While much of the PATENT Act, S. 1137, is designed to curb abusive lawsuits by patent trolls by raising pleading standards and mandating fee-shifting in more cases, a large section added to the bill Tuesday goes in the opposite direction and would shield many patents in AIA reviews.
For instance, the bill would require the Patent Trial and Appeal Board to stop using the so-called broadest reasonable interpretation standard for claim construction, which now makes it easier to invalidate patents in AIA reviews than it is in district court, and would also give the board more opportunities to decide not to review patents.
"The overall effect is to water down the original AIA and the ability to use the PTAB to remove low-quality patents from the books," said Eliot Williams of Baker Botts LLP.
The bill, which advanced out of committee on a 16-4 vote, was the result of lobbying efforts by two competing groups that are at cross-purposes with each other.
For well over a year, lawmakers have been crafting legislation in response to concerns by the tech industry and others about nonpracticing entities that file weak or frivolous infringement suits, and the majority of the bill deals with that issue by changing the rules for patent litigation.
More recently, the pharmaceutical industry and other groups began telling Congress that the AIA review process is slanted against patent owners and is subject to abuse by hedge funds that challenge patents with what critics call frivolous petitions designed to manipulate stock prices.
By adding provisions to address those concerns, lawmakers have crafted a bill, formally known as the Protecting American Talent and Entrepreneurship Act, that attorneys say appears to be at odds with itself.
Luke Pedersen of Baker Botts said he was surprised the bill included such substantial changes to AIA reviews that favor patent owners — which will benefit trolls when their patents are challenged — when the rest of the bill appears aimed at aiding infringement defendants.
"Over the last couple of years, PTAB trials have been among the most effective ways to combat trolls," he said, and the changes will likely reduce the appetite of defendants in patent cases to seek AIA reviews.
By putting together a bill that aims to address abusive litigation while making it more difficult to invalidate patents, lawmakers are "trying to thread a fine needle in two opposite directions simultaneously," he said.
The new section of the bill dealing with AIA reviews runs for 16 pages and includes numerous changes. While attorneys say the potential effect of the many of the provisions is unclear, a few would have a substantial impact.
The PTAB's use of the broadest reasonable interpretation standard for claim construction has long been controversial among patent owners, since reading patents broadly opens them up a wider array of prior art challenges in AIA inter partes reviews, or IPRs.
The PATENT Act would require the PTAB to use the same claim construction as district courts, where invalidating patents is more difficult, and "that's going to decrease the chances of a successful IPR," said Antony Pfeffer of Kenyon & Kenyon LLP.
Changing the claim construction standard will make patents less susceptible to prior art challenges, but it won't change the outcome in every case, said Michael Strapp of Goodwin Procter LLP.
"I wouldn't say it would make a difference in every single petition, or even the majority of petitions, but in some instances, it will make a difference," he said.
The present standard allows the PTAB to "really shred many patents," so it makes sense to hold the board to the same standard as district courts, said Bradley Olson of Barnes & Thornburg LLP.
"It's going to lead to much more certain and unified outcomes," he said.
The bill would also allow patent owners to submit evidence in response to a petition challenging a patent, which is not allowed under the present rules, and makes clear that the board has the discretion not to institute reviews when doing so "would not serve the interests of justice."
Both of those changes give the PTAB more leeway to decide not to review a challenged patent, which "has the effect of making it easier to get a denial of institution," Williams said.
"Any time you lower the likelihood of institution, it's going to have the affect the number of IPRs that are filed," he said. "It may dissuade accused infringers from using the program."
Allowing the patent owner to present evidence at the initial stage of the review will effectively create "mini-trials" before the board decides whether to review the patent, which will make the proceedings more involved, said Edmund Walsh of Wolf Greenfield & Sacks PC.
"Some of these provisions have the potential to meaningfully change how the system works to make it much more favorable to patent owners, as well as more complicated and expensive," he said.
A few of the changes to AIA reviews would benefit patent owners. For instance, it calls for changing the estoppel provision in post-grant reviews, a type of proceeding that is available only for patents filed after March 2013. To date, only nine post-grant review petitions have been filed, compared with nearly 3,000 inter partes review petitions.
As it is, petitioners that challenge a patent in post-grant review are barred from raising in later district court litigation any issue they raised or "reasonably could have raised." That has kept many companies from using the procedure since it severely limits the strategies they can use in litigation, said Stuart Meyer of Fenwick & West LLP.
The bill would change the standard so that only issues actually raised in the review could not be raised in litigation. That will have a "profound impact" and "takes away one reason why these proceedings have not been gaining a whole lot of interest so far," Meyer said.
The effect of other AIA review changes in the bill is less clear. The bill would let the PTAB impose sanctions on parties that file frivolous petitions, but attorneys noted that the board already has a similar duty of candor requirement and that few AIA challenges are truly frivolous.
The bill would also require most of the panel that makes final decisions in AIA proceedings to be different from the panel that instituted the review, apparently in response to concerns that it's hard to get judges to change their mind after they decide to review a patent. Attorneys said it's unclear that different judges would reach a different result, and the change will increase the board's workload.
Critics of the high rate at which the PTAB has been invalidating patents under the current rules said that the AIA revisions are a welcome change. The board's reputation as a "patent-killing machine" has some justification, said Robert Dickerson of Manatt Phelps & Phillips LLP.
"The cards really are stacked against the patent owner, and that's one reason why we saw a tremendous number of IPRs filed," he said. "The Senate is doing the right thing to move the pendulum back a little bit, but I don't think they're going quite far enough."
While the bill includes some notable changes to the AIA proceedings, it is still early in the legislative process and any bill ultimately enacted into law is unlikely to look exactly like the one that was approved Thursday, attorneys say.
Although the measure easily advanced in the Judiciary Committee, it remains to be seen whether the AIA changes will be embraced by the full Senate or the House of Representatives, where a companion bill makes no changes to AIA reviews.
"There's such a long way to go before this bill gets to the president's desk," Strapp said.
--Editing by John Quinn and Brian Baresch.
