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A diverse collection of patent stakeholders generally lauded the Senate's approach to legislation addressing patent litigation abuses at a May 7 Senate Judiciary Committee hearing.

Five witnesses representing high technology and life sciences industries, as well as large corporations and startups, used the words “balance” and “compromise” often to characterize the interplay among the multiple provisions of the PATENT Act (S.1137).

“For the first time, we're hearing a unified chorus,” Sen. Charles E. Schumer (D-N.Y.) said mid-hearing. But that unified front was challenged in two ways.

First, at least three witnesses indicated that their support for S. 1137 depended on adding provisions that address problems with the Patent and Trademark Office's implementation of post-grant proceedings.

Notably, each mentioned inter partes review petitions filed by hedge funds; parties that are more interested in the effect on the value of a patent owner's stock than in the ultimate outcome of any review of the actual patent claims.

However, some stakeholders also extended their wish lists to demand changes in other IPR rules and procedures, in particular, aligning review standards of the Patent Trial and Appeal Board with those applicable in district courts.

The requests for those new provisions were not as positively received.

The second complaint came from two sponsors of an alternative bill, the STRONG Patents Act (S. 632), introduced earlier in the Senate.

Sens. Christopher A. Coons (D-Del.) and Richard J. Durbin (D-Ill.) made it clear that they would not support the current S. 1137, but Coons said he appreciated the fact that the bill's primary sponsors—committee Chairman Charles E. Grassley (R-Iowa) and ranking minority member Patrick J. Leahy (DVt.)—seemed receptive to addressing the hedge fund “reverse trolling” abuse.

The STRONG Act's sponsors also complained that the witness panel didn't include representatives of small businesses, who, they argue, will bear the brunt of the unintended consequences of the legislation's inability to separate patent trolling behavior from legitimate assertion of patent rights.

“There is another side to this story that was not given a chance to speak at this hearing,” Durbin said.

But witness Julie P. Samuels, executive director of Engine, an entrepreneur-focused research and advocacy organization based in San Francisco, rejected that concern.

“We are so worried about small businesses having access to the courthouse [to assert their patents],” she said of Coons and Durbin's concerns, while the bigger concern of startups and entrepreneurs is that they are the targets—as defendants and recipients of demand letters—of other patent holders.

“The House bill is unacceptable to most of us,” Sen. Sheldon Whitehouse (D-R.I.) said, referring to the Innovation Act (H.R. 9).

“We're in the hunt with this bill,” Whitehouse said, indicating that he believed that S. 1137 has a chance of passing if it is amended appropriately.

“This is still hard to pass legislation in the Senate, but we're going to keep at it,” Sen. John Cornyn III (R-Texas) said in wrapping up the 2.5-hour session.

Bill Is Like Rubik's Cube

Following introduction of the bill (90 PTCJ 1850, 5/1/15), Grassley called for this “Finding Effective Solutions to Address Abusive Patent Practices” hearing immediately.

Only Grassley and Leahy made opening statements, but 14 of the 20 members—a high percentage for patent issues in this committee—asked questions.

Grassley in particular listed off all the provisions as equally supported and said, “I'm comfortable with where we are on the language in the bill.”

But other stakeholders are saying that the 2011 America Invents Act-enabled proceedings “are being abused and are stacked against patent holders,” he added. “I've committed to looking at these concerns, determining whether they are valid or not, and working with my colleagues to see what can be done to improve this process.”

Leahy agreed with a caveat, since his name is on the bill that created the proceedings now being attacked. “Those proceedings are an important tool to improve patent quality, but if they are being misused, we should address those concerns,” he said. “We are already working on those ideas.”

Leahy made the first but not last reference to the legislation as a Rubik's Cube, that “a strong and fair compromise requires care and balance.” Witnesses later used the analogy in speaking of the patent system generally, arguing that changing one aspect of it can have unintended consequences elsewhere.

In fact, Schumer's questioning period was more of a speech, as he argued that any attempts to “gut” the inter partes review and covered business method proceedings under the AIA would lose his vote for S. 1137.

Fault Lines in Reverse Trolling Issue

Mark Chandler, Washington-based general counsel for Cisco Systems Inc., spoke first, and after praising the bill generally, went into an attack on the reverse trolling problem.

But his solution was to make “targeted securities law changes” to address hedge fund abuses (89 PTCJ 1451, 3/27/15), because ultimately Cisco has long favored the AIA proceedings as is.

Henry Hadad, deputy general counsel, intellectual property, at Bristol-Myers Squibb in New York, was the most outraged at the hedge funds behavior, and he offered three PTAB-related modifications that the life sciences community is seeking: (1) requiring district court standards, for claim construction, presumption of validity and clear-and-convincing proof of invalidity; (2) allowing minor amendments to claims prior to the trial institution decision; and (3) procedural rules changes, allowing equal opportunity to give evidence and live testimony, and having a different judge or judges making the trial institution decision compared to the final written decision.

Showing the schism among the witnesses on how to address the reverse trolling issue, the STRONG Act includes provisions that Hadad sought, and Chandler called that legislation “misguided.”

21st Century Coalition Comes Along

Kevin Rhodes, president of 3M Innovative Properties Co. and chief intellectual property counsel for 3M Co., St. Paul, Minn., represented the 21st Century Coalition for Patent Reform, which came out against the Innovation Act in the House. But he gave cautious support to the Senate bill, generally agreeing with Hadad on modifications to the AIA proceedings. The committee must “prioritize reforms of these proceedings equally with litigation reform,” he said.

Finally, Samuels and Diane K. Lettelleir, senior managing counsel, litigation, at JCPenney Corp., in Plano, Texas, were perhaps S. 1137's strongest supporters as is.

Letelleir described the “devastating impact on JCPenney” with a number of anecdotes, and Samuels gave evidence of entrepreneurs harmed by patent trolling behavior to the point of finding it almost impossible to get adequate investment.

Comments After Hearing

“A lot of progress was made today,” according to Q. Todd Dickinson, former executive director of the American Intellectual Property Law Association now at Novak Druce Connolly Bove + Quigg LLP, Washington, told Bloomberg BNA. “I'm pleasantly surprised that there is this consensus brewing.”

Samuels was pleased as well that “there was so much agreement on the panel,” but she said, incorporating provisions addressing PTAB-related issues “is going to be a sticking point going forward.”

Brian W. Nolan of Mayer Brown LLP, New York, was more emphatic, saying that the area was going to “provide the next battleground in the legislation.”

The high tech and life sciences industries were getting along for the most part in this panel, he told Bloomberg BNA, but their perceptions of the high rate of PTAB patent claim cancellations are completely different.

Reproduced with permission from BNA's Patent, Trademark & Copyright Journal, 90 PTCJ 1925 (May 8, 2015). Copyright 2015 by The Bureau of National Affairs, Inc. (800-372-1033)