2015 Patent Reform: Amendments to H.R. 9 and S. 1137

Patent reform legislation continues to make progress in Congress. The House Judiciary Committee held a markup of the Innovation Act ("H.R. 9"), on June 11, 2015.[1] The bill passed out of the committee on a vote of 24 to 8.[2] This approval comes on the heels of the Senate Judiciary Committee's approval of its own PATENT Act ("S. 1137") by a vote of 16 to 4 on June 4, 2015.[3] The following is a summary of the principal amendments made to each bill in committee this month.

H.R. 9 Amendments

A key amendment to the House bill is the limitation on venues for patent suits, something that the Senate bill does not include. Under H.R. 9, a patent infringement lawsuit may be filed only in a district where: (i) a defendant has its principal place of business or is incorporated; (ii) the defendant has a regular and established physical facility and where infringing activity occurred; (iii) the claimed invention was conceived or reduced to practice; (iv) significant research and development of the claimed invention occurred; (v) a party has a regular and established physical facility where the patented product is manufactured or the party engaged in management of significant research and development of the claimed invention; or (vi) the defendant has consented to be sued.[4]

Most of the other amendments to H.R. 9 relate to inter partes review ("IPR") and post grant review ("PGR") proceedings. Significantly, the bill prohibits the filing of petitions without a certification that the petitioner and real parties in interest will not acquire a financial instrument "designed to hedge or offset any decrease in the market value of an equity security of the patent owner or an affiliate of the patent owner, during a period following the filing of the petition to be determined by the Director."[5] Petitions will also be prohibited for parties who seek payments from patent owners in exchange for a guarantee not to challenge the patents, unless the payment-seeking party had already been accused of infringing the patent at issue.[6] These amendments are a response to the pharmaceutical industry's concerns regarding the recent trend of IPR petitions filed by hedge funds in an apparent effort to influence stock prices.

Additionally, the amended H.R. 9 allows a patent owner in IPR and PGR proceedings to submit "affidavits or declarations of supporting evidence and opinions" with its preliminary response to the petition.[7] The amended bill also enables petitioners to reply to new issues raised in a preliminary response by the patent owner.[8]

S. 1137 Amendments           

The key amendments to the Senate bill predominantly relate to IPR and PGR proceedings. Specifically, similar to provisions already included in the original H.R. 9, the Senate bill was amended to change the claim construction standard from the "broadest reasonable interpretation" to the narrower "customary meaning" standard that is applied by district courts.[9] This narrower claim construction standard is more favorable to patent owners. Further, as also provided in H.R. 9, S. 1137 was amended to require the Patent Trial and Appeals Board ("PTAB") to consider prior claim construction by a court in a civil action.[10]

Like H.R. 9, the amended Senate bill allows a patent owner to support a preliminary response by affidavits or declarations of supporting evidence, and allows a petitioner to reply to new issues raised in the patent owner's preliminary response.[11] In its latest form, the bill also allows patent owners to propose one or more substitute claims that are narrower in scope than the challenged claim(s), and requires the petitioner to prove unpatentability of the substituted claims by a preponderance of the evidence.[12] In addition, the bill now allows either party to present live testimony (including cross-examination of adverse witnesses) at the final hearing if the panel finds that such testimony would be helpful.[13]

To guard against petitioners presenting broader claim construction arguments during post grant proceedings and narrower claim construction arguments during subsequent district court proceedings, S. 1137 now includes a provision requiring each party to be bound by the claim construction arguments that were made and adopted during post grant proceedings.[14] In an effort to address concerns of bias against patent owners by individuals on the three-judge PTAB adjudicating panel who also participated in the decision to institute the IPR/PGR proceeding, the bill now permits only one judge who participated in the institution proceeding to be a member of the adjudicating panel. Further, the Director of the U.S. Patent and Trademark Office ("USPTO") may designate other individuals who are not members of the PTAB to participate in decisions to grant or deny a petition to institute a review proceeding.[15]

Under the current rules, a petitioner is barred from filing an IPR petition more than one year after the date on which the petitioner is served with a complaint for infringement of the challenged patent.[16] Under the amendments to S. 1137, the statutory bar would be applied on a claim-by-claim basis.[17] That is, the statutory bar would only apply to the specific patent claims that the patent owner alleged the petitioner was infringing. Further, the statutory bar would apply to all claims that the petitioner later seeks to join in a motion for joinder.[18] The statutory bar for such claims would be based on when the petitioner was first served with a complaint or amended complaint alleging infringement of those patent claims to be added.[19]

Key Differences Between the Two Bills

The latest amendments have brought the bills closer to each other in some ways. For example, the amendments to S. 1137 incorporate the narrower district court claim construction standard for IPR and PGR proceedings, as originally provided in H.R. 9. Also, although some committee witnesses and commentators have urged that the burden of proof to invalidate patent claims in IPR and PGR proceedings should be raised from a preponderance of the evidence to clear and convincing evidence, and although S. 1137 incorporates a presumption of patent validity for IPR and PGR proceedings, neither bill changes the current preponderance burden.[20] However, the bills still differ in certain respects.

For example, H.R. 9 prohibits the filing of PGR petitions by hedge funds trying to influence stock prices, but S. 1137 does not include a similar provision. On the other hand, H.R. 9 does not include the provisions in S. 1137 that modify the composition of adjudicating panels, estop parties from urging different claim constructions in subsequent actions, and permit substitute claims. Additionally, although H.R. 9 limits venue for patent actions to prevent forum-shopping, S. 1137 does not address this concern. Finally, S. 1137 puts the burden on the prevailing party to demonstrate entitlement to an attorneys' fee award, whereas under H.R. 9, attorneys' fee awards are automatic unless the nonprevailing party's conduct was justified or special circumstances make an award unjust. These differences would have to be conformed before final legislation is enacted.

The accompanying chart summarizes key provisions of both bills and, where applicable, indicates the latest amendments to the bills. We will continue to monitor the bills and provide updates as necessary.

Lawyer Contacts

For further information, please contact your principal Firm representative or one of the lawyers listed below. General email messages may be sent using our "Contact Us" form, which can be found at www.jonesday.com/contactus.

Kelsey I. Nix
New York
+1.212.326.8390
knix@jonesday.com

Peter G. Thurlow
New York
+1.212.326.3694
pgthurlow@jonesday.com

George N. Phillips and Shehla Wynne of the New York Office assisted in the preparation of this Commentary.

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