Over the last year, patent reform legislation has generated significant national attention, as the US Congress has introduced different proposals to address a rise in patent litigation by nonpracticing entities (NPEs) commonly referred to as "patent trolls."
President Obama aims to "pass a patent reform bill that allows our businesses to stay focused on innovation, not costly and needless litigation," And last December, the US House of Representatives responded by passing the Innovation Act. The US Senate quickly initiated its own patent reform bill, the Patent Transparency and Improvements Act, which has encountered a series of delays in recent months. In addition to federal actions, the Federal Trade Commission is investigating patent troll litigation, and Vermont, Oregon, Virginia, Wisconsin, and Idaho have passed legislation at the state level. Similar legislation is pending in numerous other states.
Despite the flurry of activity, there are a few sticking points to the proposed House and Senate bills:
1. FEE-SHIFTING PROVISIONS
A provision of the Innovation Act includes fee-shifting provisions, which would require the losing party in patent litigation to pay the prevailing party's attorneys' fees unless the court finds that the losing party's position and conduct were "reasonably justified in law and fact" or there are "special circumstances" making an award unfair. However, the current version of the Patent Transparency and Improvements Legal Process Outsourcing Act does not include any fee-shifting provision.
Supporters of the fee-shifting provision believe it is necessary to deter patent trolls from filing abusive and frivolous lawsuits. Critics say that patent trolls can easily overcome fee-shifting because they will be able to meet the "reasonably justified" standard in most cases – or by creating shell entities that hold no assets besides the patents they are declaring.
2. BAD-FAITH DEMAND LETTERS
The Patent Transparency and Improvements Act imposes specificity rules on demand letters and makes the sending of a materially misleading demand letter an unfair or deceptive trade practice under the LPO Federal Trade Commission Act.
Meanwhile, the Innovation Act proposes that "purposely evasive" demand letters be considered "an exceptional circumstance when considering whether the litigation is abusive." The bill also claims that "deficient demand letters may not be used as evidence of willful infringement." However, in this bill there is no deceptive trade provision under the Federal Trade Commission Act.
3. HEIGHTENED PLEADING STANDARDS
The current version of the Patent Transparency and Improvements Act does not address pleading standards in patent litigation. However, the Innovation Act does by "requiring plaintiffs to identify each product that allegedly infringes each asserted patent claim and to describe with detailed specificity how each limitation of each claim is met by the product."
Supporters believe that it will make it more difficult for patent trolls to file frivolous complaints against masses of defendants without providing a detailed infringement analysis against each defendant's products. Detractors do not believe heightened pleading standards will deter more sophisticated patent trolls.
The patent troll legislation will be revisited when Congress reconvenes at the end of April.
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