Patent Legislation Debate Shifts to Senate Judiciary Committee

The hearing was meant to focus only on S-1720, but members of the committee and witnesses frequently discussed other bills that would curb patent abuse in ways S-1720 would not, most notably the Patent Quality Improvement Act (S-866), the Patent Abuse Reduction Act (S-1013) and the Patent Litigation Integrity Act (S-1612). Industry observers told us they believe elements of those bills will end up in the final version of S-1720 through the amendment process.

The Senate hearing follows House passage the Innovation Act (HR-3309), which S-1720 partially mirrors (CD Dec 6 p11). Senate Judiciary members were divided on how quickly the Senate should move to pass its own legislation. Sen. Sheldon Whitehouse, D-R.I., said the Senate should not to waste the chance to work with the House to enact “sensible” legislation, urging the body and stakeholders to be “flexible.” Sens. Dianne Feinstein, D-Calif., and Chris Coons, D-Del., independently urged the committee to hold additional hearings to get a fuller stakeholder perspective on S-1720 and other legislation. Feinstein said she hoped additional hearings would clarify what she called a complicated issue. Coons said he believed the Senate should proceed with caution because the U.S. patent system was only beginning to feel the full effects of the America Invents Act (AIA), which Congress passed in 2011.

Former U.S. Patent and Trademark Office Director Todd Dickinson, now executive director of the American Intellectual Property Law Association, said he agrees that “patent trolls” are a problem, but urged the Senate to delay passing new legislation in order to give AIA more time to affect work at PTO. Legislation on fee shifting may end up being moot depending on how the Supreme Court rules on two patent cases it’s expected to hear in late February, Dickinson said. The court will determine whether the U.S. Appeals Court for the Federal Circuit has been too rigid in its interpretation of Section 285 of the Patent Act, which allows judges to shift responsibility for legal fees to the prevailing party in patent lawsuits in some cases. Congress should not enact provisions that would change other court rules in patent lawsuits because the Judicial Conference has begun to revise its own rules for those cases, Dickinson said. Congress should also refrain from addressing deceptive demand letters because that’s squarely in the purview of state attorneys general and the FTC, he said. HR-3309 addressed fee shifting, court rules and demand letters to varying degrees.

Dana Rao, Adobe’s associate general counsel-intellectual property and litigation, said S-1720, in combination with elements of other Senate legislation, would correct an imbalance in the U.S. patent system that he believes currently favors patent assertion entities. Rao championed S-1013 and S-1612. S-1013 would modify Section 285 to give judges more leeway to shift legal fees, while S-1612 would require a holding company with no assets that’s the plaintiff in a patent case to post a bond with the court against possible legal fees. Including fee shifting language in any final legislation coming out of the Senate is vital because “fee shifting is the only adverse consequence for patent troll behavior,” Rao said.

Harry Wolin, Advanced Micro Devices general counsel, said S-1720 was “encouraging,” but did not go far enough. Wolin urged the Senate to include provisions from S-1013 and S-1612. A fee shifting provision is vital because it would shift some of the risk in a lawsuit back to PAEs, he said. Changes to court rules in patent lawsuits would be an effective way to reduce costs and improve the efficiency of the discovery process, Wolin said.

Rao cautioned against the Senate’s including language that would expand the PTO’s covered business method patent review program, arguing that such an expansion would weaken software patents and would not improve innovation. S-866 would expand the program to include more software-related patents. HR-3309 originally included a provision that expanded the CBM program, but House Judiciary Committee Chairman Bob Goodlatte, R-Va., removed it in order to improve the bill’s chances of passing the House Judiciary Committee (CD Nov 20 p16). Johnson & Johnson Chief Intellectual Property Counsel Philip Johnson, speaking on the behalf of the Coalition for 21st Century Patent Reform, said he opposed expanding the CBM program because it was meant to be only a temporary program that narrowly targeted financial services patents. Johnson was more supportive of a targeted expansion of fee shifting rules and a provision allowing stays on lawsuits against a product’s customers, which he said would together solve many of the problems posed by abusive patent litigation.

Sen. Chuck Schumer, D-N.Y., defended S-866 as a way to bring the CBM program to more small businesses facing litigation in order to cost effectively challenge bad patents. A final Senate bill must include some sort of language expanding the CBM program, since enacting a “patent reform bill that doesn’t address patent quality is like treating the symptoms instead of the disease,” he said. “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.” Schumer criticized the “disgraceful” opponents of program expansion, saying “the only people who are afraid of this are those who know their patents aren’t valid.” New England Federal Credit Union CEO John Dwyer and Printing Industries of America CEO Michael Makin also supported expansion of the CBM program.