Patent Reform State of Play

Patent Reform Beyond the Basics: Exposing Hidden Traps, Loopholes, Landmines Powered by Andrew S. Baluch April 15, 2016 1 Patent Reform State of Play Congress 8 bills pending Executive Agencies IPR Final Rules 9 Executive Actions Courts 4 cases pending at Supreme Court States 28 states enacted patent troll laws 2 Complex Dynamics Broadest Reasonable Interpretation in IPR H.R. 9 S. 1137 S. 632 S.A.P. supporting Innovation Act Cuozzo v. Lee Final Rules 81 FR 18750 3 1

Congress 4 Lame Duck Politics H.R. 9 introduced S. 1137 introduced S. 1137 passed Committee H.R. 9 passed Committee Federal Elections New Congress begins Presidential Inauguration Feb. 5, 2015 Apr. 29, 2015 Sept. 8, 2015 Jun. 11, 2015 Nov. 8, 2016 Jan. 3, 2017 Jan. 20, 2017 30% of laws passed in lame duck session (Source: Pew Research 2014) 5 VENUE Act (S. 2733) Introduced March 17, 2016 Strikes 28 U.S.C. 1400(b) (current law): (b) Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business. Amends 1400(b) to read, inter alia: (b)(2) where the defendant has committed an act of infringement of a patent in suit and has a regular and established physical facility that gives rise to the act of infringement Uses identical physical facility language from 2007 Patent Reform bill (H.R. 1908), as explained in 2007 House Committee Report (No. 110-314): Regular and established place of business, under the existing patent venue statute, is often interpreted to require a significant on-going corporate presence in the district, but a fixed physical presence has not been required. See, e.g., In re Cordis Corp., 769 F2d 733 (Fed. Cir. 1985). The amendment adds a fixed physical presence as a requirement. 6 2

VENUE Act (S. 2733) (cont d) Creates an all defendants rule in 1400(b): [A]ny civil action for patent infringement or any action for a declaratory judgment that a patent is invalid or not infringed may be brought only in a judicial district (1) where the defendant has its principal place of business or is incorporated; [or] (2) where the defendant has committed an act of infringement of a patent in suit and has a regular and established physical facility that gives rise to the act of infringement; [or] (3) where the defendant has agreed or consented to be sued in the instant action. Rule of construction (1 U.S.C. 1): words importing the singular include and apply to several persons, parties, or things 7 VENUE Act (S. 2733) (cont d) 2007 bill (H.R. 1908) created an exception to the all defendants rule: The Committee recognizes that the all defendants rules of 1400(c)(1) and (2) could, in isolated cases, leave a case without a suitable forum. It is not the Committee s intent that infringement plaintiffs not be able to sue at all. Therefore, where no district would have venue under 1400(c), the regular venue statute, 28 U.S.C. 1391, should apply. (H. Rpt. 110-314) 2016 bill (S. 2733) contains no exception. 8 Post-Grant Estoppel H.R. 9 and S. 1137 both say: Section 325(e)(2) of title 35, United States Code, is amended by striking or reasonably could have raised. Amends 35 U.S.C. 325(e)(2) to read: The petitioner in a post-grant review of a claim in a patent under this chapter that results in a final written decision under section 328(a), or the real party in interest or privy of the petitioner, may not assert either in a civil action arising in whole or in part under section 1338 of title 28 or in a proceeding before the International Trade Commission under section 337 of the Tariff Act of 1930 that the claim is invalid on any ground that the petitioner raised or reasonably could have raised during that post-grant review. Westlake Services v. Credit Acceptance, CBM2014-00176 (PTAB) (precedential) ( [E]stoppel is applied on a claim-by-claim basis. ) 9 3

Post-Grant Estoppel (cont d) Claims 1 2 3 4 5 PGR 112(a) (indefiniteness) (claims 1, 3) raised or reasonably could have raised IPR 102 / 103 (patents & printed publications) (claims 2, 4, 5) PGR 112(a) (indefiniteness) (claims 1-5) raised District Court 101/ 102/ 103 (claims 1-5) t =0 9 months 10 Prior User Rights H.R. 9 and S. 1137 both repeal subsections (f) and (g) of 35 U.S.C. 273: 11 Prior User Rights (cont d) 273. Defense to infringement based on prior commercial use (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. 12 4

Double Patenting Question: Can an ex parte reexamination request raise obviousness-type double patenting? Answer: Yes. (In re Lonardo, 119 F.3d 960 (Fed. Cir. 1997)) Question: Can an inter partes review petition raise obviousness-type double patenting? Answer: No. 13 Double Patenting (cont d) Ex Parte Reexamination 303. Determination of issue by Director (a) Within three months following the filing of a request for reexamination under the provisions of section 302, the Director will determine whether a substantial new question of patentability affecting any claim of the patent concerned is raised by the request, with or without consideration of other patents or printed publications.... Inter Partes Review 311. Inter partes review (b) SCOPE. A petitioner in an inter partes review may request to cancel as unpatentable 1 or more claims of a patent only on a ground that could be raised under section 102 or 103 and only on the basis of prior art consisting of patents or printed publications 14 Double Patenting (cont d) H.R. 9 purports to codify the double patenting doctrine: (c) CODIFICATION OF THE DOUBLE-PATENTING DOCTRINE (1) AMENDMENTS- (A) CONDITIONS FOR PATENTABILITY; NOVELTY Section 102 of title 35, United States Code, is amended by inserting at the end the following new subsection: (e) DOUBLE-PATENTING PRIOR ART If a first claimed invention in a first patent was effectively filed on or before the effective filing date of a second claimed invention in a second patent or in the application on which the second patent issues, and the first claimed invention is not otherwise prior art to the second claimed invention under this section, then the first claimed invention shall, notwithstanding the other subsections of this section, constitute prior art to the second claimed invention under this subsection.... (B) DIVISIONAL APPLICATIONS Section 121 of title 35, United States Code, is amended by striking the third sentence. 15 5

Double Patenting (cont d) Elimination of double-patenting safe harbor : 121. Divisional applications If two or more independent and distinct inventions are claimed in one application, the Director may require the application to be restricted to one of the inventions. If the other invention is made the subject of a divisional application which complies with the requirements of section 120 it shall be entitled to the benefit of the filing date of the original application. A patent issuing on an application with respect to which a requirement for restriction under this section has been made, or on an application filed as a result of such a requirement, shall not be used as a reference either in the Patent and Trademark Office or in the courts against a divisional application or against the original application or any patent issued on either of them, if the divisional application is filed before the issuance of the patent on the other application. The validity of a patent shall not be questioned for failure of the Director to require the application to be restricted to one invention. 16 Pharma Carve-Outs Heightened Pleading (H.R. 9 and S. 1137) EXEMPTION. A civil action that includes a claim for relief arising under section 271(e)(2) shall not be subject to the requirements of subsection (a). Discovery Stay (H.R. 9 and S. 1137) CLAIMS UNDER SECTION 271(e). This section shall not apply to a civil action that includes a claim for relief arising under section 271(e). 17 Pharma Carve-Outs (cont d) Stay of Action Against Manufacturer and Customers (H.R. 9 and S. 1137) EXEMPTION. This section shall not apply to an action that includes a cause of action described under section 271(e)(2). Disclosure of Real Parties in Interest (H.R. 9) EXEMPTION. The requirements of paragraph (1) shall not apply with respect to a civil action filed under subsection (a) that includes a cause of action described under section 271(e)(2). Loser-Pays Fee Shifting (S. 1137) APPLICABILITY. Subsections (a), (b), and (c) shall not apply to a civil action that includes a claim for relief arising under section 271(e). 18 6

Acting Director Both H.R. 9 and S. 1137 amend 35 U.S.C. 3(b)(1) as follows: 3. Officers and employees (b) OFFICERS AND EMPLOYEES OF THE OFFICE. (1) DEPUTY UNDER SECRETARY AND DEPUTY DIRECTOR. The Secretary of Commerce, upon nomination by the Director, shall appoint a Deputy Under Secretary of Commerce for Intellectual Property and Deputy Director of the United States Patent and Trademark Office who shall be vested with the authority to act in the capacity of the serve as Acting Director in the event of the absence or incapacity of the Director or in the event of a vacancy in the office of the Director.. EFFECTIVE DATE The amendments made by paragraph (1) shall take effect on the date of the enactment of this Act and shall apply with respect to appointments and vacancies occurring before, on, or after the date of the enactment of this Act. 19 Acting Director (cont d) David J. Kappos Director (Aug. 2009 Feb. 2013) Sharon R. Barner Deputy Director (Oct. 2009 Jan. 2011) Teresa Stanek Rea Deputy Director (Feb. 2011 Nov. 2013) Michelle K. Lee Deputy Director (Jan. 2014 March 2015) Director (March 2015 present) Russel Slifer Deputy Director (March 2015 present) 20 Acting Director (cont d) 66 Federal Register notices were signed by an Acting Director of the USPTO (2001-2013) 21 7

Acting Director (cont d) Even the Federal Circuit uses the term Acting Director when the Director position is vacant. 22 Executive 23 PTAB Rulemaking AIA enacted IPR/PGR Rules take effect AIA Technical Corrections Act enacted IPR/PGR Rules amended IPR/PGR Quick Fixes Rules IPR/PGR Notice of Proposed Rulemaking IPR/PGR Final Rules take effect Sept. 16, 2011 Sept. 16, 2012 Jan. 14, 2013 Mar. 25, 2013 May 19, 2015 Aug. 20, 2015 May 2, 2016 IPR First-to-Inve nt dead-zone IPR Reissue dea d-zone More pages for motions to amend claims and for replies Objections must be filed Sanctions Word counts Pre-trial Patent Owne r testimonial evidence Claim construction 24 8

PTAB Sanctions Rule 42.11, as amended by Final Rule effective May 2, 2016 Sec. 42.11 Duty of candor; signing papers; representations to the Board; sanctions. (a) Duty of candor. Parties and individuals involved in the proceeding have a duty of candor and good faith to the Office during the course of a proceeding. (b) Signature. Every petition, response, written motion, and other paper filed in a proceeding must comply with the signature requirements set forth in 11.18(a) of this chapter. The Board may expunge any unsigned submission unless the omission is promptly corrected after being called to the counsel's or party's attention. (c) Representations to the Board. By presenting to the Board a petition, response, written motion, or other paper whether by signing, filing, submitting, or later advocating it an attorney, registered practitioner, or unrepresented party attests to compliance with the certification requirements under 11.18(b)(2) of this chapter. (d) Sanctions (1) In general. If, after notice and a reasonable opportunity to respond, the Board determines that paragraph (c) of this section has been violated, the Board may impose an appropriate sanction on any attorney, registered practitioner, or party that violated the rule or is responsible for the violation. (2) Motion for sanctions. A motion for sanctions must be made separately from any other motion and must describe the specific conduct that allegedly violates paragraph (c) of this section. The motion must be authorized by the Board under 42.20 prior to filing the motion. At least 21 days prior to seeking authorization to file a motion for sanctions, the moving party must serve the other party with the proposed motion. A motion for sanctions must not be filed or be presented to the Board if the challenged paper, claim, defense, contention, or denial is withdrawn or appropriately corrected within 21 days after service of such motion or within another time the Board sets. If warranted, the Board may award to the prevailing party the reasonable expenses, including attorney's fees, incurred for the motion. (3) On the Board's initiative. On its own, the Board may order an attorney, registered practitioner, or party to show cause why conduct specifically described in the order has not violated paragraph (c) of this section and why a specific sanction authorized by the Board should not be imposed. (4) Nature of a sanction. A sanction imposed under this rule must be limited to what suffices to deter repetition of the conduct or comparable conduct by others similarly situated and should be consistent with 42.12. (5) Requirements for an order. An order imposing a sanction must describe the sanctioned conduct and explain the basis for the sanction. 25 PTAB Sanctions (cont d) Rule 42.12, remains unaffected by May 2, 2016 Final Rule: Sec. 42.12 Sanctions. (a) The Board may impose a sanction against a party for misconduct, including: (1) Failure to comply with an applicable rule or order in the proceeding; (2) Advancing a misleading or frivolous argument or request for relief; (3) Misrepresentation of a fact; (4) Engaging in dilatory tactics; (5) Abuse of discovery; (6) Abuse of process; or (7) Any other improper use of the proceeding, including actions that harass or cause unnecessary delay or an unnecessary increase in the cost of the proceeding. (b) Sanctions include entry of one or more of the following: (1) An order holding facts to have been established in the proceeding; (2) An order expunging or precluding a party from filing a paper; (3) An order precluding a party from presenting or contesting a particular issue; (4) An order precluding a party from requesting, obtaining, or opposing discovery; (5) An order excluding evidence; (6) An order providing for compensatory expenses, including attorney fees; (7) An order requiring terminal disclaimer of patent term; or (8) Judgment in the trial or dismissal of the petition. 26 PTAB Sanctions (cont d) Comparing Proposed Rule vs. Final Rule 42.11: (d) Sanctions (1) In general. If, after notice and a reasonable opportunity to respond, the Board determines that paragraph (c) of this section has been violated, the Board may impose an appropriate sanction on any attorney, registered practitioner, law firm, patent agent, or party that violated the rule or is responsible for the violation. Absent exceptional circumstances, a law firm must be held jointly responsible for a violation committed by its partner, associate, or employee. (e) Inapplicability to discovery. This rule does not apply to disclosures and discovery requests, responses, and objections. 27 9

PTAB Pre-Trial Evidence Rule 42.107, as amended by Final Rule effective May 2, 2016: Sec. 42.107 Preliminary response to petition. (a) The patent owner may file a preliminary response to the petition. The response is limited to setting forth the reasons why no inter partes review should be instituted under 35 U.S.C. 314. The response can include evidence except as provided in paragraph (c) of this section and can include supporting evidence. The preliminary response is subject to the page limits word count under Sec. 42.24. (b) Due date. The preliminary response must be filed no later than three months after the date of a notice indicating that the request to institute an inter partes review has been granted a filing date. A patent owner may expedite the proceeding by filing an election to waive the patent owner preliminary response. (c) No new testimonial evidence. The preliminary response shall not present new testimony evidence beyond that already of record, except as authorized by the Board.[Reserved].... 28 PTAB Pre-Trial Evidence (cont d) Rule 42.108, as amended by Final Rule effective May 2, 2016: Sec. 42.108 Institution of inter partes review.... (c) Sufficient grounds. Inter partes review shall not be instituted for a ground of unpatentability unless the Board decides that the petition supporting the ground would demonstrate that there is a reasonable likelihood that at least one of the claims challenged in the petition is unpatentable. The Board's decision will take into account a patent owner preliminary response where such a response is filed, including any testimonial evidence, but a genuine issue of material fact created by such testimonial evidence will be viewed in the light most favorable to the petitioner solely for purposes of deciding whether to institute an inter partes review. A petitioner may seek leave to file a reply to the preliminary response in accordance with 42.23 and 42.24(c). Any such request must make a showing of good cause. 29 PTAB Rules Retroactive Effect Federal Register / Vol. 81, No. 63 / Friday, April 1, 2016 / Rules and Regulations Effective Date: This rule is effective May 2, 2016 and applies to all AIA petitions filed on or after the effective date and to any ongoing AIA preliminary proceeding or trial before the Office. 30 10

Courts (vs. Congress) 31 Willfulness In re Seagate (Fed. Cir.) Halo / Stryker (Supr. Ct.) H.R. 2795 H.R. 1908 S. 3818 S. 1145 H.R. 1260 S. 515 S. 23 Jun. 2005 Aug. 2006 Apr. 2007 Aug. 2007 Mar. 2009 Jan. 2011 2016 Limit willfulness to specific deliberate acts of infringement Define willfulness using Seagate standard 32 Willfulness (cont d) S. 23 (introduced Jan. 25, 2011) purports to codify Seagate (d) WILLFUL INFRINGEMENT (1) IN GENERAL The court may increase damages up to 3 times the amount found or assessed if the court or the jury, as the case may be, determines that the infringement of the patent was willful. Increased damages under this subsection shall not apply to provisional rights under section 154(d). Infringement is not willful unless the claimant proves by clear and convincing evidence that the accused infringer's conduct with respect to the patent was objectively reckless. An accused infringer's conduct was objectively reckless if the infringer was acting despite an objectively high likelihood that his actions constituted infringement of a valid patent, and this objectively-defined risk was either known or so obvious that it should have been known to the accused infringer. 33 11

Willfulness (cont d) (d) WILLFUL INFRINGEMENT.... (2) PLEADING STANDARDS A claimant asserting that a patent was infringed willfully shall comply with the pleading requirements set forth under Federal Rule of Civil Procedure 9(b)..... (5) CLOSE CASE The court shall not increase damages under this subsection if the court determines that there is a close case as to infringement, validity, or enforceability. On the motion of either party, the court shall determine whether a close case as to infringement, validity, or enforceability exists, and the court shall explain its decision. Once the court determines that such a close case exists, the issue of willful infringement shall not thereafter be tried to the jury. 34 States 35 State Laws: Patent Demand Letters More than half the states have bad-faith patent enforcement laws. States unfair competition authority 36 12

State Laws (cont d) All states require: Patent Owner s name and address Identification of patent number Factual allegations regarding infringing acts Minority of states require: A copy of patent (WI) Identification of specific claims of patent (UT) Explanation for standing (NC) Disclosure of prior or pending court or PTO proceedings (WI, UT) Disclosure of adverse preliminary or final post-grant decision (NC) Minority of states give full carve-out to: Universities (OK, SD, TN, WI) Pharma companies under 271(e) (AL, GA, ID, ME, MD, NH, NC, OH, OK, TN, UT, VA, WI) Publicly traded companies (SD) 37 Federal Demand Letters (H.R. 2045) Introduced Apr. 27, 2015 SEC. 4. PREEMPTION OF STATE LAWS ON PATENT DEMAND LETTERS AND ENFORCEMENT BY STATE ATTORNEYS GENERAL. (a) Preemption. (1) IN GENERAL. This Act preempts any law, rule, regulation, requirement, standard, or other provision having the force and effect of law of any State, or political subdivision of a State, expressly relating to the transmission or contents of communications relating to the assertion of patent rights. (2) EFFECT ON OTHER STATE LAWS. Except as provided in paragraph (1), this Act shall not be construed to preempt or limit any provision of any State law, including any State consumer protection law, any State law relating to acts of fraud or deception, and any State trespass, contract, or tort law. (b) Enforcement By State Attorneys General. (1) IN GENERAL. In any case in which the attorney general of a State has reason to believe that an interest of the residents of that State has been adversely affected by any person who violates section 2, the attorney general of the State, may bring a civil action on behalf of such residents of the State in a district court of the United States of appropriate jurisdiction (A) to enjoin further such violation by the defendant; or (B) to obtain civil penalties. 38 Summary: Beware Lame Duck Congress VENUE all defendants rule Double Patenting a new basis for IPR Pharma Carve-outs generics lose PTAB sanctions lots of hammers PTAB pre-trial evidence particularized disputes Willfulness pendulum swings back and forth State laws watch quirky WI, NC, UT 39 13

Thank You Questions? 40 Speaker Information Andrew Baluch Markup LLC andrew@markup.la Andrew Baluch is co-founder of Markup LLC, a legal technology company that develops software to track, analyze and visualize changes in legislation and regulation. Mr. Baluch is a partner with Strain PLLC and is also an Adjunct Professor at the George Washington University Law School. Mr. Baluch is a former director of international enforcement in the White House Office of the IP Enforcement Coordinator. Prior to his White House appointment, he was an expert legal advisor to the under secretary and director of the U.S. Patent & Trademark Office (USPTO). Mr. Baluch previously served as a law clerk to Judge Richard Linn of the U.S. Court of Appeals for the Federal Circuit. 41 14