Comparing the Innovation Act and the STRONG Patents Act: competing proposals for patent reform

2015 could 37444451_sbe a pivotal year for U.S. patent reform, with two significant — and very distinct — patent reform bills pending before Congress.  This article compares the two bills, the Innovation Act and the STRONG Patents Act, the forces behind the bills, and the next steps in the U.S. patent reform debate.

Introduced in February 2015 by Rep. Bob Goodlatte as a measure to “curb abusive patent litigation,” the Innovation Act picks up where the America Invents Act of 2011 (AIA) left off by proposing additional reforms to patent litigation procedures. The Innovation Act would also streamline some of the AIA’s mechanisms for challenging patents.

In March 2015, Senator Christopher Coons and others introduced the STRONG Patents Act as a way to “reduce abuse while sustaining American leadership in innovation,” The STRONG Patents Act includes some reforms that are similar to those of the Innovation Act, along with several other sections that are designed to protect the positions of patent holders.

Significant provisions of each bill include:

More detail in patent infringement complaints:

The Innovation Act would eliminate the Federal Rules of Civil Procedure’s current model patent infringement complaint form. Instead, the bill will require that all complaints identify (i) the claims infringed, (ii) the accused product or process, and (iii) a description of how each limitation of each claim is met by the accused products or process.

The STRONG Patents Act also calls for elimination of the current model patent infringement complaint form. However, this bill does not require any specific replacement, nor does it propose any heightened standard for pleading.

(Notably, elimination of the FRCP’s current model patent infringement form is expected to to occur by December 2015 even if neither patent reform bill passes.)

Attorneys fees to the prevailing party in patent litigation:

Currently, a prevailing party in patent infringement litigation may recover attorneys’ fees only in exceptional cases. In the 2014 case of Octane Fitness LLC v. Icon Health & Fitness, the Supreme Court relaxed this standard and gave district courts additional discretion for determining when a case can be considered “exceptional.”

The Innovation Act will upend this standard by awarding fees to the prevailing party absent special circumstances, or if the losing party’s positions were reasonably justified. In addition, the Innovation Act states that in certain situations a plaintiff who unilaterally extends a settlement offer with a covenant not to sue will be deemed a non-prevailing party. If the non-prevailing party cannot pay the fees, the prevailing party can seek the fees from the non-prevailing party’s parent, investors or other “interested parties.”

The STRONG Patents Act takes the opposite approach and instead proposes to codify the Octane Fitness standard.

Discovery limits:

The Innovation Act would limit the scope of discovery early in a patent infringement case. Until claim construction is over, then discovery would be limited to information necessary for the court to determine the meanings of various claim terms. This change would prohibit plaintiffs from seeking discovery on damages, and defendants from seeking certain information relating to validity, until the claims have been construed.

The STRONG Patents Act does not address this issue.

Bad faith patent notice letters :

The two bills take different approaches to the issue of frivolous and vague patent infringement notice letters.

The Innovation Act would limit the damages that a sender of such a letter can obtain in a patent suit.  Currently, a plaintiff can seek heightened damages for willful infringement if the defendant had notice of the patent. A notice letter from the patent holder can serve as proof of such notice. The Innovation Act would only permit a notice letter to be used for damage calculation if the letter identify the patent holder’s ultimate parent company, the accused product or process, and how the product or process infringes the patent.

The STRONG Patents Act states that the sending of patent notice letters in bad faith is an unfair or deceptive trade practice under Section 5 of the Federal Trade Commission (FTC) Act. The FTC would have authority to pursue enforcement actions against entities who send such letters in bad faith.

Divided infringement:

In a 2014 opinion (Limelight Technologies, Inc. v. Akamai Technologies, Inc.,), the Supreme Court ruled that a defendant can be liable for induced infringement of a patented method only if a single entity directly infringed the patent by performing all of the method’s steps.

The STRONG Patents Act proposes to override the Limelight decision and eliminate any “single-entity” rule for induced or contributory infringement.

The Innovation Act proposes no changes to the current standards for divided infringement.

Transparency of ownership:

The Innovation Act will require patent infringement plaintiffs to identify all parties who have a right to sublicense or enforce the patent, each entity with a financial interest in the patent or in the plaintiff, and the ultimate parent of each of the identified entities.

The STRONG Patents Act does not address this in the context of litigation. Instead, it turns the tables and permits discovery of the real party in interest of the petitioner in PGR and IPR proceedings.

Limits on suing both manufacturer and customer:  

Under the Innovation Act, if a patent infringement case is pending against a manufacturer of a product and a second case is then subsequently filed against the manufacturer’s customer, then the court must grant a stay in the case against the customer if the customer agrees to be bound by the result of the case against the manufacturer.

The STRONG Patents Act contains no corresponding provision.

Changes to post-issuance proceedings:

A February 2015 Federal Circuit decision stated that the PTAB’s claim construction standard in inter partes review (IPR) of granted patents should be the “broadest reasonable interpretation” standard. This differs from the standard used when a district court construes claims, which is to give claims the meaning as understood by a person of ordinary skill in the field of the invention.

Both the Innovation Act and the STRONG Patents Act propose to give post-grant review (PGR) and IPR proceedings the “ordinary meaning” standard, effectively overturning the recent Federal Circuit decision.  The STRONG Patents Act would go even further to preserve patent rights by stating that patents should be given a “presumption of validity” in PGR and IPR proceedings.

The STRONG Patents Act also proposes to change IPR rules to expressly permit patent owners to amend claims.  (Under current rules, amendments are possible but rare and difficult.)

The STRONG Patents Act also attempts to harmonize treatment of  pending pre-AIA reexamination proceedings with that of IPR and PGR proceedings.

 Double patenting:

The Innovation Act would clarify the standard currently used (but not described in law or regulation) for the issuance of double patenting rejections in patent applications filed by the same inventor.

The STRONG Patents Act does not address double patenting.

Fee shifting:

The STRONG Patents Act proposes to eliminate the diversion of USPTO fees to other projects by establishing a new “Innovation Promotion Fund” that only the USPTO can use.

The Innovation Act does not address USPTO fee diversion.

Micro entity status:

The America Invents Act established a reduced fee structure for patent applicants who meet certain criteria for “micro entity” status. Micro entities include individuals who are below certain income thresholds, applicants who are employed by an institution of higher education, and applicants who have licensed or assigned the invention to institutions of higher educations. However, institutions of higher education themselves were notably absent from the criteria for micro entity status.

The STRONG Patents Act proposes to add institutions of higher education to the list of entities that qualify for micro entity status. The Innovation Act does not address this issue.

Next steps

Both the Innovation Act and the STRONG Patents Act have bipartisan support, but they have different goals and different industry groups advocating their passage. The Innovation Act has been supported by the Consumer Electronics Association and a number of private companies.  The STRONG Patents Act has been supported by the Biotechnology Industry Association (BIO), the National Venture Capital Association, the Association of American Universities, and the Association of Public and Land-Grant Universities, and several private technology companies who have formed an advocacy group called the Innovation Alliance.

The competing bills set the stage for a very public debate on the direction of patent reform for the upcoming year.

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