Bloomberg BNA: Senate patent litigation reform hearing calls for more deliberate approach than House, by Tony Dutra
This article originally appeared in Bloomberg BNA on December 17, 2013.
Witnesses at a Dec. 17 Senate hearing on patent litigation reform (S. 1720) reprised a divide reminiscent of the debate leading up to passage of the America Invents Act two years ago, but missing from the House’s deliberations on a comparable bill (H.R. 3309).
Each of the two panels in a Judiciary Committee session, titled “Protecting Small Businesses and Promoting Innovation by Limiting Patent Troll Abuse,” included one witness from a high technology firm and one from the life sciences industries. Though medical device, pharmaceutical and biotechnology firms have largely escaped the abuses attributed to so-called patent trolls, their representatives spoke at the hearing against some provisions that they perceived would have unintended consequences for all patent holders.
The senators generally seemed to agree that the House bill goes too far. “I want meaningful, but targeted reform,” Sen. Patrick J. Leahy (D-Vt.), committee chairman and sponsor of the Senate bill, said.
Even clearer was that no member of the committee–all but four of 18 asked questions–was satisfied that all voices in the debate had been heard. Sen. Dianne G. Feinstein (D-Calif.) was the first to suggest that at least one more hearing was necessary, and Sen. Mazie K. Hirono (D-Hawaii) identified “universities, individual inventors and venture capitalists” as parties to invite.
Only Sen. Sheldon Whitehouse (D-R.I.) expressed a slightly contrarian opinion urging compromise, if not speed. He cautioned against pushing the Senate to replicate everything in the bill passed the House, the passage of which he called “a pearl beyond price.”
“You now need to be able to get a bill through the Senate, and it will then go to conference,” he said. “You do not want to vindicate your ire at the deplorable conduct of these patent trolls at the expense of getting a bill through the Senate. Be as flexible as you can be to get a bill through the Senate so it can get to conference.” Whitehouse asked for trust in the conferees to arrive at “sensible legislation.”
But Sen. Christopher A. Coons (D-Del.) had the last word at the session. “If we could dedicate six years to get the AIA right, I think we can dedicate a few more months to get this legislation right,” he said.
Differences in the Bills
H.R. 3309 was approved in the House on Dec. 5 in a 325-91 bipartisan vote. Leahy has proceeded more slowly in the Senate. He introduced S. 1720 on Nov. 18 with co-sponsors Sens. Michael S. Lee (R-Utah) and Amy J. Klobuchar (D-Minn.) and held off on this hearing until after the House vote.
The most significant difference between the bills is that S. 1720 does not include the provisions that would force patent infringement case management rules and procedures as to detailed pleading, discovery timing and limits, cost-shifting related to discovery and loser-pays fee shifting. However, other bills are in play in the Senate that cover those gaps, and each was discussed during the Dec. 17 hearing:
• Sen. John Cornyn III (R-Texas), introduced the Patent Abuse Reduction Act (S. 1013) to address pleading, discovery and cost shifting. Charles E. Grassley (R-Iowa), ranking Judiciary Committee member, co-sponsored that bill.
• Sen. Orrin G. Hatch (R-Utah) introduced the Patent Litigation Integrity Act (S. 1612) on Oct. 30. It would require courts to shift fees to a prevailing party and would allow courts to require bonds to cover fees and expenses.
The one area that S. 1720 covers but that H.R. 3309 does not goes to the issue of abusive “demand letter” practices, whereby patent owners send vague or ambiguous letters by the thousands to small businesses, consumers and Internet application developers, asserting patent infringement and seeking royalty payments, threatening litigation otherwise. Section 3(f) of H.R. 3309 addresses that practice only in the sense that such a mailing would limit remedy options to the patent owner in any subsequent litigation.
Leahy’s bill goes further than the House approach. Section 5 of S. 1720 would expand Section 5(a)(1) of the Federal Trade Commission Act, 15 U.S.C. §45(a)(1), making it an unfair or deceptive practice “to engage in the widespread sending of written communications that state that the intended recipients or any affiliated persons are infringing or have infringed the patent and bear liability or owe compensation to another.”
The following witnesses attended the hearing.
• John J. Dwyer Jr., president and CEO of the New England Federal Credit Union in Williston, Vt., represented the Credit Union National Association, Washington, D.C. CUNA’s primary concern is with demand letters, he said, with many banks in the industry having received such letters related to a patent on automated teller machines (109 PTD, 6/6/13).
Dwyer not only supported the provision in S. 1720, he called for a registry of such letters, as supported in a bill in the House, the Demand Letter Transparency Act (H.R. 3540).
• Michael Makin, president and CEO of the Printing Industries of America, Sewickley, Pa., was most derisive of the patent troll business model, as compared to specific behavior, though he, too, was particularly troubled by the demand letter abuses.
He said that patent assertion entities purchase patents particular to his industry–on scanning and online ordering, for example–and target companies who on average employ only 27 employees.
• Dana Rao, associate general counsel for intellectual property litigation at Adobe Systems Inc., San Jose, Calif., was the first of two Silicon Valley witnesses. Rao argued in favor of the more comprehensive H.R. 3309 provisions, particularly on discovery staging.
• Philip S. Johnson, chief intellectual property counsel at Johnson & Johnson, New Brunswick, N.J., representing the Coalition for 21st Century Patent Reform, Washington, D.C., presented a counterpoint as the next speaker.
Johnson said that the one-size-fits-all approach to discovery simply does not work in a field such as medical devices. H.R. 3309 case management provisions essentially call on courts to delay detailed discovery until after claim construction, which, Johnson said, can be extended up to 18 months. Meanwhile, a medical device manufacturer is unlikely to get a preliminary injunction because judges are unwilling to take those devices off the market, so the delayed discovery effectively increases the time the patentee must wait for judgment.
• Steve Bossone, vice president of intellectual property at Alnylam Pharmaceuticals in Cambridge, Mass., was on the second panel and went further than Johnson.
“Proposals that would routinely and indiscriminately complicate, delay, and make more risky and expensive the efforts of all patent owners or licensees to protect and enforce their patents would do serious harm to the life sciences ecosystem in particular,” he said. “I urge the Members of this Committee and the full Senate to tread more carefully than your counterparts in the House of Representatives.”
• Harry A. Wolin, general counsel for Advanced Micro Devices Inc., Austin, Texas, joined his colleague from Adobe in calling for the Senate to add in the case management provisions as well.
He urged adoption of each provision from the Cornyn bill that is in H.R. 3309 and not in S. 1720.
• Q. Todd Dickinson, executive director of the American Intellectual Property Law Association, Arlington, Va., and a former director of the Patent and Trademark Office, recounted the six-year development of the legislation that led to the AIA and generally supported allowing giving its provisions more time to work out before another overhaul.
He acknowledged the “new phenomenon of demand letters beings sent to small companies,” but added, “We also believe, however, that it is a focused problem.”
Debate on Other Provisions
The witnesses were mostly in agreement on only one provision in both H.R. 3309 and S. 1720. The “customer stay” provision addresses the abuse of a patent troll suing customers using an allegedly infringing product rather than suing the manufacturer that makes it. The provision allows the customer to join the manufacturer and requires the court to stay the action against the customer.
Fee shifting, on the other hand, was highly debated, particularly among the Judiciary Committee members. They framed the debate as one of taking away access to the judicial system, particularly for small company plaintiffs who would, presumably, find it riskier to bring an infringement lawsuit under the threat of having to pay the defendant’s attorneys’ fees.
Sen. Richard J. Durbin (D-Ill.) was direct in characterizing Cornyn’s and Hatch’s bills: “We are shifting the presumption, are we not, when it comes to fee shifting?”
Rao presented the opposite case. He said that the enhanced possibility of receiving an award of the other party’s fees would encourage attorneys who work on a contingency basis to take cases they might not have previously taken.
A secondary issue is what happens if an award is given and the patent-troll plaintiff is a shell company that cannot pay the award. The debate was over whether the joinder provisions of the bills appropriately bring in a “real party in interest” or an “ultimate parent entity” that could pay, or whether Hatch’s approach of requiring a bond from the plaintiff is needed.
Bossone said the joinder provisions are “byzantine” and others joined him in expressing concerns for unintended consequences, but Durbin had even more problems with bonding.
“This is clearly high stakes legal poker,” he said.
Sen. Charles E. Schumer (D-N.Y.) made an impassioned plea to bring back into consideration a bill he sponsors, the corresponding provision of which was deleted from H.R. 3309 in committee markup.
The Patent Quality Improvement Act (S. 866) would extend the AIA’s “covered business method” challenge option. Under the AIA, an eight-year “transitional” program was created to allow a challenge, at any time on any grounds, to any 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.” Schumer wants to expand it to cover any software or business method patent and eliminate the sunset provision.
“At the end of the day, if we do not address the fundamental problem of patent quality, trolls will continue to abuse poor quality patents and we will be right back here having this same debate,” he said. “A patent reform bill that does not address patent quality is like treating the symptoms instead of the disease.”
Schumer received some support for that idea from Makin, but even Rao, possibly more likely to face a business method patent infringement lawsuit, was cool to the idea. Johnson and Dickinson were forcefully against Schumer’s bill, recalling that it was agreed to in the AIA debate only to address a “small slice” of quality problems at the PTO in the late 1990s related to financial service patents.
“Regarding patent quality, no issue is of greater importance than sustainable funding of the U.S. PTO,” Dickinson said in his remarks in the second panel, after Schumer had left.
Rep. John Conyers Jr. (D-Mich.) introduced a bill in the House to end fee diversion (H.R. 3349) on Oct. 28, but the House rejected his attempts to add it to H.R. 3309 during committee markup and in the final vote.
Feinstein said at the Senate hearing that she will introduce a similar bill “that will hopefully become an amendment to [S. 1720].” In the past, Sen. Thomas Coburn (R-Okla.) has spearheaded such legislation in the Senate, but he no longer serves on the Judiciary Committee.