Patent Reform Meets Renewed Opposition

Published September 2, 2015

The announcement by the House Republican leadership that the Innovation Committee by a bipartisan vote of 24-8, but this vote was less convincing than the previous vote (33-5) on a nearly identical bill advanced in the House Judiciary Act (H.R. 9) will not be scheduled for a vote this summer has the bill’s supporters concerned but not yet alarmed. In June, H.R. 9 (“The Innovation Act”) was advanced in the House Judiciary Committee in the 113th Congress.

The Senate Judiciary Committee advanced its own patent reform bill, S.1137 (“The Protecting American Talent and Entrepreneurship Act” or “PATENT Act”), by a bipartisan vote of 16-4. Although the bill is similar to H.R. 9, the PATENT Act also includes a fee-shifting provision which requires an award of attorney’s fees to the prevailing party if the court finds the losing party’s position was “not objectively reasonable law or fact” or its “conduct was not objectively reasonable.” The bill also does more to address the problem of abusive patent demand letters than the House bill.

A majority of both Republicans and Democrats in both houses favor passage of the bills, and the White House is generally supportive of the proposed reforms. However, renewed opposition from a coalition of ten organizations representing universities; inventors; and manufacturing, technology, and life science companies, including the Association of American Universities, Pharmaceutical Research and Manufacturers Association (PhRMA), National Small Business Association, and National Venture Capital Association, is now having a greater effect on the drafting of the language of the proposed legislation.

Opposition organizations, such as the National Small Business Association, favor a targeted approach focused on the business behavior of so-called “patent trolls.” They prefer H.R. 2045 (“The Targeting Rogue and Opaque Letters Act” or “TROL Act”) and S. 632 (“The Support Technology and Research for our Nation’s Growth Patents Act” or “STRONG Act”). These bills are less ambitious and focus on reining in abusive and harassing patent demand letters and modifying rules for inter partes review and post-grant reviews to make invalidating existing patents more difficult. Both inter partes review and post-grant review are trial proceedings conducted by the Patent Trial and Appeals Board (of the U.S. Patent and Trademark Office) to review the patentability of one or more claims in a patent and rule on the claims and continued validity of the patent.

Although H.R. 2045 and S. 632 will not be voted out of their respective committees, their influence is being registered, suggesting support for many of the critics’ concerns about the omnibus approach of the proposed legislation and its potential effects on important constituencies in the U.S. economy. For example, an amendment was recently added to S. 1137, tightening the language for interpreting patent claim invalidation from the “broadest reasonable construction,” currently in use, to the “ordinary and customary meaning” standard (i.e., “clear and convincing evidence”) currently employed in district courts. This amendment also includes language bolstering the “presumption of validity” of patents issued by the USPTO, but leaves untouched the less stringent “preponderance of the evidence” standard in place for inter partes reviews by the PTAB, a change sought by many companies in the life sciences sector.

This summer’s congressional recess will offer an opportunity for further negotiations among affected stakeholders. In the Senate, Pharmaceutical Research and Manufacturers Association and Biotechnology Industry Organization representatives will continue arguing for a “clear and convincing evidence” standard in inter partes patent review procedures. An exception to this standard is the best public policy strategy for these life science industry associations to lobby for, as major technology companies, such as Qualcomm, are unwilling to budge on changing the “preponderance of the evidence standard” now used by the PTAB.

For advocates of a carefully crafted legislative response to the issue of patent trolls and abusive business behavior, the long-term effects of the “America Invents Act of 2011” and U.S. Supreme Court rulings in five key patent cases in 2014 offer a reasonable argument against enacting comprehensive legislation which can have unintended and counterproductive consequences for the U.S. economy. For an example of the change in the patent landscape since the enactment of the “America Invents Act,” consider Lex Machina, a vendor of data and analytics systems to corporations and law firms. The company reports total patent case filings decreased from 6,063 new cases in 2013 to 5,010 cases in 2014, representing a 17.4 percent annual decline in litigation volume.

Congress will enact a patent reform bill offering some much-needed relief from abusive patent behavior this year, but both the Senate and House versions will require some compromises before reaching President Obama’s desk this fall. For critics of comprehensive patent reform legislation, their best opportunities for having many of their concerns addressed will rest in the Senate version, and it will be up to the Senate to negotiate effectively in the final bill reconciliation process.

Thomas Hemphill ([email protected]) is a policy advisor to The Heartland Institute, and professor of strategy, innovation and public policy, School of Management, University of Michigan at Flint.

[Originally published at Real Clear Markets]