents on American Businesses”

On July 13, 2017, the House Judiciary Committee’s Subcommittee on Courts, Intellectual Property, and the Internet held a hearing, titled “The Impact of Bad Patents on American Businesses.”  A recording of the hearing, which I attended, is available at: https://www.youtube.com/watch?v=VaJpVmsLO6U.

The witnesses who testified before the subcommittee included:

The testimony of each witness can be accessed by clicking on the highlighted links above.

Additionally, below are several photographs from the hearing:

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Following the hearing, House Judiciary Committee Chairman Goodlatte issued the following statement:

When I became Chairman of the House Judiciary Committee, I placed a priority on reducing litigation abuse wherever it occurred. As the Committee that oversees our nation’s federal judicial system, the Judiciary Committee must fight all abuses of our nation’s judicial system whether abuse occurs in the patent system or elsewhere. Litigation abuse degrades the confidence of Americans that the Judicial Branch is there to assist resolving disputes in a fair manner, especially when they are faced with the potential for a business ending damage award due to a frivolous lawsuit.

Unfortunately, a small number of bad patents that should never have been granted in the first place have been used by some to harass American businesses. Small and medium size businesses nationwide have been on the receiving end of demand letters over questionable patents for common technologies long in use such as podcasting, electronic shopping carts, and document scanners. The demand letters typically include a settlement offer that is lower than the cost of retaining a lawyer to begin litigation. The patent trolls, as they are known, then move on to their next victim.

For businesses that had planned on expanding by hiring new employees, the troll has already ended their ability to expand by diverting money away from the human resources department to the legal department.

Four years ago, I introduced the Innovation Act to address the litigation abuse problems that could not be solved by the America Invents Act. The Innovation Act then passed the House by a vote of 325-91 reflecting a bipartisan desire to end such abuse. Although the legislation became stuck in the Senate, the Supreme Court was able to step in to unanimously resolve some, but not all, of the litigation abuse problems that were to be addressed by the Innovation Act.

Just a few weeks ago, the Supreme Court in its TC Heartland decision concurred with Congressional enactment of a patent specific venue provision in Title 18. This decision was expected to lead to a sharp reduction in cases being filed in one particular district in Texas that seems skilled at attracting patent trolls. Unfortunately, one judge in this district has already re-interpreted both the law and the unanimous Supreme Court decision to keep as many patent cases as possible in his district in defiance of the Supreme Court and Congressional intent.

Also unfortunate is that there are some who are now calling to undo much of the progress that has been made on patent litigation reform. Simply put, their efforts and their views of what makes for a strong American patent system are misguided. A strong patent system IS NOT one that enables patents that should never have been granted in the first place to be used as a weapon against American businesses, destroying American jobs in the process. A strong patent system IS one that has robust mechanisms in place to weed out bad patents and to deter abusive patent litigation from happening in the first place, while facilitating the owners of properly awarded patents in seeking the compensation they deserve when their patents are infringed.

As the Administration undertakes its search for a new PTO Director, I look forward to working with them and their choice of a new Director to build up the good work that this Committee has done along with the positive impact of several unanimous Supreme Court decisions. America needs a strong patent system where bad patents are weeded out and litigation abuse is sharply curtailed.

The hearing was well attended, and lasted about two hours.

-Donika Pentcheva

Representative Goodlatte announces his innovation and competitiveness agenda for the 115th Congress

House Judiciary Committee Chairman Bob Goodlatte (R-Va.) announced on May 2, 2017 an agenda on how to improve innovation and competitiveness in the U.S.

According to the agenda, his initiatives will include:

  1. The Email Privacy Act;
  2. Encryption;
  3. FISA Section 702;
  4. International conflicts of law and access to data;
  5. Patent reform;
  6. High-skilled immigration reform; and
  7. Copyright reform.

As Chairman of the House Judiciary Committee during the 14th Congress, Rep. Goodlatte–with the help of his fellow lawmakers–was able to pass the following acts:

  1. Judicial Redress Act;
  2. Permanent Internet Tax Reform Act;
  3. Defend Trade Secrets Act; and
  4. USA Freedom Act.

-Donika Pentcheva

STRONGER Patents Act of 2017 Introduced in the United States Senate

Introduced on June 21, 2017 by Senator Coons (D-Del.), the STRONGER Patents Act of 2017 has the stated objective of strengthening “the position of the United States as the world’s leading innovator by amending title 35, United States Code, to protect the property rights of the inventors that grow the country’s economy.”

As it is the usual practice on the Hill, Congress often tries to abbreviate the titles of acts it introduces in order to make the titles sound more “catchy,” but at the same time remaining memorable.  In this case, the word “STRONGER” (of the STRONGER Patents Act of 2017) stands for “Support Technology and Research for Our Nation’s Growth and Economic Resilience.”  The first section of the bill is titled “Findings” and labeled “Section 101.”  But, don’t let that mislead you–the bill does not amend Section 101 of title 35 of the United States code, nor does it provide any “findings” regarding what patent practitioners would call “the real Section 101” (that is, the section of the United States code which defines patent-eligible subject matter).  Those in the crosshairs of patent prosecution–and federal and administrative judges dealing with that section–are often grappling with the boundaries of that statutory section.  As a result, there has been a strong push lately from all angles of those dealing with “the real Section 101” to amend the statutory section in an effort to clarify definitions and streamline patent prosecution.

Now, back to the bill at hand: In a press release posted on the same day as the introduction of the STRONGER Patents Act in the Senate Judiciary Committee, Senator Coons stated that this bill “an improvement on the STRONG Patents Act,” which the Senator had introduced during the last Congress.  It should be noted that the press release listed Senators Cotton (R-Ark.), Durbin (D-Ill.), and Hirono (D-Haw.) co-sponsors of the bill.

As a general summary, the first part of the bill amends rules of practices and procedures pertaining to inter partes and post-grant review proceedings.  The bill then adopts–in its entirety–the Targeting Rogue and Opaque Letters Act, which was an act that was introduced on April 28, 2015 in the House Energy and Commerce Subcommittee on Commerce, Manufacturing, and Trade to deal with “bad-faith patent demand letters.”

At a section-by-section summary level, part one of the bill proposes the following:

  1. harmonizing the claim-construction standard used in post-issuance proceedings at the United States Patent Trial and Appeal Board with the standard used in district-court litigation proceedings;
  2. maintaining the presumption of validity for patent rights in post-issuance proceedings, and clarifying that unpatentability may be proven for existing claims by the “clear-and-convincing-evidence” standard used in district court litigation;
  3. minimizing abuse of post-issuance proceedings by ensuring that a petitioner has a business or financial reason to bring a case before the United States Patent Trial and Appeal Board, thereby, reducing incentives for privateering or extortion of nuisance settlements;
  4. reducing repetitive and harassing attacks on patents by authorizing the Director to initiate review only once per claim of a patent;
  5. providing that mere institution of a post-issuance proceedings can have a negative impact on a patent regardless of the final outcome, such that an immediate, interlocutory appeal from an institutional decision in limited circumstances should be provided to address clear errors and allow for more appellate-court guidance on recurring legal issues;
  6. eliminating repetitive proceedings, such that petitioners can only challenge a patent once, unless they are later charged with infringement of additional claims (if an inter partes review is instituted, the petitioner cannot bring challenges of the same type in district court to eliminate duplicative proceedings);
  7. clarifying that an entity making financial contributions to challenge is a real-party-in-interest estopped from future challenges, thereby ensuring that no entity gets multiple bits at the apple to challenge a patent and provides for reasonable discovery to ensure that entities are not obtaining an unreasonable advantage in the proceedings;
  8. clarifying that, if a district court reviews the validity of a patent before the United States Patent Trial and Appeal Board, the post-issuance proceeding should not start, or should be paused pending appeal;
  9. providing a pathway for patent owners to enter into an “expedited” examination procedure instead of amending claims before the United States Patent Trial and Appeal Board, and clarifying that, if amendments are pursued in front of the Board, the inventor is entitled to an amended claim unless the cumulative evidence shows that he or she is not;
  10. clarifying an intent of the Leahy-Smith America Invents Act that the United States Patent and Trademark Office adjudicators who decide whether to permit a post-grant proceeding are district from United States Patent Trial and Appeal Board judges who will decide the outcome of a petition;
  11. harmonizing treatment of re-examination proceedings with the treatment of inter partes review post-grant proceedings to provide clear guidelines for treatment of parallel proceedings;
  12. restoring the presumption of injunctive relief upon a finding that a patent is valid and infringed;
  13. eliminating fee diversion through an establishment of a new United States Patent and Trademark Office revolving fund in the United States Treasury in an effort to recognize that dependable funding is critical for timely, higher-quality patents;
  14. clarifying that providing inducement requires showing that an alleged infringer intended to cause the acts that constitute infringement;
  15. disallowing companies to avoid liability for infringement by designing a product in the United States, but outsourcing manufacturing;
  16. in an effort to clarify Akamai v. Limelight, eliminating the single-entity rule for defendants who have intentionally caused the infringement of a patent;
  17. clarifying that universities qualify as micro-entities under the Leahy-Smith America Invents Act;
  18. requiring the Small Business Administration to draft two reports, examining how small businesses rely on patents and the prevalence of abusive demand letters;
  19. aiming to expedite cases for small businesses and individuals by providing additional training and law clerks; and
  20. providing greater access to patent-searching databases currently available only in-person at public search facilities.

Part two of the bill empowers the Federal Trade Commission to take strong and decisive action against individuals involved in sending abusive, patent-related demand letters.

In sum, the bill proposes a number of changes in order to remedy those provisions, which Congress has concluded has weakened the United States patent system over the past decade.  The conclusion came from a ranking provided by the United States Chamber of Commerce, which indicated the United States patent system is tenth in the world (previously, the United States had always ranked first).  Accordingly, Congress is currently seeking to enact reforms that will restore the United States patent system as the world’s gold standard.  To do so, Congress believes it needs to focus its attention on attaining the following broad-based goals: (1) protect American inventors from illegal infringement, (2) ensure fairness in Patent Office administrative challenges, (3) protect small businesses and consumers from abusive patent demand letters, and (4) fully fund the Office in an effort to ensure timely and high-quality patents.

-Donika Pentcheva

The Senate Commerce, Science and Transportation Committee Passes the DIGIT Act

On April 27, 2016, the United States Senate Committee on Commerce, Science and Transportation approved bipartisan legislation introduced by Senators Deb Fischer (R-NE), Kelly Ayotte (R-NH), Cory Booker (D-NJ) and Brian Schatz (D-HI) to address the future impact of the “Internet of Things.”  The bill, titled the Developing Innovation and Growing the Internet of Things Act or “DIGIT” Act, S. 2607, was introduced in the Senate on March 1, 2016 and aims to ensure appropriate spectrum planning and interagency coordination to support the Internet of Things (“IoT”).  IoT is often defined as a network of physical objects—devices, vehicles, buildings and other items—embedded with electronics, software, sensors, and network connectivity that enables these objects to collect and exchange data.

The bill requires the Department of Commerce to convene a working group of federal stakeholders to provide recommendations to Congress on how to plan for and encourage the proliferation of the IoT in the United States for the growing number of connected and interconnected devices.  The bill would ensure a diverse working group by directing the Secretary of Commerce to appoint representatives from the Department of Transportation, the Federal Communications Commission, the Federal Trade Commission, the National Science Foundation, the National Telecommunications and Information Association, the National Institute of Standards and Technology, and the Office of Science and Technology, among a few other federal agencies.  The bill obligates the working group to consult with nongovernmental stakeholders, including industry experts, technology manufacturers, businesses, and consumer groups.  The bill also requires that within one year after enactment the working group must submit a report regarding IoT spectrum needs, regulations, federal grant practices, budgetary challenges, consumer protections, privacy and security, and the current use of the technology by federal agencies and their preparedness to adopt it in the future.

Also within one year of enactment, the bill requires the Federal Communications Commission to consider and evaluate:

(1) whether there is adequate licensed and unlicensed spectrum availability to support the growing IoT;

(2) what regulatory barriers may exist to providing any needed licensed and unlicensed spectrum for the IoT; and

(3) what the role of licensed and unlicensed spectrum is in the growth of the IoT.

According to a press release from Senator Fischer, the legislation has broad support across the technology industry, including the U.S. Chamber of Commerce, the Competitive Carriers Association (CCA), the Telecommunications Industry Association (TIA), the Semiconductor Industry Association (SIA), the Consumer Technology Association (CTA), the Information Technology Industry Council (ITI), and the National Association of Manufacturers.

The bill builds upon a resolution by the four senators, which called for a national strategy on the IoT and passed the Senate on March 24, 2015.  The bill will next move to the Senate floor.

-Donika Pentcheva

The U.S. House of Representatives to Vote on S. 1890, the Defend Trade Secrets Act, Next Week

On Wednesday, April 20, 2016, the Committee on the Judiciary of the U.S. House of Representatives voted unanimously, by a voice vote, to favorably report out the Senate-passed version of S. 1890, the Defend Trade Secrets Act, without any amendments.  In his opening statement at the markup of the DTSA, House Judiciary Committee Chairman Goodlatte stated that the bill “puts forward modest enhancements to our federal trade secrets law, creating a federal civil remedy for trade secret misappropriation that will help American innovators protect their intellectual property from criminal theft by foreign agents and those engaging in economic espionage.”  Majority Leader Kevin McCarthy (R-CA) has indicated that the House will “expeditiously consider” the DTSA and has set consideration of the DTSA on the House floor for Wednesday, April 27, 2016.

-Donika Pentcheva

The Defend Trade Secrets Act Creates A Private Federal Civil Cause of Action for Trade Secret Misappropriation

Currently, private causes of action are litigated under the laws of each states who has adopted the Uniform Trade Secrets Act.  The UTSA has been adopted in some form in 48 states.  The two states which did not adopt the UTSA are Massachusetts and New York.  Thus, federal enforcement is primarily criminal under the Economic Espionage Act, which also has a public civil cause of action.

The version of the Defend Trade Secrets Act, which was passed by the United States Senate on April 4, 2016, creates a private Federal civil cause of action for trade secret misappropriation.  Specifically, the DTSA provides that an owner of a trade secret that is misappropriated may bring a civil action if the trade secret is “related to” a product or service used in, or intended for use in, interstate or foreign commerce.  The term “owner” has been defined as “the person or entity in whom or in which rightful legal or equitable title to, or license in, the trade secret is reposed.  The term “trade secret” means all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if—

(A)       the owner thereof has taken reasonable measures to keep such information secret; and

(B)       the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information

The term “misappropriation” means—

(A)       acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or

(B)       disclosure or use of a trade secret of another without express or implied consent by a person who—

(i)        used improper means to acquire knowledge of the trade secret;

(ii)       at the time of disclosure or use, knew or had reason to know that the knowledge of the trade secret was—

(I)        derived from or through a person who had used improper means to acquire the trade secret;

(II)       acquired under circumstances giving rise to a duty to maintain the secrecy of the trade secret or limit the use of the trade secret;

(III)     derived from or through a person who owed a duty to the person seeking relief to maintain the secrecy of the trade secret or limit the use of the trade secret;

(iii)      before a material change of the position of the person, knew or had reason to know that—

(I)        the trade secret was a trade secret; and

(II)       knowledge of the trade secret had been acquired by accident or mistake.

The DTSA also includes an ex parte seizure provision and whistleblower protections.  Those provisions will be covered in separate posts.

-Donika Pentcheva