Legislative Review of STRONGER Patents Act of 2019

Morgan Hartgrove, Contributing Member 2020-2021
Intellectual Property and Computer Law Journal

Introduction

The United States has a rich history of innovation and entrepreneurship.^[1] The ability and incentive to innovate is partially due to the country’s decision to capitalize on the ingenuity of inventors and innovators through strong intellectual property laws.^[2] The Constitution of the United States empowers Congress “[t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”^[3] Patents are intended to protect the property right of the inventor and are issued by the United States Patent and Trademark Office (USPTO).^[4] By issuing a patent, the USPTO grants the right “to exclude others from making, using, offering for sale, or selling” the invention in the United States or “importing” the invention into the United States.^[5] Under this power, Congress has enacted various laws and reforms relating to obtaining, enforcing, and renewing patents.^[6]

In recent years, patent reform has been a bipartisan topic of conversation in both branches of Congress. The reform has focused on ensuring that the patent system protects and strengthens intellectual property rights.^[7] Specifically, the reform efforts strive to address patent eligibility, post-grant validity proceedings, and bad faith harassment for inventors.^[8]On July 10, 2019 Senator Chris Coons and Representative Steve Stivers introduced the Support Technology & Research for Our Nation’s Growth and Economic Resilience (STRONGER) Patents Act of 2019.^[9]

The motivation behind the legislation comes from concerns that the Leahy-Smith America Invents Act (AIA), which allows third parties to challenge patent validity, has weakened the patent system by increasing the number of frivolous patent challenges.^[10] Some believe that since the enactment of the AIA, the United States risks losing the historic edge in innovation and the economic benefits that innovation provides.^[11]

According to the legislation, the purpose of the STRONGER Patents Act is “to strengthen the position of the United States as the world’s leading innovator by amending title 35, United States Code, to protect the property rights of the inventors that grow the country’s economy.”^[12] The proposed legislation focuses on limiting the availability of post-grant validity proceedings before the USPTO, strengthening infringement enforcement mechanisms, and encouraging the Federal Trade Commission and State Attorneys General to bring civil actions for sending bad faith, patent-related demand letters.^[13] Overall, these objectives would make it harder for challengers to invalidate a patent once an invention has a patent. It is important to note this legislation does not address patent eligibility standards, but rather focuses on post-patent grant review.^[14]

Purpose of Legislation

According to Senator Coons, the legislation focuses on achieving five things: (1) reducing abusive demand letters by empowering the Federal Trade Commission to target firms that abuse startups rather than invent anything; (2) ensuring that pleading standards for patent-infringement cases match the standards used for all other forms of civil actions, creating a significant barrier to frivolous lawsuits before any funds are spent on discovery; (3) eliminating fee diversion from USPTO to ensure patent examiners have adequate training and dependable funding; (4) ensuring balance in post-grant proceedings at the USPTO, so that this expedited form of patent litigation is both efficient and fair; and (5) analyzing the impact that the U.S. patent system has on small businesses, both from the perspective of startups reliant on patents and small businesses facing allegations of infringement.^[15]

Two of the main goals of the legislation focus on reducing demands and meritless lawsuits that can negatively impact patent holders.^[16] So-called “patent trolls” use legal weapons instead of inventing new products and will send out threatening letters to those they claim infringe their patents.^[17] The letters threaten legal action unless the alleged infringers pay a hefty licensing fee, which is especially burdensome on small businesses.^[18] Sometimes, patent trolls will buy up patents from companies who need to monetize what they have, leaving patent trolls with a plethora of broad patents.^[19] Meritless patent litigation negatively affects investment because rightful patent owners have to spend time and money defending their innovation to patent trolls.^[20] Discovery can be expensive and time consuming, and often, small companies and startups do not have the capital to fight the litigation thus pushing them to pay the licensing fee, even if their patent did not infringe.^[21]

Another goal of the legislation is to change the evidentiary standards of post-grant proceedings.^[22] The STRONGER Patents Act would create a higher bar for PTAB (Patent Trial and Appeal Board) proceedings. Under the proposed legislation, the PTAB would presume every claim to be valid, and the challenger has the burden of showing invalidity by clear and convincing evidence.^[23] This change would eliminate the benefit of allowing petitioners to challenge a patent without having to overcome the presumption of validity, and it would require them to show clear and convincing evidence.^[24]

Legislative History

The STRONGER Patents Act of 2019 is similar to a bill Congress proposed in 2017, although the 2019 version omits some of the previously proposed reforms.^[25] Prior to the proposed STRONGER Acts, the Leahy-Smith America Invents Act of 2011 (AIA) was the most significant reform to the U.S. patent system since 1952.^[26] Most of the debate around the AIA surrounded the new processes to challenge a patent.^[27] The Leahy-Smith American Invents Act of 2011 established inter partes review (IPR) and post-grant review (PGR).^[28] Until these reviews were established, there were very limited options for a third party to challenge the validity of a patent.^[29] These types of reviews allow third parties to challenge a patent’s validity before the PTAB.^[30]

IPR and PGR provide new ways to challenge a patent.^[31] IPR is appropriate if there is a reasonable likelihood that the patent infringement occurred and should be filed within nine months of the date of the grant.^[32] PGR is appropriate if the patent was more likely than not infringed or if there is a novel or unsettled legal question important to other patents and applications and should be filed greater than nine months of the date of the grant.^[33]

The AIA proceedings increase challenger participation and also create a lower burden of proof on invalidity and are more timely and less expensive than traditional litigation.^[34] However, since it has become easier to challenge patent validity, some believe that AIA has actually weakened the patent system by causing additional patent reviews for innovators and creating frivolous delays and wasteful patent duplication.^[35] In fact, because of the low cost of this type of patent review, PTAB proceedings have become a common strategic approach in patent litigation.^[36] Some argue that the PTAB has been challenging for patent owners, for example in 2016 most final PTAB decisions found unpatentability.^[37] Although AIA has had several positive impacts on making patent review easier, the negative impacts sparked legislative action, and legislators introduced the STRONGER Patents Act of 2019.^[38]

The drafters of the legislation believe that over time, courts have become unpredictable in deciding what is or is not patent-eligible.^[39] Drafters also believe that because of the unpredictability, the patent system needs to be reformed.^[40] The Act has bipartisan and bicameral support, and the drafters sought feedback from public hearings, inventors, scholars, patent advocates, judges, former USPTO officials, and community leaders.^[41] Overall, the feedback in the hearings concluded that changes to the patent system need to be made.^[42] Investors who are aware of the lack of clarity in the patent system are hesitant to invest in critical research and development that could save lives or drive innovation in the U.S. forward.^[43]

The hesitation to invest is because innovators, investors, and even judges struggle to determine what is and what is not patent-eligible.^[44] In fact, in 2019, a former director of the USPTO testified to the lack of clarity surrounding patent eligibility and described it as “the number one problem in the U.S. patent system today.”^[45] Although the director himself has filed over 800 patents, he stated that he struggles to predict the results of any given eligibility.^[46] If experts and leaders in the patent field struggle to predict the outcome and understand patent eligibility, there is even more of a strain on inventors and investors to make informed decisions.^[47]

Additionally, the hearings revealed the necessity for Congress to act. Witnesses noted the circuit courts and the USPTO alone cannot fix this problem because of Supreme Court precedents.^[48] According to Senator Chris Coons, since the controversial ruling for Alice Corp v. CLS Bank International in 2014, the Supreme Court has denied over 40 petitions for certiorari regarding patent eligibility.^[49] The Supreme Court in Alice held that an abstract idea does not become eligible for a patent simply by being implemented on a generic computer.^[50] Others find the Alice holding controversial because courts use the language in the opinion to invalidate patents on eligibility grounds.^[51]

Economics Behind Patents

Innovation and creative endeavors are indispensable elements that drive economic growth and sustain the competitive edge of the U.S. economy.^[52] Intellectual property protection affects commerce throughout the economy by providing incentives to invent and create, creating a platform for financial investments in innovation, and enabling a more efficient market for trading in technology and know-how.^[53] Intellectual property-intensive industries comprise one-third of U.S. gross domestic product about $5.5 trillion, generate 27 million jobs, and pay employees over 30% more than other industries.^[54] Overall, patent protection benefits the economy and inspires and protects innovation in many different fields, from life-saving medical technology to new artificial intelligence devices.^[55]

Intellectual property protection is important for more than just the economy. For an inventor, securing a patent and the protections that come with a patent play a vital role in establishing the legitimacy of an idea and securing funding for further development. In some cases, the larger an innovation patent portfolio is, the more advantage that innovation has, which makes investors more likely to contribute funds.^[56] Investors want to know they are putting their money into something valuable, and they want a large return on their investment. Patents are a way of securing value by ensuring the investor’s contribution has and maintains a sustainable market advantage.^[57]

Impact of Legislation

The goal of the STRONGER Patents Act of 2019 is to ensure balance in post-grant proceedings.^[58] To achieve balance, the Act will reform inter partes review and post-grant review by restricting the challenges that patent challengers can bring to PTAB.^[59] Additionally, the expressed legislative intent is to strengthen the patent system by: (1) reducing abusive demand letters and abuse to startups; (2) ensuring PTAB proceedings meet civil standards; (3) protecting against frivolous lawsuits; (4) fully funding the USPTO to eliminate fee diversion to patent applicants; and (5) ensuring balance in post-grant proceedings at the USPTO.^[60] Overall, the STRONGER Patents Act of 2019 will likely lower the bar for patent eligibility and provide more grounds for innovators to fight patent rejections.^[61] However, many of the above patent reforms have been proposed in the legislature before and failed to advance beyond the Senate Judiciary Committee’s Subcommittee on Intellectual Property.^[62]

Current Issues in Intellectual Property

Some believe the Leahy-Smith America Invents Act of 2011 put the U.S. at a competitive disadvantage and contributed to innovation and venture capital moving overseas.^[63] In fact, in 2019 Bloomberg Innovation Index ranked the United States as eighth in the world for innovation.^[64] While this may seem acceptable, it is well below the first ranked country, a ranking which the U.S. held until 2017.^[65] According to Brian Pomper, the Executive Director for Innovation Alliance, the U.S. share of global venture capital fell from 66% in 2010 to 40% in 2018, while China’s share increased from 12% to 38% in the same time period.^[66] Additionally, since the recession of 2007-2008, the formation of startups has not returned to pre-recession levels.^[67] For legislators, these statistics are alarming and were among the factors in proposing the STRONGER Patents Act.^[68]

In 2018, the Supreme Court upheld inter partes review in Oil States Energy Servs., LLC v. Greene’s Energy Group; however, the patent community is still divided on whether or not the patent system tangibly benefits from this type of review and whether inter partes review effectively improves the patent quality and confidence of validity that comes with issued patents.^[69]

In Support of Legislation

Those in support of the STRONGER Patents Act believe the Act will also ensure a better balance between patent holders’ and challengers’ interests in administrative proceedings of the USPTO’s PTAB by limiting duplicate and harassing challenges against inventors.^[70] Although the PTAB was supposed to create a quicker and cheaper venue to challenge patent validity, supporters of the Act believe this process has been abused by corporations who know that their patent challenge allegations would not be tolerated in district court.^[71] In some cases, patent challengers will file their claims with both the PTAB and in federal courts, which is contradictory to the AIA’s goal of providing an alternative to resolving validity challenges in expensive district court litigation.^[72] These repetitive proceedings add expense and uncertainty for innovators and patent holders rather than providing the goal of shorter and less expensive patent review.^[73]

Others in support of the Act and its reform believe it will clarify the issues surrounding what is and what is not patentable.^[74] Supporters hope this will provide clarity for investors and innovators, ensuring that they know they will recoup the time and money necessary to bring a new product to the market.^[75] This is especially important for drug companies who have to navigate the U.S. Food and Drug Administration’s approval process and invest hundreds of millions of dollars to potentially receive patent protection.^[76] If drug manufacturers are not sure they will receive a patent and a return on their investment, such uncertainty could potentially deter innovation, which is important for finding cures and medication to treat disease.^[77] Drug and medical innovation is an example of how patent prosecution is tangible to consumers and can affect the general American public.

Additionally, the Act would restore the ability of inventors to obtain an injunction, a judicial order stopping a proven infringer from continuing to use or sell an invention.^[78] Since the Supreme Court’s 2006 eBay Inc. v. MercExchange, LLC decision, in which the Court unanimously held that an injunction should not be automatically issued based on a finding of patent infringement, the rate of injunctions dropped by over 85% in the US.^[79]According to Brian Pomper’s article, the Executive Director of the Innovation Alliance, many lower courts have misapplied the eBay decision as a categorical rule against injunctions when patent infringement occurs.^[80] The inability to obtain injunctions has left many inventors and small businesses with very few options to fight patent infringement by large corporations.^[81] In his article, Pomper also expresses his belief that the inability to obtain an injunction has contributed to American innovation moving abroad.^[82] Courts in other countries, especially in Asian and European nations, continue to grant injunctions in such cases, providing real protection for their patent holders.^[83]

In Opposition of Legislation

Those opposed to the Stronger Patents Act believe the legislation would make bad patents stronger.^[84] Opponents also state that the act changes the evidence standard that patent challengers need to prove invalidity: patent challengers would need to prove invalidity with “clear and convincing evidence,” like they do in district courts, rather than the “preponderance” of the evidence standard they need to meet now.^[85] The Electronic Frontier Foundation, a nonprofit dedicated to defending civil liberties in the digital world, published an article expressing the belief that this impact would drastically raise the difficulty and cost of invalidating the bad patents.^[86] During the congressional hearings, some witnesses cautioned the current review procedures provide an efficient mechanism to terminate meritless patent infringement lawsuits quickly and efficiently, therefore, asserting that no further change is needed.^[87]

Overall, the legislators involved in spearheading the Stronger Patents Act considered feedback from republicans, democrats, inventors, judges, UTPSO officials, and other interest groups. The Act has support from the Biotechnology Industry Organization, the Innovation Alliance, and several major university academia groups, including the Association of American Universities and the Association of Public and Land-Grant Universities. Such groups support the Act’s goal of making the patent system work for the individual inventor.^[88]

Conclusion

Both those in support and opposition to the STRONGER Patents Act of 2019 agree that changes to the patent system are necessary to ensure the patent system protects intellectual property rights.^[89] This solution needs legislative action that will balance promoting competition and incentivizing innovation.^[90] A solution that balances both competition and innovation would benefit innovators, entrepreneurs, patent challengers, and the general public. Senator Coons notes that more input from both sides is welcome, as he believes there is additional work to do refining the Act.^[91] If both supporters and opponents of the Act continue to work together towards a solution, the United States patent system will become stronger and reclaim its reputation as the premier for incentivizing innovation.^[92]

^[1] Chris Coons, STRONG Patents Act, https://www.coons.senate.gov/issues/intellectual-property/strong-patents-act (last visited Oct. 19, 2020).

^[2] Chris Coons & Thom Tillis, Coons and Tillis: What we Learned At Patent Reform Hearings (June 24, 2019), https://www.coons.senate.gov/news/op-eds/coons-and-tillis-what-we-learned-at-patent-reform-hearings.

^[3] U.S. Const. art. I, § 8, cl. 8.

^[4] U.S. Patent and Trademark Office, General Information Concerning Patents (Oct. 2015), https://www.uspto.gov/patents-getting-started/general-information-concerning-patents.

^[5] Id.

^[6] Id.

^[7] Coons, supra note 1.

^[8] Baker Botts, Strengthening Patent Enforcement: The STRONGER Patents Act of 2019 (Sept. 3, 2019) https://bakerbotts.com/thought-leadership/publications/2019/september/strengthening-patent-enforcement.

^[9] STRONGER Patents Act, H.R. 3666, 116^th Cong. (2019).

^[10] Coons & Tillis, supra note 2.

^[11] Baker Botts, supra note 8.

^[12] H.R. 3666.

^[13] Baker Botts, supra note 8.

^[14] Id.

^[15] Coons, supra note 1.

^[16] Id.

^[17] Patent Trolls, Electronic Frontier Foundation, https://www.eff.org/issues/resources-patent-troll-victims (last visited Oct. 19, 2020).

^[18] Id.

^[19] Id.

^[20] Id.

^[21] Id.

^[22] John Serio et al., 6 Important Elements of the New STRONGER Patents Act, Biosimilar Development (Jan. 9, 2020), https://www.biosimilardevelopment.com/doc/important-elements-of-the-new-stronger-patents-act-0001.

^[23] Id.

^[24] Id.

^[25] Baker Botts, supra note 8.

^[26] John Thomas, The Leach-Smith America Invents Act: Innovation Issues, Congressional Research Service (Jan. 15, 2014), https://fas.org/sgp/crs/misc/R42014.pdf.

^[27] Susanne Hollinger, The America Invents Act—Overview and Implications, 3 ACS Medicinal Chemistry Letters 174 (2012).

^[28] Chad M. Rink, Post-Grant Review and Inter Partes Review, Birch, Stewart, Kolasch & Birch, LLP, http://www.postgrantproceedings.com/post-grant-review-and-inter-partes-review/# (last visited Oct. 19, 2020).

^[29] Hollinger, supra note 27.

^[30] Baker Botts, supra note 8.

^[31] Rink, supra note 28.

^[32] Id.

^[33] Id.

^[34] Baker Botts, supra note 8.

^[35] Coons, supra note 1.

^[36] Serio, supra note 22.

^[37] Daniel Zeilberger et al., Five Years In: The AIA’s Effects on Patent Litigation (Perspective), Bloomberg Law (Sept. 8, 2016), https://news.bloomberglaw.com/business-and-practice/five-years-in-the-aias-effects-on-patent-litigation-perspective.

^[38] Gene Quinn, Blame for the Weakened U.S. Patent System Cannot Be Pinned on the PTAB Alone, IP Watchdog (Sept. 24, 2019), https://www.ipwatchdog.com/2019/09/24/blame-weakened-u-s-patent-system-cannot-pinned-ptab-alone/id=113824/.

^[39] Coons & Tillis, supra note 2.

^[40] Id.