Madam Chairwoman, I thank the gentleman for yielding. I am pained to be here today in opposition to this bill. I stood shoulder to shoulder with the chair of our full committee 2 years ago in patent reform after working almost 6 years to…
Madam Chairwoman, I thank the gentleman for yielding.
I am pained to be here today in opposition to this bill. I stood shoulder to shoulder with the chair of our full committee 2 years ago in patent reform after working almost 6 years to find consensus on a patent bill that moved our Nation forward.
We are here this time a maximum of 6 months into the process, and we haven't done our due diligence because we have heard all morning people coming to the floor and saying this is a work in progress. I thought the place we did works in progress was in our committee system.
Here we are on the floor with a bill that everybody is bragging about it being a work in progress. The result of that is that the work will be done on this bill by the United States Senate. They will write this bill. We won't write it because we didn't take the time to do what we should have done in the Judiciary Committee to refine this bill.
I stood shoulder to shoulder with the former director of the Patent and Trademark Office 2 years ago, David Kappos, and this is what he says in an op-ed piece today:
Our news is peppered these days with reports of ``patent
trolls,'' dark, ugly creatures shaking down innocent
companies based on absurd claims of patent infringement.
Congress should quickly pass legislation to curtail this
abusive behavior. However, some are using the need to address
the patent troll issue as cover to unnecessarily weaken our
Nation's patent laws. If passed in this current form, the
focus of legislative discussions would undermine U.S.
innovation and job creation.
That is what the former director of the Patent and Trademark Office says because we haven't done what we should have done.
We set out to solve a problem dealing with patent trolls, and there is an argument about whether that is 5 percent, 20 percent. The GAO says it is a maximum of 20 percent, regardless of where these statistics are coming from. We are imposing a burden on 100 percent of the people in the patent litigation system to deal with a problem that at most is 20 percent of the litigation in our system. Everybody is going to pay the price of this bill if it goes forward in its current form. That is the problem I have with this. We have a problem.
Patent trolls are a problem, but you can't define what a patent troll is; and in order to deal with patent trolls, we are imposing a burden on the other people in the litigation system who are not patent trolls. That is unfair. We are imposing a burden on small innovators because they will fear that they will lose a lawsuit and end up paying exorbitant costs of the people who they litigated against, even though their claim was a legitimate claim; and they will spend extra money to litigate about whether they should have to pay the cost. Millions of dollars will be spent litigating about whether the fees should be shifted or not, and that is not the way we have done this in our American system.
The problem is we haven't done anything in this bill--and you have heard it discussed in the debate up to this point--about the real problem here, which is people who are writing demands on little people out in the stream of commerce. That is before they ever get to litigation. This bill says nothing about demand letters.
We are going to concede that, we say, to the Commerce Committee.
Well, what is this bill going to do? It is going to encourage a burden on everybody in the litigation system as we try to deal with a 20 percent problem or a 5 percent problem, at most.
I thank the gentleman for yielding time.
Mr. Chairman, I want to rise not so much in opposition to the manager's amendment, but in opposition to the bill and so that we can try to make sure that people understand what it is that they are voting on.
We set out to solve a problem of patent trolls, and that term has become a convenient shorthand to refer to a class of plaintiffs who engage in abusive litigation tactics against deep-pocketed alleged infringers as well as individual inventors and small companies.
I certainly recognize, as I have in my previous statement, that there are entities that exploit the litigation system to gain leverage against businesses, large and small, that represent a vital part of our economy, and I would like for Congress actually to deal with that issue in a meaningful way.
Unfortunately, this bill adopts an extreme, unbalanced approach to address those abuses. The term ``patent troll'' simply has no concrete contours in application, making it nearly impossible to craft legislation specifically targeted to a category of entities or particular business models.
And because not only patent trolls initiate litigation to enforce patent rights, legislation aimed at patent litigation system must not erect unfair barriers that deter legitimate, meritorious claims of infringement, nor should this bill be treated as if it will apply only in the troublesome jurisdictions in which these abuses are taking place.
This bill has broad application across our entire patent ecosystem. The bill suffers from a rushed process and responds to only a part of the constituency in the patent ecosystem. What is most regretful and regrettable to me is that, I believe that with thoughtful, inclusive deliberation, the goals of the bill could be achieved if we would simply take the time to do it.
Mr. Chairman, I have an amendment at the desk which was made in order under the rule.
Mr. Chairman, I yield myself as much time as I may consume.
Mr. Chairman, upon introduction of this bill, the chairman released a statement that section 3(b) of the bill, ``aligns fee shifting in patent cases with the standard that is used for awarding fees against the United States under the Equal Access to Justice Act.''
Unfortunately, the fee-shifting provision in this bill, even as amended, cherry-picks the most burdensome requirements from the Equal Access to Justice Act that mandate that judges award fees against the loser unless they prove that their position was reasonably justified.
The bill was amended at the last minute of the markup presumably to relax the burden on the nonprevailing party to escape the requirement to pay the fees of the adverse party. I actually supported the amendment during markup relying on that presumption. Since then, however, it has become apparent both based on the committee report and independent research that the amendment to change the ``substantially justified'' standard to a ``reasonably justified'' standard is practically meaningless.
As summarized in the CRS report that I will submit for the record, the Senate Judiciary Committee in the 96th Congress ``considered and rejected an amendment to the Equal Access to Justice Act that would have changed the pertinent language from `substantially justified' to `reasonably justified.' '' Subsequently, the Supreme Court in Pierce v. Underwood held that ``substantially justified'' actually means reasonable.
This troubling development highlights the pitfalls to considering legislative language in haste. It also makes my amendment all the more important to a balanced and unbiased fee-shifting mechanism.
The American rule, that each party to litigation bears their own cost and attorney's fees, is the bedrock of the civil justice system. I generally oppose litigation that erodes this rule because I believe it provides open access to our courts to anyone who has a grievance.
The departure from the American rule as enacted in the Equal Access to Justice Act was far more complex than the provision extracted and incorporated in this bill. For example, the Equal Access to Justice Act prescribes a fee cap of $125 per hour that is not in this bill. It also prohibits, with a couple of exceptions, fee awards to attorneys whose net worth exceeds $2 million, to businesses with a net worth in excess of $7 million or more than 500 employees. This limitation also did not find its way into this provision in the bill.
My amendment seeks to amend H.R. 3309 with yet another feature of the Equal Access to Justice Act that is not in the Innovation Act, which is the provision that gives a judge the flexibility to deny or reduce an award that would be required if the nonprevailing
party could not establish that their position, as we now know, was reasonable.
This amendment injects balance into this regime that represents a departure from the American rule. A judge should be able to assess the behavior of all the parties; otherwise, a wealthy party that is not concerned if they are imposed with the costs and fees of their adversary may engage in behavior intended to deplete the resources of the poorer opposing party. The threshold for authorizing fee-shifting, I think, should be sufficiently stringent so that the exception doesn't become the rule, but it should not be so stringent that it becomes meaningless.
Whether that is the case in Octane Fitness v. Icon Health Fitness is the question before the Supreme Court. In Octane Fitness, the Court will consider whether the two-part test of the Federal Circuit that provides that a case be ``objectively baseless'' and brought in ``subjective bad faith'' to qualify a prevailing party for fees is too high.
Although I think the Court will adjust the formula downward for identifying cases in which fee-shifting may be appropriate, we are clearly not deferring to the Court's docket. I think my amendment is the preferred and necessary approach.
And with that, I reserve the balance of my time.
III. The Equal Access to Justice Act
Awards of attorneys' fees against the United States were
barred at common law not only because of the American rule,
but also because of the doctrine of sovereign immunity, under
which the United States may not be sued, nor its funds
expended, without its consent. ``Congress alone has the power
to waive or qualify that immunity,'' and it did so, with
respect to awards of attorneys' fees, with the Equal Access
to Justice Act (EAJA) in 1980. Prior to enactment of EAJA,
the common law exceptions to the American rule were
inapplicable against the United States. Even statutory
exceptions to the American rule were inapplicable against the
United States unless they specifically authorized fee awards
against the United States.
EAJA allows awards of attorneys' fees against the United
States in two broad situations. The first, codified at 28
U.S.C. Sec. 2412(b), makes the United States liable for the
prevailing party's attorneys' fees to the same extent that
any other party would be under the common law and statutory
exceptions to the American rule, including the statutory
exceptions that do not specifically authorize fee awards
against the United States. This provision, unlike the rest of
EAJA, contains no limitations on the assets or number of
employees of parties eligible to recover fees, and no maximum
hourly rate for fee awards.
The second broad situation in which EAJA authorizes fee
awards against the United States is codified at 5 U.S.C.
Sec. 504 and 28 U.S.C. Sec. 2412(d). These sections provide
that, in specified agency adjudications and in all civil
actions (except tort actions and tax cases) brought by or
against the United States, the United States shall be liable
for the attorneys' fees of prevailing parties, unless it
proves that its position was substantially justified or that
special circumstances make an award unjust.
This second portion of EAJA contains two limitations on fee
awards that are not found in Sec. 2412(b). First, it
prescribes a fee cap unless the court or agency determines
that a special factor justifies a higher fee. (Most fee
statutes authorize awards of ``reasonable'' fees, with the
court determining the amount.) The cap was originally $75 per
hour, but P.L. 104-121, 231-233, increased it to $125 per
hour for cases commenced on or after the date of its
enactment, which was March 29, 1996. Second, this portion of
EAJA does not allow (with two exceptions) fees to be awarded
to individuals whose net worth exceeds $2 million, or to
businesses or organizations, including units of local
government, with a net worth exceeding $7 million or more
than 500 employees. This portion of EAJA sunset, by the terms
of the original Act, on October 1, 1984. In 1985, EAJA was
reenacted, retroactive to October 1, 1984, and made
permanent.
P.L. 104-121, in addition to raising the cap under EAJA to
$125 per hour, added the following provision to 28 U.S.C.
Sec. 2412(d), and a corresponding one to 5 U.S.C. Sec. 504
applicable to adversary adjudications:
``If, in a civil action brought by the United States or a
proceeding for judicial review of an adversary adjudication
described in section 504(a)(4) of title 5, the demand by the
United States [other than a recitation of the maximum
statutory penalty] is substantially in excess of the judgment
finally obtained by the United States and is unreasonable
when compared with such judgment, under the facts and
circumstances of the case, the court shall award to the party
the fees and other expenses related to defending against the
excessive demand, unless the party has committed a willful
violation of law or otherwise acted in bad faith, or special
circumstances make an award unjust. Fees and expenses awarded
under this paragraph shall be paid only as a consequence of
appropriations provided in advance.''
This provision thus authorizes fee awards in favor of
losing parties and in that respect is unique in the law of
attorneys' fees.
In Pierce v. Underwood, 487 U.S. 552 (1988), the Supreme
Court decided three issues concerning EAJA: (1) the
applicable standard of appellate review, (2) the meaning of
``substantially justified,'' and (3) the ``special factors''
that allow a court to award more than $75 per hour.
(1) Standard of Review. Pierce v. Underwood addressed the
standard that a federal court of appeals applies in reviewing
a decision of a federal district court under EAJA. Either
party may appeal a district court's decision under EAJA, and,
as the Supreme Court explained:
``For purposes of standard of review, decisions by judges
are traditionally divided into three categories, denominated
questions of law (reviewable de novo), questions of fact
(reviewable for clear error), and matters of discretion
(reviewable for ``abuse of discretion'').''
487 U.S. at 558.
The Supreme Court found that EAJA did not provide a clear
prescription as to the appropriate standard of review
(unlike, for example, 42 U.S.C. Sec. 1988(b), which provides
that ``the court, in its discretion, may allow the prevailing
party . . . a reasonable attorney's fee''). The Court,
therefore, for a variety of reasons, held that the ``abuse of
discretion'' standard was most appropriate for appeals of
EAJA court decisions.
Awards of attorneys' fees under EAJA at the agency level
may be appealed to a court only by the prevailing party, not
by the United States. The statute, at 5 U.S.C.
Sec. 504(c)(2), provides:
``The court's determination on any appeal heard under this
paragraph shall be based solely on the factual record made
before the agency. The court may modify the determination of
fees and other expenses only if the court finds that the
failure to make an award of fees and other expenses, or the
calculation of the amount of the award, was unsupported by
substantial evidence.''
Prior to the 1985 amendments to EAJA, this provision stated
that the court could modify an agency decision only if it
found ``an abuse of discretion.'' It was intended that the
new standard--``unsupported by substantial evidence''--permit
``a broader scope of review . . . consistent with the normal
scope of judicial review of agency actions.
(2) ``substantially justified.'' The United States may
avoid liability for attorneys'' fees under EAJA by proving
that its position ``was substantially justified or that
special circumstances make an award unjust.'' 5 U.S.C.
Sec. 504(a)(1), 28 U.S.C. Sec. 2412(d). The legislative
history of the original EAJA stated that ``Nile test of
whether the Government position is substantially justified is
essentially one of reasonableness in law and fact.'' Twelve
of the thirteen federal circuits subsequently interpreted
``substantially justified'' to mean reasonable. See, Pierce
v. Underwood, 487 U.S. at 565-566. The U.S. Court of Appeals
for the District of Columbia was the exception. It reasoned:
``The Senate Judiciary Committee considered and rejected an
amendment to the bill that would have changed the pertinent
language from ``substantially justified'' to ``reasonably
justified.'' S. Rept. 96-253 [96th Cong., 1st sess.] at 8.
That refusal suggests that the test should, in fact, be
slightly more stringent than ``one of reasonableness.''
According to this view, the government's position may be
reasonable, yet fail to be substantially justified, making it
easier to recover fees under the substantially justified
standard than under a reasonableness standard. The 1985
amendments to EAJA did not alter the text of the
substantially justified language, but an accompanying
committee report expressed support for the D.C. Circuit's
interpretation:
``Several courts have held correctly that ``substantial
justification'' means more than merely reasonable. Because in
1980 Congress rejected a standard of ``reasonably justified''
in favor of ``substantially justified,'' the test must be
more than just reasonableness.''
The Supreme Court in Pierce v. Underwood held that
substantially justified means reasonable. The Court found
that a ``more than mere reasonableness'' test would be ``out
of accord with prior usage'' and ``unadministerable.''
``Between the test of reasonableness,'' the Court wrote,
``and a test such as `clearly and convincingly justified' . .
. there is simply no accepted stopping-place, no ledge that
can hold the anchor for steady and consistent judicial
behavior.'' 487 U.S. at 568. The Court found that the 1985
committee report was not controlling because it was neither
``(1) an authoritative interpretation of what the 1980
statute meant, or (2) an authoritative expression of what the
1985 Congress intended.'' Id. at 566.
(3) Exceeding $75 (now $125) per hour. EAJA provides that
fees ``shall be based upon prevailing market rates for the
kind and quality of the services furnished,'' but ``shall not
be awarded in excess of $75 [$125 for cases commenced on or
after March 29, 1996] per hour unless the court determines
that an increase in the cost of living or a special
factor, such as the limited availability of qualified
attorneys for the proceedings involved, justifies a higher
fee.'' 28 U.S.C. Sec. 2412(d)(2)(A)(ii). (The same cap
applies in agency proceedings; see, 5 U.S.C.
Sec. 504(b)(1)(A)). The Court in Pierce v. Underwood held:
``If ``the limited availability of qualified attorneys for
the proceedings involved'' meant merely that lawyers skilled
and experienced enough to try the case are in short
supply, it would effectively eliminate the $75 cap--since the
``prevailing market rates for the kind and quality of the
services furnished'' are obviously determined by the relative
supply and quality of services . . .. We think it refers to
attorneys having some distinctive knowledge or specialized
skill needful for the litigation in question--as opposed to
an extraordinary level of the general lawyerly knowledge and
ability useful in all litigation. Examples of the former
would be an identifiable practice specialty such as patent
law, or knowledge of foreign law or language.
487 U.S. at 571-572.
As for other ``special factors,'' the Court wrote:
``For the same reason of the need to preserve the intended
effectiveness of the $75 cap, we think the other ``special
factors'' envisioned by the exception must be such as are not
of broad and general application. We need not specify what
they might be. . . .''
Id. at 573.
The Court, however, specified some items which are not
special factors for purposes of exceeding the $75 per hour
cap: ``the novelty and difficulty of issues,'' ``the
undesirability of the case,'' ``the work and ability of
counsel,'' ``the results obtained,'' ``customary fees and
awards in other cases,'' and ``the contingent nature of the
fee.'' All these ``are factors applicable to a broad spectrum
of litigation; they are little more than routine reasons why
market rates are what they are.'' Id.
In Commissioner, Immigration and Naturalization Service v.
Jean, 496 U.S. 154 (1990), the Supreme Court held that, under
EAJA, a prevailing party may recover attorneys' fees for
services rendered in seeking a fee award without regard to
whether the position of the United States was substantially
justified. If the prevailing party is entitled to fees in the
main action, then he is automatically entitled to fees for
the time spent seeking fees. To hold otherwise could ``spawn
a `Kafkaesque judicial nightmare' of infinite litigation for
the last round of litigation over fees.'' Id. at 163.
In Scarborough v. Principi, 541 U.S. 401 (2004), the
Supreme Court addressed EAJA's requirement that fee
applications be filed ``within thirty days of final judgment
in the action,'' and ``allege that the position of the United
States was not substantially justified.'' 28 U.S.C.
Sec. 2412(d)(1)(B). The Court held that, when a fee
application is filed within 30 days, but fails to allege that
the position of the United States was not substantially
justified, the application may be amended to remedy the
oversight, even after the 30 days have elapsed.
In Richlin Security Service Co. v. Chertoff, 128 S. Ct.
2007, 2019 (2008), the Supreme Court held that, under EAJA,
``a prevailing party . . . may recover its paralegal fees
from the Government at prevailing market rates.'' The lower
court, which the Supreme Court reversed, had held that the
prevailing party could recover fees for paralegal services
only at their cost to the party's attorney.
Source of Fees Paid by the Government
Both agency-awarded and court-awarded fees are ``paid by
the agency over which the party prevails from any funds made
available to the agency by appropriation or otherwise.'' 5
U.S.C. Sec. 504(d), 28 U.S.C. Sec. 2412(d)(4). Fee awards
under 28 U.S.C. 2412(b) are presumably paid from the source
that pays damages awarded under the statute that authorizes
fee awards.
Formerly Required Annual Reports to Congress
With respect to agency-awarded fees, the EAJA provides,
``The Chairman of the Administrative Conference of the United
States, after consultation with the Chief Counsel for
Advocacy of the Small Business Administration, shall report
annually to the Congress on the amount of fees and other
expenses awarded during the preceding fiscal year pursuant to
this section.'' 5 U.S.C. Sec. 504(e). This provision remains
on the books, but it has no effect because the Administrative
Conference of the United States has not been functioning
since 1996.
With respect to court-awarded fees, the EAJA formerly
provided, ``The Attorney General shall report annually to the
Congress on the amount of fees and other expenses awarded
during the preceding fiscal year pursuant to this
subsection.'' 28 U.S.C. Sec. 2412(d)(5). This provision was
repealed by P.L. 104-66, 1091(b)(1995).
Will the gentleman yield?
I am wondering, if you think this is redundant and extraneous rather than contrary to the intent, why wouldn't we just accept the amendment and keep going?
Madam Chair, I yield such time as she may consume to the gentlelady from Washington State (Ms. DelBene).
Madam Chair, I demand a recorded vote.
Mr. Chairman, I rise in support of the Conyers-Watt substitute because the substitute is a superior alternative.
The short title of our substitute is appropriately titled ``The Deceptive Patent Practices Reduction Act'' because it narrowly and specifically focuses on areas within our patent system where abuses can be curtailed without imposing onerous and disproportionate burdens on good-faith participants in the system; and in a number of cases, I believe the substitute will create efficiencies that will benefit all patent stakeholders.
Our substitute has three core provisions. First, we require patent holders who sue on a patent to provide transparency of ownership and other financial interests in the patent. This will expose those who seek to shield the true identity of the real party with the primary interests in asserting an infringement claim.
Second, our substitute reduces the burden on retailers, hotels, restaurants, and mom-and-pop shops that find themselves entangled in legal battles simply for using a product to make their businesses more attractive to their customers. I believe our customer stay provides a better baseline than the provision in the underlying bill, but I also recognize that it too requires further work.
Finally, I believe the study required under our substitute sets forth a clearer, more precise definition of demand letters that will avoid intrusions into legitimate business negotiations.
Perhaps more important is what the substitute does not do, namely, it does not disregard judicial independence in the courtroom or judicial prerogatives outside the courtroom to study, develop, and promulgate rules of procedure to govern trials and appeals in the courtroom. Our substitute also does not act with utter indifference to the collateral damage levied upon legitimate inventors and businesses that this bill will do.
