The Protecting American Talent and Entrepreneurship (PATENT) Act, introduced on April 30, 2015, by Senator Grassley (R-IA) and Senator Leahy (D-VT), is the Senate version of the Innovation Act in the House. The PATENT Act would establish higher pleading standards for patent infringement complaints, which the sponsors say would give defendants real notice of the claims against them. The bill also contains a controversial “customer stay” provision similar to the one found in the Innovation Act. This could prove to be a huge stumbling block because, the way the provisions are written, even the largest tech companies could move to indefinitely stay patent litigation; they are often themselves consumers (i.e., they have purchased something from another manufacturing company). While the Senate Judiciary Committee’s summary of the PATENT Act says that the “customer stay is available only to those at the end of the supply chain,” like the coffee shop, the language found in the bill is actually far broader in scope.
The actual language of the PATENT Act defines “customer” as meaning “a retailer or end user that is accused of infringing a patent….” The term “retailer,” which specifically excludes a manufacturer, is defined to mean “an entity that generates its revenues predominately through the sale to the public of consumer goods or services, or an affiliate of such entity….” Thus, the term “customer” is not limited to end users as the Senate Judiciary Committee suggests. Under this definition, a company like Apple would be a “customer” of a component in one of its products in situations where it does not manufacture or cause the manufacture of the component itself, and it generates revenue through the sale of goods (i.e., iPhones, iPads, etc.) to the public. Any company in a supply chain is a “customer” of some other supplier further up the chain.
The PATENT Act also requires district courts to stay discovery while early dispositive motions (i.e., motions to dismiss and motions to transfer venue) are being considered. The bill would also direct the Judicial Conference to develop rules about how much a party should bear the cost of discovery beyond what is considered core for the case. Fee shifting is one area where there is a meaningful difference between the PATENT Act and the Innovation Act. While the Innovation Act creates a presumption that the loser should pay the attorneys’ fees of the prevailing party unless there is a finding that the losing party pursued only reasonable theories in the case, the PATENT Act would shift fees only if the prevailing party proves that the losing party was not “objectively reasonable.” This is a subtle but important difference, although fee shifting in any form can be expected to generate real opposition. Finally, the bill would also require the United States Patent and Trademark Office (USPTO) to keep information about patent ownership in order to provide a resource about patents being asserted in a demand letter or lawsuit. Those who watch the USPTO know that this was on the agenda for rulemaking, but after receiving enormous opposition from patent owners with large portfolios, rulemaking plans were scuttled.
Senator Chris Coons (D-DE), the primary author of the STRONG Patents Act (also in the Senate) said he was “disappointed to see that the PATENT Act lacks any support for patent-holders facing well-documented abuse in post-grant proceedings.” Coons went on to say that IPR abuse “is actively undermining our nation’s ability to invest in high-risk ventures and break new ground in our fight against diseases from Alzheimer’s to Multiple Sclerosis.” Not surprisingly, Coons believes that putting an end to fraudulent demand letters and raising pleading standards in patent cases, as does his STRONG Patents Act, “will address the legitimate concerns of end-users while maintaining our vibrant and diverse innovation economy.”
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