An Update On Patent Litigation Reform Legislation in the United States IP Practice in China Committee Trip Sharon A. Israel, AIPLA President May 2015 © AIPLA 2015

Patent Litigation Legislation: Introduction Patent Litigation Legislation: Proposed Legislation Key Issues The Current Landscape © AIPLA 2015

Bills Introduced in the 114th Congress Proposed Legislation Bills Introduced in the 114th Congress H.R. 9, Innovation Act Introduced by Chairman Goodlatte (R-VA) on February 5, 2015 Identical to the bill that passed the House in 2013 Largely focused on reducing abusive patent litigation House Judiciary Committee Hearing on April 14, 2015 USPTO Director Michelle Lee testified © AIPLA 2015

Bills Introduced in the 114th Congress Proposed Legislation Bills Introduced in the 114th Congress S. 632, the Support Technology and Research for Our Nation's Growth (STRONG) Patents Act Introduced by Senator Coons (DE) on March 3, 2015 Proposes changes to proceedings before the Patent Trial and Appeal Board Proposes Federal Trade Commission address claims of patent infringement demand letters sent in bad faith (similar to TROL Act) © AIPLA 2015

Bills Introduced in the 114th Congress Proposed Legislation Bills Introduced in the 114th Congress S. 1137, the Protecting American Talent and Entrepreneurship Act of 2015 (PATENT Act) Introduced on April 29, 2015 Co-sponsored by Chairman Grassley (R-IA), Cornyn (R- TX), Schumer (D-NY), Lee (R-UT), Hatch (R-UT), Klobuchar (D-MN) Hearing held on May 7, 2015, to address “Finding Effective Solutions to Address Abusive Patent Practices” Markup likely to happen soon © AIPLA 2015

Bills Introduced in the 114th Congress Proposed Legislation Bills Introduced in the 114th Congress H.R. 2045, the Targeting Rogue and Opaque Letters (TROL) Act Similar to the draft considered in 2014; two hearings held Proposes Federal Trade Commission address claims of patent infringement demand letters sent in bad faith Approved by Energy & Commerce Committee on April 29, 2015 H.R. 1832, the Innovation Protection Act Introduced April 16, 2015 Provides permanent funding for USPTO © AIPLA 2015

Bills Introduced in the 114th Congress Proposed Legislation Bills Introduced in the 114th Congress H.R. 1896, the Demand Letter Transparency Act Introduced April 20, 2015, Sponsor (Rep. Polis – D-CO) Requires disclosure of information related to patent ownership © AIPLA 2015

Key Issues Heightened Patent Pleadings Fee-Shifting & Recovery Discovery and Expenses Patent Ownership Transparency Stays of Customer Suits Bad Faith Demand Letters (Federal and State) AIA Trial Proceedings © AIPLA 2015

Heightened Patent Pleadings Key Issues Heightened Patent Pleadings Many more details on infringement contentions in a complaint H.R. 9 and S. 1137 include similar provisions that pleadings must include identification of each claim allegedly infringed; identification of each product/process accused; description of infringement allegations H.R. 9: If information is not readily accessible, may be generally described with explanation of efforts made S. 1137: If information is not accessible after a Rule 11 inquiry, general description okay along with statement why info is not accessible © AIPLA 2015

Heightened Patent Pleadings Key Issues Heightened Patent Pleadings Many more details on infringement contentions in a complaint H.R. 9: Pleadings must further include description of authority of party to assert infringement; whether a standards setting body has declared patent to be essential S. 1137: Sets forth early disclosure requirements of interested parties H.R. 9 and S. 1137: Confidential information may be filed under seal (good cause) and claims under section 271(e)(2) exempt © AIPLA 2015

Heightened Patent Pleadings Key Issues Heightened Patent Pleadings S. 1137 includes specific provisions on dismissals and amendments: On motion, court shall dismiss for failure to meet requirements, but the fact that a party pleads based on “information not accessible” shall not be basis for dismissal if relief sufficient under Federal Rules of Civil Procedure Nothing in provision shall affect a party’s leave to amend pleadings © AIPLA 2015

Fee-Shifting & Recovery Key Issues Fee-Shifting & Recovery H.R. 9: Award fees to a prevailing party unless the position and conduct of non- prevailing party is reasonably justified in law and fact or special circumstances make an award unjust; Fee-shifting is presumed and burden on non-prevailing party to show fees should not be shifted. (b) May recover fee award from “interested” joined third party. Covenant Not to Sue: Deemed to be a non- prevailing party, unless entitled to voluntary dismissal under Rule 41 © AIPLA 2015

Fee-Shifting & Recovery Key Issues Fee-Shifting & Recovery S. 1137: Would amend section 285 so that on motion of a prevailing party, fees shall be awarded if the position of the non-prevailing party was not objectively reasonable in law or in fact or the conduct of the noon- prevailing party was not objectively reasonable, unless special circumstances make an award unjust. Covenant not to sue language included based on unilateral covenant and “may” be the subject of a motion for fees © AIPLA 2015

Fee-Shifting & Recovery Key Issues Fee-Shifting & Recovery S. 1137: Recovery of award provision Party defending against claim of infringement may file before scheduling conference a statement that party asserting infringement is in primary business of assertion and enforcement of patents or licensing Certification by party alleging infringement that sufficient funds available for fee award, not primary business, identifies interested parties, or states no such interested parties. (Ongoing obligation to supplement) © AIPLA 2015

Discovery and Expenses Key Issues Discovery and Expenses H.R. 9: Statutory stay for discovery prior to claim construction ruling; Requirement for adoption of patent specific discovery rules by Judicial Conference. S. 1137: Stay of discovery during pendency of initial motions to dismiss, transfer or sever; with some discretion of court; 271(e) exemption Judicial Conference “should” develop patent specific discovery rules © AIPLA 2015

Patent Ownership Transparency Key Issues Patent Ownership Transparency H.R. 9: Disclose specific information about entities with interest in patent, including financial interest (assignee, entities with a financial interest in patents or plaintiff, ultimate parent of assignee) Must update disclosure during litigation Section 271(e)(2) exemption Failure to comply limits fees and enhanced damages © AIPLA 2015

Patent Ownership Transparency Key Issues Patent Ownership Transparency S. 1137: Requires disclosure to USPTO of assignments on issuance of patent or not later than 3 months after assignment, including name of ultimate parent of assignee Failure to comply limits fees and enhanced damages during period of noncompliance, unless manifestly unjust PTO Director may promulgate regulations relating to patent ownership © AIPLA 2015

Stays of Customer Suits Key Issues Stays of Customer Suits H.R. 9/S. 1137: Stay of suit against customer if covered manufacturer agrees and is party to same or parallel litigation © AIPLA 2015

Bad Faith Demand Letters Key Issues Bad Faith Demand Letters Various proposals to address bad faith assertions of patent infringement prior to litigation TROL Act proposals include federal preemption H.R. 9/S. 1137: Limits ability to establish willful infringement if pre-suit notification doesn’t include specific information S. 1137: Similar to TROL Act, but without preemption provision and no private right of action © AIPLA 2015

Bad Faith Demand Letters Key Issues Bad Faith Demand Letters 23 States Have Passed Bills on Demand Letters Alabama, Georgia, Idaho, Illinois, Indiana, Louisiana, Maine, Maryland, Mississippi, Missouri, Montana, New Hampshire, North Carolina, North Dakota, Oklahoma, Oregon, South Dakota, Tennessee, Utah, Virginia, Vermont, Washington, Wisconsin 17 States Now Have Had a Bill Introduced or Pending in a Current or Prior Session of the State’s Legislature California, Colorado, Connecticut, Florida, Iowa, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, Nebraska, New Jersey, Ohio, Pennsylvania, Rhode Island, South Carolina, Texas © AIPLA 2015

Bad Faith Demand Letters Key Issues Bad Faith Demand Letters Now have a patchwork of state laws, which may be hard to navigate. Varies from state to state regarding scope of bills, tests used, who can enforce, remedies available. © AIPLA 2015

Key Issues AIA Trial Proceedings Proposals to address certain issues in proceedings before the Patent Trial and Appeal Board STRONG Patents Act: addresses standing, claims construction, amendments, burdens of proof H.R. 9: Addresses claim construction and PGR estoppel S. 1137: addresses PGR estoppel © AIPLA 2015

What’s Next? Potential direction of the legislation The Current Landscape What’s Next? Potential direction of the legislation White House Support Landscape in Congress Potential implications on our practice © AIPLA 2015

White House Proposals The Current Landscape On June 4, 2013, the National Economic Council and the Council of Economic Advisers released a report titled Patent Assertion and U.S. Innovation, which found, among other things, that: Patent Assertion Entity (PAE) lawsuits tripled in the last 2 years from 29% of infringement suits to 62% PAEs may have threatened over 100,000 companies last year Practicing firms are beginning to use aggressive litigation tactics PAEs are increasingly targeting downstream users PAEs take advantage of unclear patents, particularly software patents Using this report, the White House Task for on High-Tech Patent Issues issued Legislative Recommendations and Executive Actions © AIPLA 2015

White House Proposals: Legislative The Current Landscape White House Proposals: Legislative Require patentees and applicants to disclose the “Real Party-in- Interest” Provide district courts with more discretion to award attorney’s fees under 35 USC 285 Expand Cover Business Method (CBM) Review Protect off-the-shelf use by consumers and businesses and stay customer suits in favor of suits brought against a vendor, retailer, or manufacturer. Change the ITC standard for obtaining an injunction to better align it with the traditional four-factor test in eBay Inc. v. MercExchange Demand letter transparency Ensure the ITC has adequate flexibility in hiring qualified Administrative Law Judges. © AIPLA 2015

Major Players: Support Reform Current Landscape Major Players: Support Reform Printing Industries of America Alliance of Automobile Manufacturers Internet Association Consumer Electronics Association Electronic Frontier Foundation United for Patent Reform App Developers Coalition for Patent Fairness (CPF) National Restaurant Association National Retail Federation National Association of Realtors American Hotel & Lodging Association American Bankers Association © AIPLA 2015

Major Player: Have Concerns Current Landscape Major Player: Have Concerns IP Bar Associations - AIPLA, ABA-IPL, FCBA Coalition for 21st Century Patent Reform IPO Biotech Industry Organization Phrma Innovation Alliance Judicial Conference Patent Office Professional Association Institute of Electrical and Electronics Engineers National Small Business Association Medical Device Manufacturers Association National Venture Capital Association Higher Education Community (AAU, ACE, AAMC, APLU, AUTM, COGR) © AIPLA 2015

House Judiciary Committee - Republicans Congress: The House House Judiciary Committee - Republicans Robert Goodlatte (VA-6), Chairman F. James Sensenbrenner (WI-5) Lamar Smith (TX-21) Steve Chabot (OH-1) Darrell Issa (CA-49) J. Randy Forbes (VA-4) Steve King (IA-5) Trent Franks (AZ-8) Louie Gohmert (TX-1) Jim Jordan (OH-4) Ted Poe (TX-2) Jason Chaffetz (UT-3) Tom Marino (PA-10) Trey Gowdy (SC-4) Raul Labrador (ID – 1) Blake Farenthold (TX-27) Doug Collins (GA-9) Ron DeSantis (FL-6) Mimi Walters (CA-45) Ken Buck (CO-4) John Ratcliffe (TX-4) Dave Trott (MI-11) Mike Bishop (MI-8) © AIPLA 2015

House Judiciary Committee - Democrats Congress: The House House Judiciary Committee - Democrats John Conyers, Jr. (MI-13), Ranking Member Jerry Nadler (NY-10) Zoe Lofgren (CA-19) Sheila Jackson Lee (TX-18) Steve Cohen (TN-9) Hank Johnson (GA-4) Pedro R. Pierluisi (PR) Judy Chu (CA-27) Ted Deutch (FL-21) Louis Gutierrez (IL-4) Karen Bass (CA-37) Cedric Richmond (LA-2) Suzan Delbene (WA-1) Hakeem Jeffries (NY-8) David Cicilline (RI-1) Scott Peters (CA-52) © AIPLA 2015

House IP Subcommittee Congress: The House REPUBLICANS Darrell Issa (CA-49) , Chairman Doug Collins (GA-9), Vice-Chairman F. James Sensenbrenner (WI-5) Lamar Smith (TX-21) Steve Chabot (OH-1) J. Randy Forbes (VA-4) Trent Franks (AZ-8) Jim Jordan (OH-4) Ted Poe (TX-2) Jason Chaffetz (UT-3) Tom Marino (PA-10) Blake Farenthold (TX-27) Ron DeSantis (FL-6) Mimi Walters (CA-45) DEMOCRATS Jerry Nadler (NY-10), Ranking Member Judy Chu (CA-27) Ted Deutch (FL-19) Karen Bass (CA-37) Cedric Richmond (LA-2) Suzan Delbene (WA-1) Hakeem Jeffries (NY-8) David Cicilline (RI-1) Scott Peters (CA-52) Zoe Lofgren (CA-19) Steve Cohen (TN-9) Hank Johnson (GA-4) © AIPLA 2015

Senate Judiciary Committee Congress: The Senate Senate Judiciary Committee REPUBLICANS Chuck Grassley (IA), Chairman Orrin Hatch (UT) Jeff Sessions (AL) Lindsey Graham (SC) John Cornyn (TX) Mike Lee (UT) Ted Cruz (TX) Jeff Flake (AZ) David Vitter (LA) David Perdue (GA) Thom Tillis (NC) DEMOCRATS Patrick Leahy (VT), Ranking Member Dianne Feinstein (CA) Charles Schumer (NY) Richard Durbin (IL) Richard Whitehouse (RI) Amy Klobuchar (MN) Al Franken (MN) Chris Coons (DE) Richard Blumenthal (CT) © AIPLA 2015

Thank you! Sharon A. Israel, President American Intellectual Property Law Association sisrael@aipla.org sisrael@mayerbrown.com 713-238-2630 © AIPLA 2015