Innovation Act of 2013

A new bill entitled the “Innovation Act of 2013” , if passed in its current form, includes provisions that will have a significant influence on patent enforcement, procurement, and ownership.  With an increase in “patent trolling” over the past few years, (buying patents to only later make claims of infringement) the White House has reported settlements, which it deems inappropriate in many cases, of $29 billion in 2011 because of these frivolous lawsuits.  The same report expresses a concern that has “added significant costs to the innovation ecosystem and sapped investments in research and development, causing great harm to society.”

The proposed legislation aimed at confronting this multi-billion dollar headache is proposed by a bipartisan coalition and House Judiciary Committee Chairman Rep. Bob Goodlatte (R-VA)

Sec. 3. Patent infringement actions:

1) Heightened initial pleading requirements – provides for enhanced initial pleading requirements that would require a patentee to identify the patents and claims infringed, and more specificity as to exactly how they are infringed.

2) §285 Fee Shifting — aligns fee shifting in patent cases with the standard that is used for awarding fees against the U.S. under the Equal Access to Justice Act (28 U.S.C. §2412(d)). The EAJA was enacted in 1980, and there is now a well-developed body of case law explaining what “substantially justified” means in the fee-shifting context. The standard is reasonably fair and predictable and is reliably enforced. The provision also allows for limited joinder of parties (ex: parent entity) to satisfy a fee-shifting award.

3) Joinder provision – allow courts to join parties that have an interest in the patent or patents at issue.

4) Discovery in patent cases – gives courts ability to limit discovery until claim construction occurs.

Sec. 4. Transparency of Patent Ownership: 1) Upon filing the initial complaint the plaintiff is required to provide parties, the Court and the PTO with basic information about the patent (ex: ultimate parent entity, parties with a financial interest, etc.). Also requires the patentee to keep that information updated for the life of the patent.

Sec. 5. Customer-suit exception: 1) Allows a manufacturer to intervene in a suit against his customers, and allows the action to be stayed as to the customer, if both the manufacturer and customer agree. The goal is to allow a manufacturer/supplier to intervene and stay cases against downstream alleged infringers, provided that there is an adequate remedy against the intervener. The provision accounts for indemnity agreements and help prevent gamesmanship. (Such suits tend to be coercive and are an abusive patent litigation tactic).

Sec. 6. Procedures and Practices to Implement and Recommendations to the Judicial Conference: 1) Requires the Judicial Conference to promulgate rules and procedures on core document discovery.

2) Case Management – provides for procedures to ensure initial disclosure and early case management conference practices in District Courts, to help identify any potentially case-dispositive issues.

3) Revision of form for filing a patent infringement case – includes eliminating Form 18 and allows for development of an updated form.

4) Protection of IP licenses in bankruptcy – ensures that U.S. law is followed and not foreign law, that IP licenses are not eliminated in bankruptcy. Section 365(n) of title 11 prevents a bankruptcy trustee from terminating licenses to patents and other intellectual-property of the debtor. When Congress enacted § 365(n) in 1989, it recognized that allowing patent and other IP licenses to be revoked in bankruptcy would be extremely disruptive to the economy and damaging both to patent owners and to licensing manufacturers. Manufacturers often invest billions of dollars in reliance on their right to practice a technology pursuant to a license. Allowing the license to be eliminated in bankruptcy would create commercial uncertainty and would undermine manufacturing investment.