By Kevin E. Noonan —

As discussed in a prior post, Rep. Bob Goodlatte (R, VA-6th) and a bipartisan collection of sponsors* introduced a bill, once again entitled the "Innovation Act" (H.R. 3309 in the last Congress; H.R. 9 in this one) directed at "patent reform."  The prior post discussed the litigation provisions; this one will focus on the remaining portions of the bill.

The bill is set out in ten sections:

Sec. 1. Short title; table of contents.
Sec. 2. Definitions.
Sec. 3. Patent infringement actions.
Sec. 4. Transparency of patent ownership.
Sec. 5. Customer-suit exception.
Sec. 6. Procedures and practices to implement recommendations of the Judicial Conference.
Sec. 7. Small business education, outreach, and information access.
Sec. 8. Studies on patent transactions, quality, and examination.
Sec. 9. Improvements and technical corrections to the Leahy-Smith America Invents Act.
Sec. 10. Effective date,

With sections 3-5 being expressly directed to changes in pleadings requirements, "loser pays" provisions, patent ownership transparency, so-called "demand letters," and stays of litigation against customers in favor of lawsuits brought against manufacturers and suppliers.

Of the remaining provisions of the bill, Sec. 6 relates to the Judicial Conference and how courts should implement "recommendations" of the Conference.  The Judicial Conference, governed by 28 U.S.C. § 331, is empowered to "make policy" with regard to how U.S. Courts are administered.  According to the Conference's website; these include:

• Mak[ing] a comprehensive survey of the conditions of business in the courts of the United States;

• Prepar[ing] plans for the assignment of judges to or from courts of appeals or district courts, where necessary;

• Submit[ting] suggestions to the various courts in the interest of promoting uniformity of management procedures and the expeditious conduct of court business;

• Exercis[ing] authority provided in chapter 16 of title 28 United States Codes for the review of circuit council conduct and disability orders filed under that chapter; and

• Carry[ing] on a continuous study of the operation and effect of the general rules of practice and procedure in use within the federal courts, as prescribed by the Supreme Court pursuant to law.

Sec. 6 of H.R. 9 directs the Conference to "develop rules and procedures to implement the issues and proposals described in paragraph (2) to address the asymmetries in discovery burdens and costs in any civil action arising under any Act of Congress relating to patents."  Using the mandatory "shall" throughout, the Section sets out the types of rules to be adopted with great specificity; for example (Sec. 6(a)(2)(A)):

(A) DISCOVERY OF CORE DOCUMENTARY EVIDENCE.—Whether and to what extent each party to the action is entitled to receive core documentary evidence and shall be responsible for the costs of producing core documentary evidence within the possession or control of each such party, and whether and to what extent each party to the action may seek nondocumentary discovery as otherwise provided in the Federal Rules of Civil Procedure.
(B) ELECTRONIC COMMUNICATION.—If the parties determine that the dis covery of electronic communication is appropriate, whether such discovery shall occur after the parties have exchanged initial disclosures and core documentary evidence and whether such discovery shall be in accordance with the following:
    (i) Any request for the production of electronic communication shall be specific and may not be a general request for the production of information relating to a product or business.
    (ii) Each request shall identify the custodian of the information requested, the search terms, and a time frame. The parties shall cooperate to identify the proper custodians, the proper search terms, and the proper time frame.
    (iii) A party may not submit production requests to more than 5 custodians, unless the parties jointly agree to modify the number of production requests without leave of the court.
    (iv) The court may consider contested requests for up to 5 additional custodians per producing party, upon a showing of a distinct need based on the size, complexity, and issues of the case.
    (v) If a party requests the discovery of electronic communication for additional custodians beyond the limits agreed to by the parties or granted by the court, the requesting party shall bear all reasonable costs caused by such additional discovery.
(C) ADDITIONAL DOCUMENT DISCOVERY.—Whether the following should apply:
    (i) IN GENERAL.—Each party to the action may seek any additional document discovery otherwise permitted under the Federal Rules of Civil Procedure, if such party bears the reasonable costs, including reasonable attorney's fees, of the additional document discovery.
    (ii) REQUIREMENTS FOR ADDITIONAL DOCUMENT DISCOVERY.—Unless the parties mutually agree otherwise, no party may be permitted additional document disovery unless such a party posts a bond, or provides other security, in an amount sufficient to cover the expected costs of such additional document discovery, or makes a showing to the court that such party has the financial capacity to pay the costs of such additional document discovery.
    (iii) LIMITS ON ADDITIONAL DOCUMENT DISCOVERY.—A court, upon motion, may determine that a request for additional document discovery is excessive, irrelevant, or otherwise abusive and may set limits on such additional document discovery.
    (iv) GOOD CAUSE MODIFICATION.—A court, upon motion and for good cause shown, may modify the requirements of subparagraphs (A) and (B) and any definition under paragraph (3). Not later than 30 days after the pretrial conference under Rule 16 of the Federal Rules of Civil Procedure, the parties shall jointly submit any proposed modifications of the requirements of subparagraphs (A) and (B) and any definition under paragraph (3), unless the parties do not agree, in which case each party shall submit any proposed modification of such party and a summary of the disagreement over the modification.
    (v) COMPUTER CODE.—A court, upon motion and for good cause shown, may determine that computer code should be included in the discovery of core documentary evidence. The discovery of computer code shall occur after the parties have exchanged initial disclosures and other core documentary evidence.
(D) DISCOVERY SEQUENCE AND SCOPE.—Whether the parties shall discuss and address in the written report filed pursuant to Rule 26(f) of the Federal Rules of Civil Procedure the views and proposals of each party on the following:
    (i) When the discovery of core documentary evidence should be completed.
    (ii) Whether additional document discovery will be sought under subparagraph11 (C).
    (iii) Any issues about infringement, invalidity, or damages that, if resolved before the additional discovery described in subparagraph (C) commences, might simplify or streamline the case, including the identification of any terms or phrases relating to any patent claim at issue to be construed by the court and whether the early construction of any of those terms or phrases would be helpful.

Also mandated by the bill is the elimination of Form 18 in the Appendix to the Federal Rules of Civil Procedure relating to the form of a complaint for patent infringement (which the Judicial Conference has already decided will be accomplished by December 2015).  These provisions are set forth in such detail here to illustrate the extent to which Congress is attempting to specify how courts implement the changes in the statute, and this very specificity has motivated members of the judiciary to question whether it constitutes an overreach by one co-equal branch over another.  (It is particularly telling that in Sec. 6(c)(2) the bill provides that the Supreme Court "may" (not "shall") prescribe a new Form for patent complaints, but even here Rep. Goodlatte cannot resist the urge to specify how the Court should do so.)

This section also amends Title 11 of the U.S.C. § 1522, to enable a licensee wherein a foreign representative has rejected or repudiates the license to "make the election and exercise the rights described in section 365(n)."  The provisions of Section 6 are to take effect upon enactment of the bill into law.

Section 7 contains a variety of purported benefits to small businesses to be administered by the Patent and Trademark Office, including "educational" resources "to address concerns arising from patent infringement" (Sec. 7(a)(1)) (although it is unclear how the PTO will provide education on patent litigation, which is not under its purview); "outreach" between the Office and the Small Business Administration and the Minority Business Development Agency to "provide education and awareness on abusive patent litigation practices (Sec. 7(a)(2)); creating a "user-friendly" portion of the PTO website (does this imply that the remainder of the website is not user-friendly?) "to notify the public when a patent case is brought in Federal court," including the information specified by the assignment transparency provisions of this bill (Sec. 7(b)(1)), in a format that is "searchable by patent number, patent art area and entity" (Sec. 7(b)(2)).  All of this is to be achieved "[u]sing existing resources," which seems a tall order insofar as the Office is now to become a clearinghouse for patent litigation information from the district courts.

Section 8 also provides for additional "studies," here directed to:

• "ensure greater transparency and accountability in patent transactions occurring on the secondary market" (Sec. 8(a)(1)(A));

• "examine the economic impact that the patent secondary market has on the United States" (Sec. 8(a)(1)(B));

• "examine licensing and other oversight requirements that may be placed on the patent secondary market, including on the participants in such markets, to ensure that the market is a level playing field and that brokers in the market have the requisite expertise and adhere to ethical business practices" (Sec. 8(a)(1)(C)); and

• "examine the requirements placed on other markets" (Sec. 8(a)(1)(D)).

These studies are to be performed by the Director "in consultation with" the Secretaries of the Commerce and Treasury Departments, the Chairman of the Securities and Exchange Commission, and "the heads of other relevant agencies, and interested parties," raising the issue of exactly who these "interested parties" may be and how their interest is to be communicated to the officials performing the study.  The results of this study are to be provided to the Judiciary Committees of the House and Senate not later than 18 months after enactment of the bill.

Another study set out in Section 8 (Sec. 8(b)(1) et seq.) is directed to patents owned by the U.S., related to how these patents are licensed (and sold, although it is not clear that patents assigned to the U.S. can be sold) and litigated, and to provide recommendations regarding "whether there should be  restrictions placed on patents acquired from the United States Government" (an issue supposedly settled by enactment of the Bayh-Dole Act 35 years ago).  The results of this study are due no later than one year after enactment of the bill into law.

The GAO is directed to perform a study on patent quality, including how patents are examined, classified, searched (particularly directed to whether "off-the-shelf" searching software purportedly used abroad could be used by the Office to improve patent quality) and whether there are examination protocols in place to prevent "double patenting" "through filing by applicants in multiple art areas"; whether the bill's attention is drawn to different entities each obtaining a patent on the same invention or a single entity obtaining more than one patent on the same invention is unclear)(Sec. 8(c)(1) et seq.).  The results of this study are due no later than one year after enactment of the bill into law.

There is also a judicial study contained in Section 8, wherein the Director of the Administrative Office of the United States Courts, the Director of the Federal Judicial Center and the PTO Director are to "examine the idea of developing a pilot program for patent small claims procedures in certain judicial districts within the existing patent pilot program mandated by Public Law 111–349." (Sec. 8(d)(1) et seq.)  The results of this study are due no later than one year after enactment of the bill into law.

Having proposed provisions to restrict the use of demand letters earlier in the bill, Section 8 paradoxically mandates a study by the Director on "the prevalence of the practice of sending patent demand letters in bad faith and the extent to which that practice may, through fraudulent or deceptive practices, impose a negative impact on the marketplace."  (Sec. 8(e)(1) et seq.)  No doubt unintentionally (or perhaps not; after all, the "demand letter" provisions are driven more by politics than sound policy), enacting a remedy before obtaining the results of the study suggest either that these results are a forgone conclusion or that the Representative has made up his mind irrespective of the facts.  The results of this study are due no later than one year after enactment of the bill into law.

Returning to the theme of patent quality, this Section also requires the GAO to conduct a study on patent quality for business method patents.  (Sec. 8(f)(1) et seq.)  Rather than having the GAO assess the Office's examination policies, however, this study is aimed at business method patent litigation, specifically the "volume and nature" of such litigation, wherein the "quality" of such patents will be judged by how often their validity is upheld and infringement is found.  The results of this study are due no later than one year after enactment of the bill into law.

Finally, Section 8 also contains a provision for the Director to conduct a study to determine "the impact of legislation [purportedly, this legislation] on the ability of individuals and small businesses to protect exclusive rights to inventions and discoveries."  (Sec. 8(g)(1) et seq.)  The Director is instructed to enlist the assistance of the Secretary of Commerce, the Director of the Administrative Office of the United States Courts, the Director of the Federal Judicial Center, "the heads of other relevant agencies, and interested parties," to examine the impact of the substantive provisions of the bill (sections 3-5) on the patent rights of "individuals and small businesses owned by women, veterans, and minorities."  The results of this study are due no later than two years after enactment of the bill into law (the bill's sponsors apparently believing that it will take that long for any deleterious effects to arise).

All the studies mandated by Section 8 are to be performed "using existing resources."

Section 9 of the bill turns to "improvements and technical corrections" to the AIA, the most significant of which contained in Section 9(b), wherein the Patent Trial and Appeal Board is required to employ in post-grant proceedings the same standards for claim construction as are used by district courts.  Enactment of these provisions would reverse both the PTAB and the majority opinion by the Federal Circuit in In re Cuozzo Speed Technologies (and in the process vindicate Judge Newman's dissent recognizing both the intent of Congress in enacting the post-grant provisions of the AIA and the limitations on PTO rulemaking contrary to that intent).  On the other hand, Section 9(a) also strikes the estoppel provisions with regard to patent challenges that "reasonably could have been raised," opening the door for patentee harassment and multiplicity of challenges in the PTO and the courts.  These provisions will come into force immediately upon enactment of the bill into law.

Section 9(c)(1) et seq. codifies the judicially created obviousness-type double patenting doctrine (without changing the doctrine substantively):

§ 106. Prior art in cases of double patenting
    A claimed invention of a patent issued under section 151 (referred to as the 'first patent') that is not prior art to a claimed invention of another patent (referred to as the 'second patent') shall be considered prior art to the claimed invention of the second patent for the purpose of determining the nonobviousness of the claimed invention of the second patent under section 103 if—
    (1) the claimed invention of the first patent was effectively filed under section 102(d) on or before the effective filing date of the claimed invention of the second patent;
    (2) either—
        ''(A) the first patent and second patent name the same individual or individuals as the inventor; or
        (B) the claimed invention of the first patent would constitute prior art to the claimed invention of the second patent under section 102(a)(2) if an exception under section 102(b)(2) were deemed to be inapplicable and the claimed invention of the first patent was, or were deemed to be, effectively filed under section 102(d) before the effective filing date of  the claimed invention of the second patent; and
    (3) the patentee of the second patent has not disclaimed the rights to enforce the second patent independently from, and beyond the statutory term of, the first patent.

Patents subject to this section 106 would not be invalidated by a patent filed under Section 3(n)(1) of the AIA (i.e., a "transition" application).

These amendments become effective one year after enactment of the bill into law.

Section 9(e) provides clarification of limits to patent term adjustment, specifically as shown:

(B) Guarantee of no more than 3-year application pendency.— Subject to the limitations under paragraph (2), if the issue of an original patent is delayed due to the failure of the United States Patent and Trademark Office to issue a patent within 3 years after the actual filing date of the application under section 111 (a) in the United States or, in the case of an international application, the date of commencement of the national stage under section 371 in the international application, the term of the patent shall be extended 1 day for each day after the end of that 3-year period until the patent is issued, not including—
    (i) any time consumed by continued examination of the application requested by the applicant consumed after continued examination of the application requested by the applicant under section 132 (b);
    (ii) any time consumed by a proceeding under section 135 (a), any time consumed by the imposition of an order under section 181, or any time consumed by appellate review by the Patent Trial and Appeal Board or by a Federal court; or
    (iii) any delay in the processing of the application by the United States Patent and Trademark Office requested by the applicant except as permitted by paragraph (3)(C).,
the term of the patent shall be extended 1 day for each day after the end of that 3-year period until the patent is issued.

These amendments will become effective upon enactment.

Likewise, the bill contains (Sec. 9(h)) technical corrections to the following provisions of the AIA:

35 U.S.C. §102(b)(1)(a):

    (b) Exceptions.—
        (1) Disclosures made 1 year or less before the effective filing date of the claimed invention.— A disclosure made 1 year or less before the effective filing date of a claimed invention shall not be prior art to the claimed invention under subsection (a)(1) if—
            (A) the disclosure was made by the inventor or joint inventor or by another the inventor or joint inventor or another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor; or

35 U.S.C. §115(a):

(a) Naming the Inventor; Inventor's Oath or Declaration.— An application for patent that is filed under section 111 (a) or commences the national stage under section 371 shall include, or be amended to include, the name of the inventor for any invention claimed in the application. Except as otherwise provided in this section, each individual who is the inventor or a joint inventor of a claimed invention in an application for patent shall execute may be required to execute an oath or declaration in connection with the application.

35 U.S.C. §119(e)(1):

(e)(1) An application for patent filed under section 111 (a) or section 363 for an invention disclosed in the manner provided by section 112 (a) (other than the requirement to disclose the best mode) in a provisional application filed under section 111 (b), by an inventor or inventors named that names the inventor or a joint inventor in the provisional application, shall have the same effect, as to such invention, as though filed on the date of the provisional application filed under section 111 (b), if the application for patent filed under section 111 (a) orsection 363 is filed not later than 12 months after the date on which the provisional application was filed and if it contains or is amended to contain a specific reference to the provisional application. No application shall be entitled to the benefit of an earlier filed provisional application under this subsection unless an amendment containing the specific reference to the earlier filed provisional application is submitted at such time during the pendency of the application as required by the Director. The Director may consider the failure to submit such an amendment within that time period as a waiver of any benefit under this subsection. The Director may establish procedures, including the payment of a surcharge, to accept an unintentionally delayed submission of an amendment under this subsection during the pendency of the application.

35 U.S.C. §120:

An application for patent for an invention disclosed in the manner provided by section 112 (a) (other than the requirement to disclose the best mode) in an application previously filed in the United States, or as provided by section 363, which names [an] the inventor or a joint inventor in the previously filed application shall have the same effect, as to such invention, as though filed on the date of the prior application, if filed before the patenting or abandonment of or termination of proceedings on the first application or on an application similarly entitled to the benefit of the filing date of the first application and if it contains or is amended to contain a specific reference to the earlier filed application. No application shall be entitled to the benefit of an earlier filed application under this section unless an amendment containing the specific reference to the earlier filed application is submitted at such time during the pendency of the application as required by the Director. The Director may consider the failure to submit such an amendment within that time period as a waiver of any benefit under this section. The Director may establish procedures, including the payment of a surcharge, to accept an unintentionally delayed submission of an amendment under this section.

35 U.S.C. §291(b):

(b) Filing Limitation.— An action under this section may be filed only before the end of the 1-year period beginning on the date of the issuance of the first patent containing a claim to the allegedly derived invention and naming an individual alleged to have derived such invention as the inventor or a joint inventor.

While enactment is almost assured, several of Rep. Goodlatte's co-sponsors have voiced opposition to (or at least skepticism over) at least some of the provisions of the bill.  Thus, there remains significant opportunity to convince our representatives to drop or modify the provisions that have the capacity to do the most harm to patentees and the patent system.

*Rep. Peter DeFazio (D, OR-4th), Rep. Darrell Issa (R, CA-49th), Rep. Jerrold Nadler (D, NY-10th), Rep. Lamar Smith (R, TX-21st), Rep. Zoe Lofgren (D, CA-19th),  Rep. Steve Chabot (R, OH-1st), Rep. Anna Eshoo (D, CA-18th), Rep. Randy Forbes (R, VA-4th), Mr. Pedro Pierluisi (D, Representative for Puerto Rico), Rep. Jason Chaffetz (R, UT-3rd), Rep. Hakeem Jeffries (D, NY-8th), Rep. Tom Marino (R, PA-10th), Rep. Blake Farenthold (R, TX-27th), Rep. George Holding (R, NC-13th), Rep. Bill Johnson (R, OH-6th), Rep. Jared Huffman (D, CA-2nd), Rep. Mike Honda (D, CA-17th), and Rep. Rick Johnson (D, WA-2nd)

By Kevin E. Noonan —

As expected by almost everyone (and anticipated by several groups who urged him not to do so; see "Pro-Patent Coalition Writes Letter to the House and Senate Judiciary Committees" and "Big Ten Lobbies Congress to Tread Lightly on "Patent Reform""), Rep. Bob Goodlatte (R, VA-6th), joined by Rep. Peter DeFazio (D, OR-4th), Rep. Darrell Issa (R, CA-49th), Rep. Jerrold Nadler (D, NY-10th), Rep. Lamar Smith (R, TX-21st), Rep. Zoe Lofgren (D, CA-19th),  Rep. Steve Chabot (R, OH-1st), Rep. Anna Eshoo (D, CA-18th), Rep. Randy Forbes (R, VA-4th), Mr. Pedro Pierluisi (D, Representative for Puerto Rico), Rep. Jason Chaffetz (R, UT-3rd), Rep. Hakeem Jeffries (D, NY-8th), Rep. Tom Marino (R, PA-10th), Rep. Blake Farenthold (R, TX-27th), Rep. George Holding (R, NC-13th), Rep. Bill Johnson (R, OH-6th), Rep. Jared Huffman (D, CA-2nd), Rep. Mike Honda (D, CA-17th), and Rep. Rick Johnson (D, WA-2nd) (in other words, a true bipartisan bill) today introduced his "Innovation Act" bill in substantially the same form as in the last Congress (H.R. 3309).  The bill is "bipartisan" for the same reason the Smith-Leahy America Invents Act (the AIA) was bipartisan — it is a bill whose provisions can be spun as being "a jobs bill" or one that "protects American innovation" by members on both sides of the aisle, and is sufficiently arcane that most members of the public will not be overly concerned about it.  Which is too bad, because the evidence is mounting that most of the provisions are unnecessary or could be accomplished by a much more limited bill directed at actual abuses of the patent system.  But if the same lineup of lobbying groups representing industries who need not rely on patents spends about as much money and is opposed by a fractured coterie of industries that actually do depend on patents, then passage is certain in the House, and likely also in the Republican-controlled Senate.  It is also a certainty that the President will sign such a bill; Mr. Obama has shown neither any understanding nor any affection for the patent system that would make him inclined to wield his veto pen.

The bill addresses two broad areas of the law:  patent litigation and "prosecution," that is some aspects of how the Patent Office has implemented certain provisions of the AIA.  The bill is set out in ten sections:

Sec. 1. Short title; table of contents.
Sec. 2. Definitions.
Sec. 3. Patent infringement actions.
Sec. 4. Transparency of patent ownership.
Sec. 5. Customer-suit exception.
Sec. 6. Procedures and practices to implement recommendations of the Judicial Conference.
Sec. 7. Small business education, outreach, and information access.
Sec. 8. Studies on patent transactions, quality, and examination.
Sec. 9. Improvements and technical corrections to the Leahy-Smith America Invents Act.
Sec. 10. Effective date.

Five of these sections are substantive, and the bill also contains mandates for several "studies" on the patent system (similar to the "study" on second opinion genetic diagnostic testing in the AIA that still has not seen the light of day, almost three years after it was due).

The patent litigation provisions once again focus on the "burden" on (presumably) innocent infringers imposed by being named as a defendant in an infringement suit.  These include heightened pleadings requirements set forth in Sec. 3(A)(1)(a), including that in any infringement action the plaintiff must identify:

''(1) An identification of each patent allegedly infringed.
''(2) An identification of each claim of each patent identified under paragraph (1) that is allegedly infringed.
'(3) For each claim identified under paragraph (2), an identification of each accused process, machine, manufacture, or composition of matter (referred to in this section as an 'accused instrumentality') alleged to infringe the claim.
''(4) For each accused instrumentality identified under paragraph (3), an identification with particularity, if known, of—
    ''(A) the name or model number of each accused instrumentality; or
    ''(B) if there is no name or model number, a description of each accused instrumentality.
''(5) For each accused instrumentality identified under paragraph (3), a clear and concise statement of—
    ''(A) where each element of each claim identified under paragraph (2) is found within the accused instrumentality; and
    ''(B) with detailed specificity, how each limitation of each claim identified under paragraph (2) is met by the accused instrumentality.
''(6) For each claim of indirect infringement, a description of the acts of the alleged indirect infringer that contribute to or are inducing the direct infringement.
''(7) A description of the authority of the party alleging infringement to assert each patent identified under paragraph (1) and of the grounds for the court's jurisdiction.
''(8) A clear and concise description of the principal business, if any, of the party alleging infringement.
''(9) A list of each complaint filed, of which the party alleging infringement has knowledge, that asserts or asserted any of the patents identified under paragraph (1).
''(10) For each patent identified under paragraph (1), whether a standard-setting body has specifically declared such patent to be essential, potentially essential, or having potential to become essential to that standard-setting body, and whether the United States Government or a foreign government has imposed specific licensing requirements with respect to such patent.

It will be appreciated that some or much of the facts necessary to fulfill these requirements may not be available prior to discovery, and for at least some of these instances the bill provides (in Sec. 3(A)(1)(b)) that a plaintiff can describe the information generally, with an explanation of why more specific information could not be adduced ("was not readily accessible") despite efforts to do so (wherein the substance of these efforts must also be plead).  Complaints containing confidential information can be filed under seal upon motion, which if denied entitle the party to "seek to file" an amended complaint (Sec. 3(A)(1)(c)).  And, as in the last version of the Innovation Act, ANDA litigation brought under 35 U.S.C. § 271(e)(2) are not subject to these requirements.

Another litigation-specific part of the bill (Sec. 3(b)(1)(a) et seq.), and the section that was responsible for Sen. Harry Reid (D-NV) refusing to bring the bill to the Senate floor, involves fee-shifting against a "non-prevailing party" "unless the court finds that the position and conduct of the nonprevailing party or parties were reasonably justified in law and fact or that special circumstances (such as severe economic hardship to a named inventor) make an award unjust."  While couched in seemingly innocuous language, Sen. Reid appreciated (purportedly spurred on by the trial lawyers lobby) that these provisions constitute a sea change in the presumptions under U.S. law (this section begins with the phrase "The court shall award [such fees and "other expenses"]. . . ) that parties bear their own costs unless there is evidence that one party acted fraudulently or recklessly in bringing or defending against a lawsuit.  In addition, the bill contains indemnification provisions that may make one co-plaintiff (or, more rarely, co-defendant) liable for such an award in the event that one or more of the parties cannot satisfy the award (Sec. 3(b)(1)(b)).  The bill also discourages a patentee from offering a covenant not to sue as a means to settle infringement litigation, making such an offer an admission that the patentee is the "non-prevailing party" and thus a risk for an award of fees and costs to the accused infringer (Sec. 3(b)(1)(c)).

Curiously, this section of the bill also contains a provision that Sec. 273 of the Code be amended by striking sections (f) and (g); while this is seemingly not related to the other provisions, it does materially affect the effects of this section on the assertion of the "prior user rights" defense:

(a) In General.— A person shall be entitled to a defense under section 282 (b) with respect to subject matter consisting of a process, or consisting of a machine, manufacture, or composition of matter used in a manufacturing or other commercial process, that would otherwise infringe a claimed invention being asserted against the person if—
    (1) such person, acting in good faith, commercially used the subject matter in the United States, either in connection with an internal commercial use or an actual arm's length sale or other arm's length commercial transfer of a useful end result of such commercial use; and
    (2) such commercial use occurred at least 1 year before the earlier of either—
        (A) the effective filing date of the claimed invention; or
        (B) the date on which the claimed invention was disclosed to the public in a manner that qualified for the exception from prior art under section 102 (b).

* * *

(f) Unreasonable Assertion of Defense.— If the defense under this section is pleaded by a person who is found to infringe the patent and who subsequently fails to demonstrate a reasonable basis for asserting the defense, the court shall find the case exceptional for the purpose of awarding attorney fees under section 285.
(g) Invalidity.— A patent shall not be deemed to be invalid under section 102 or 103 solely because a defense is raised or established under this section.

(in other words, "unreasonable" assertion of the defense is no longer a per se violation that would invoke the "special case" provisions of the statute, and a patent could be deemed invalid under Sec. 102 or Sec. 103 of the statute "solely" because the defense had been plead).

These provisions are immediately effective upon enactment and apply to any complaint filed "on or after the first day of the 6-month period ending on that effective date."

This section also contains provisions (Sec. 3(c)) for retroactive joinder, in cases where the non-prevailing party cannot satisfy the fees and expenses award, that would permit a prevailing party to join "an interested party" upon a showing that the non-prevailing party "has no substantial interest in the subject matter at issue other than asserting such patent claim in litigation"; these provisions are clearly directed at patent aggregation entities and other non-practicing entities, although it might be difficult to make the required showing against some NPEs (like universities, for example).  Such joinder has an actual notice requirement and a "get out of jail free" provision, wherein the party to be joined can escape liability by "renounce[ing], in writing and with notice to the court and the parties to the action, any ownership, right, or direct financial interest (as described in paragraph (4)) that the interested party has in the patent or patents at issue."  "Interested parties" are defined in this section of the statute to include assignees, licensees with the right to enforce the patent in suit, or anyone else having a direct financial interest in the patent, but not counsel "if the sole basis for the financial interest of the attorney or law firm in the patent or patents at issue arises from the attorney or law firm's receipt of compensation reasonably related to the provision of the legal representation" (which, while good news does enable a party to argue that the compensation is not reasonable and thus that there is sufficient "financial interest" to justify a court imposing liability on counsel).

The limits on discovery (Sec. 3(d) et seq.) contained in H.R. 3309 are also contained in this bill, including limitations until after the court has performed claim construction (with provisions for a court to exercise discretion regarding expanding the scope of discovery if necessary for claim construction and under "special circumstances"); this section also exempts from the discovery limitations discovery directed to a motion for a preliminary injunction to avoid "competitive harm" (Sec. 3(d)(1)(b)(4)) or if at least one plaintiff and one defendant stipulate that they wish to be exempt from these limitations.

The next portion of Section 3 sets forth a "sense of the Congress" that "it is an abuse of the patent system and against public policy for a party to send out purposely evasive demand letters to end users alleging patent infringement" (Sec. 3(e)).  Accordingly, the following part of Section 3 provides that willful infringement cannot be established merely by sending a demand letter, but must include the type of information required in the earlier portions of Section 3 for filing a complaint. (Sec. 3(f) et seq.)

Section 4 of the bill contains the requirements for "transparency" in patent ownership, wherein a plaintiff must disclose to all adverse parties, the court and the Patent and Trademark Office the assignee(s) of the patents in suit, any licensee empowered to sublicense or enforce the patents, any other entity having a "financial interest" in the patents, and the "ultimate parent entity" of any of the aforesaid parties; this provision seemingly is intended to prevent litigation by proxy, and also contains the exemption for ANDA litigation under 35 U.S.C. § 271(e)(2) found in Section 3 of the bill.  These requirements are on-going (Sec. 4(d)) and "failure to comply" will prevent a successor from recovering fees and expenses under 35 U.S.C. § 285 or increased damages under 35 U.S.C. §284.  These provisions are effective "upon the expiration of the 6-month period beginning on the date of the enactment."

The bill also contains provisions (in Sec. 5) that permit an infringement action against a "covered customer" to be stayed in favor of an action against the manufacturer of the article sold to the customer upon motion consented to by both customer and manufacturer.

The remaining Sections of the bill will be discussed in a separate post.