US patent reform passes a key Congressional hurdle but still faces significant challenges

It is a truism of US politics that one of the hardest things in Washington DC is getting a bill to the floor of the Senate for a vote. In that respect patent reform took a major step forward yesterday as the PATENT Act, the bill introduced last month by a bipartisan group of senators, made it out of committee at the first attempt with a resounding 16-4 vote.

That’s quite a change in fortunes to the last Congress when patent legislation passed quickly through the House of Representatives but stalled in the Senate where it was ultimately shelved.  While in the House the Innovation Act 2.0 has been much more widely criticised, its equivalent in the Senate has clearly emerged as the likely foundation of any legislation that ultimately makes it to President Obama’s desk.

Those with significant concerns about the proposed legislation were no doubt disappointed yesterday that some Senators who have expressed misgivings over reform, such as Senator Whitehouse, did not ultimately join the four ‘no’ votes – Senators Cruz, Vitter, Durbin and Coons. But in a sense not that much has actually changed after yesterday’s mark-up of the bill by the Senate Judiciary Committee. During yesterday’s proceedings it was widely acknowledged that work still needed to be done to get anything to the floor for a vote and, perhaps most crucially, much still needs to be resolved over the reform of the re-exam procedures and IPRs in particular.

At the end of the hearing Senator Schumer, one of the key drivers of this legislation along with Senator Cornyn, revealed that “the IPR package will get further refinement”. Schumer directed his comments at “our friends in life sciences” who he said were pushing particularly hard to change the evidentiary standard used in re-exams to “clear and convincing”. One alternative to changing the standard that has been proposed by life sciences advocates, Schumer said, is to exclude from the IPR process pharmaceutical patents that have been approved by the Food and Drug Administration (FDA). One issue, though, is proposed changes to the current IPR regime are causing concern with the tech lobby which has been largely supportive of the PATENT Act but may begin to have second thoughts.

So the bill has left committee with some gaping holes and with some real concerns ringing in the ears of legislators. Perhaps most significantly the National Venture Capital Association (NVCA), which initially welcomed the PATENT Act as a step in the right direction, voiced its disapproval of a failure to address any of its worries.

In a statement Bobby Franklin, the association’s President and CEO, said: “Despite repeated conversations with senators and staff to address our concerns, no noticeable improvements have been made to correct the unintended consequences that would results from certain provision in the bill.” Those concerns continue to focus on fee-shifting, joinder, the discovery process and pleading standards, and, overall, making it far riskier for investors to put their money into patent-heavy start-ups.

And it’s not just the NVCA, the Innovation Alliance – with members including Dolby, Qualcomm, InterDigital and Cantor Fitzgerald - remains sceptical: “It is clear from the markup this morning that significant work remains on the PATENT Act before it can be widely supported by stakeholders and the broader Senate. Concerns remain on the potential for abuse of the customer stay provision as currently drafted, the overbreadth of the pleadings and discovery provisions, and the need to adopt measures to address ongoing abuse in the inter partes review system.”

While senators seek to assuage those concerns and grapple with the re-exam issue, the focus now shifts to the House and mark-up of the Innovation Act. Although it received wide support in the last Congress (it was approved by a vote of 325-91) it has been slow going for the latest iteration of Congressman Goodlatte’s bill since it was introduced in February.

Several parts of the proposed legislation have proved controversial. For example, its fee-shifting provision is seen by many as presumptive, although Goodlatte insists it’s not, while there is considerable unease around the associated section covering joinder. Perhaps not surprisingly therefore the manager’s amendment, which has recently been circulated, includes a number of changes to the original bill which try to answer some of the concerns with the House legislation. Among them is a carve-out for university tech transfer offices, excluding them from the joinder provisions.  

The interesting thing to follow now is whether further changes in the House Judiciary Committee will push the Innovation Act closer to its Senate peer. That would seem likely given the speed with which the PATENT Act has moved out of committee and the broader level of support it enjoys. But as yesterday’s hearing showed, for all the momentum the Senate bill has, it remains some distance from being voted on.

Patent reform was something that was supposed to be done and dusted quickly in this Congress. But nearly six months in, we are still a long way from a resolution. Next year is an election year with all House seats and a third of Senate ones up for grabs – not to mention the small matter of the US presidency. The softly ticking clock, counting down to the point at which it becomes too hard or inconvenient to square the patent reform circle continues to get that little bit louder.