Quality Patents Coalition Express Key Priorities for Patent Reform Legislation in Letter to Congress

Dear Senators Durbin and Grassley and Representatives Nadler and Jordan:

The undersigned trade associations are writing on behalf of the Quality Patents Coalition (QPC)
to express our priorities as both the Senate and House Judiciary Committees examine ways to
find common ground on patent reform legislation. The QPC is a coalition of companies and
trade associations representing financial services, fintech, retail and restaurants. QPC is
dedicated to ensuring the patent system fosters innovation and issues patents of the highest

In anticipation of legislative action on patent reform we ask that the committee consider QPC
priorities to ensure the U.S. intellectual property system provides for high-quality intellectual
property, fair and efficient post-grant and inter partes review procedures as set forth in the
America Invents Act, and adheres to the letter of the law and judicial precedent.

Low-Quality Patents Hurt the Economy

U.S. economic leadership hinges on innovation. The patent system must support real
innovation and U.S economic growth. High-quality patents spur innovation and increase
America’s competitive advantage. Low-quality patents hurt businesses that make products and
provide jobs to Americans.

Community banks, restaurants owners, retailers of all sizes, and virtually every business
involved with the fulfillment of e-commerce orders have been harassed and extorted with
demand letters from non-practicing entities asserting infringement of low-quality business
method patents. Defendants targeted by entities asserting low-quality method patents should
have access to effective, efficient administrative review including the ability to challenge
validity under Section 101 of the Patent Act in inter partes reviews. Currently, defendants’
choices are too often limited to costly litigation to invalidate a patent that never should have
been issued or paying ransom to settle meritless litigation. Ensuring high standards for U.S.
patents, both before and after they are issued, will provide greater economic opportunity for all

High-Quality Examination of Patent Applications

The best way to reduce the cost in dollars and innovation resulting from low-quality patents is
to ensure that they are never issued in the first place. Patent quality is a critical component in
driving efficiencies with respect to patent infringement litigation. Minimizing the issuance of
low-quality patents means fewer frivolous lawsuits based on such patents. This requires a
rigorous patent application examination process. There should be options and incentives for
more rigorous examination of patent applications, such as providing benefits to applicants who
obtain a certified prior-art search and/or opt for a more rigorous patent examination.

Greater Access to PGR/IPR Proceedings

When there are legitimate questions regarding the validity of a patent claim, all patent owners
and petitioners should have access to effective, efficient post-grant and inter partes review
proceedings at the USPTO. The due process rights of both patent owners and petitioners must
be protected in the PGR/IPR process.

The PTAB should review asserted patents for all validity conditions. For two centuries, the
Patent Act has required that patented inventions be novel and non-obvious, fully disclosed,
clearly claimed, and eligible for patenting. All these requirements should be enforceable in
PTAB reviews.

Section 101 is the most effective and efficient tool to address the validity of poor quality
business method patents. Section 101 plays an important role with respect to patent quality by
blocking the issuance of overly broad, abstract patent claims and by providing a tool for
defendants in litigation to efficiently address such claims.

Unfortunately, a special interest loophole in the AIA prohibits petitioners from raising the issue
of subject matter eligibility in IPR proceedings. This loophole has been exploited by nonpracticing entities who assert low-quality business method patents, forcing defendants to
choose between costly and time-consuming litigation or licensing low-quality IP that is more
likely than not invalid. Congress must close the “101 loophole” to provide fair access to IPR
proceedings to all parties, requiring that patented inventions be not only novel and nonobvious, but actually eligible for patenting.

Section 112 of the Patent Act should also be a basis for challenging a patent in a IPR
proceeding. Making sure an invention is fully disclosed and clearly claimed is as import as
making sure it novel and non-obvious, as uncertainty regarding claim scope only hurts the

Both Section 101 and 112 were grounds for invalidity considered in the now-sunset Certified
Business Method (CBM) program created by the AIA. If anything, the CBM program illustrated
how the inclusion of these grounds was not only not a burden on the PTAB, but actually worked
well to ensure that improperly issued patents were invalidated regardless of the grounds of

The Director and the PTAB should be prohibited from denying institution of PGR/IPR
proceedings when all the requirements for institution have be met. Too often petitioners have
been denied access to the PGR/IPR system because the Director and/or PTAB exercise their
discretion to deny institution because of pending litigation in district court, even in cases where
the petitioner is not a party to the litigation. However, the AIA was passed, in part, to create a
separate system to allow petitioners to challenge the invalidity of a patent at the Patent Office,
and it explicitly recognizes that the patent might be involved in concurrent district court
litigation. To allow the Director and the PTAB to use the existence of that litigation as a basis to
deny institution of a proceeding frustrates the very intent behind this provision of the AIA. As
such, discretionary denials of PGR/IPR institution should be prohibited.

Equity in the Patent Litigation Process

As stated above, the QPC believes the most effective curb on abusive patent litigation is a fair,
efficient PGR/IPR process that requires that patented inventions be novel and non-obvious,
fully disclosed, clearly claimed, and eligible for patenting.

Accordingly, in situations where a PGR/IPR proceeding has been instituted there should be an
automatic stay on district court litigation, eliminating wasteful and expensive dual proceedings.
If the patentability of the asserted patent is confirmed by the PTAB, the patentee can still have
its day in court. In fact, the estoppel effects that stem from the PGR/IPR proceeding actually
narrow the issues for the district court litigation in the patentee’s favor. However, if the patent
is determined to be invalid by the PTAB, this can save the time and resources of the parties and
the court system having to litigate an ultimately invalid patent.

Many district courts already routinely exercise their discretion to stay litigation pending a
PGR/IPR review. However, those that do not have seen their dockets swell with filings by nonpracticing entities hoping to use the time and expense of litigation to force parties accused of infringing questionable patents to accept settlement rather than expend resources attempting to invalidate the patent. Mandating automatic stays of district court litigation would help to lower the cost of invalidating these questionable patents, benefitting both the parties accused of infringement and the public at large.

In district court litigation not subject to a stay (especially if the “101 loophole” in IPR
proceedings discussed above is not addressed by Congress), questions regarding subject matter
eligibility should be decided early in litigation. Courts have already determined that Section 101
subject matter eligibility is a question of law that may have underlying questions of fact. In
cases where there is not genuine dispute over the underlying facts, courts should determine
Section 101 subject matter eligibility as early as possible, such as in response to a motion to
dismiss or an early motion for summary judgment. This would prevent dilatory discovery and
delay tactics that tie up the courts and drive up the cost of litigation on otherwise invalid

Unfortunately, courts already have the power to address Section 101 issues early in litigation,
but too often decline to do so. That fact alone further highlights the need to add Section 101 as
a basis for challenging validity in PGR/IPR proceedings, as discussed above. However, that is
only a partial solution to this problem. In situations where motions to dismiss and for summary
judgment based on invalidity under Section 101, the denial of such motions should be subject
to an interlocutory appeal. Such a right of appeal would help ensure district courts resolve
subject matter eligibility issues as early as possible, and prevent unscrupulous patentees from
using the litigation process to force accused infringers to accept settlement rather than
expending resources invalidating a questionable patent.

On behalf of the diverse membership of the Quality Patent Coalition we thank you for your

American Bankers Association
American Transaction Processors Coalition
Bank Policy Institute
Electronic Transactions Association
Independent Community Bankers of America
National Restaurant Association
The Clearing House

Cc: Members of the Senate and House Committees on the Judiciary