Just over a week ago, the House passed the Innovation Act (H.R. 3309), an innocuous-sounding bill that contains sweeping changes to U.S. patent law motivated in large part by “the troll problem.”
Here’s what you need to know about patent trolls: I once defended an international restaurant chain that trades in pancakes, in a patent matter. That actually happened — and more than once. Absurd patent assertions are legion, and many are left scratching their heads with one hand, demand letter in the other, asking, “why me?”
The patent troll sometimes goes by the less pejorative label, “NPE” or “non-practicing entity.” The distinction between troll and NPE is a fine one since not all NPEs are trolls (a university might be an NPE but not a troll), but let’s use “NPE” to be consistent with prevailing usage.
NPEs (the bad ones) are undeniably a problem. By one estimate, companies that have been targeted by NPEs spend $29 billion a year in direct costs, with $83 billion a year in lost wealth, an amount that the authors concede is conservative. So Congressman Bob Goodlatte (R-Va.) took action.
The Goodlatte Bill (Didn’t We Just Do This?)
The House Judiciary Committee has taken a renewed interest in NPEs, and on October 23, Goodlatte introduced the Innovation Act, a wide-ranging patent-reform bill aimed at making it more difficult for NPEs (the bad ones) to operate.
What’s notable is that the act made it from committee introduction to full vote in about 43 days, which is fast for any piece of legislation.
Patent attorneys still talk about the 1952 Amendments (some of us are not good dinner party company) because we don’t do this very often, and for good reason. Patent law is one of the more complex areas of the law and when you tinker with that law, even with the best of intentions, sometimes you break things. When I was 10 my parents had a Sony Betamax VCR that I decided to “fix.” We upgraded to VHS the next day. Best of intentions.
For that reason, changes to the Patent Act tend to be slow and deliberate, and include hearing the opinions of a wide range of those that will be affected. The last major change to the patent system, the 2011 America Invents Act, took almost six years to come together, but it failed to rein in abuses by NPEs.
Looking Under the Hood
The act (summary) includes a number of provisions that intend to make it difficult for NPEs to operate, either by increasing costs or risk or requiring a more detailed pre-suit investigation. Some of the more controversial points include making the loser pay the other side’s litigation fees, requiring far more up-front technical detail in support of the infringement claim, and halting all discovery until after the court interprets the patent claims.
The act also provides for staying a case against customers where there is a pending action against the manufacturer, and requiring transparency of ownership of the litigated patent. A few NPEs are notorious for playing a hide-the-owner shell game.
Everyone’s Got An Opinion
With this much money at stake, there are a lot of opinions in the room. The Hon. Paul Michel, the former chief judge of the Federal Circuit (the court in charge of hearing nearly all patent appeals) was succinct in his criticism, saying that the act will “punish the innocent to corral the guilty, without really addressing the bad behavior of the guilty.”
The American Intellectual Property Law Association (a 15,000-member trade group of lawyers, judges, USPTO employees and the like) published an open letter to the House leadership calling for a balanced approach that preserves the rights of traditional patent owners and preserving the discretion of the courts to manage the cases before them.
The Federal Judicial Conference, American Bar Association, and IEEE, among others, all voiced their concerns to the Committee.
These “nays” say that the best long-term fix to the problem is to improve the quality of patents issued by the USPTO by fully funding the office and not diverting fee revenue to other agencies (the USPTO sometimes takes in more than it spends).
In the other corner (the “yays”) is a roster of tech heavyweights that includes Apple, Google, Twitter, Yahoo, Microsoft, Oracle — companies who bear the brunt of abusive NPE litigation.
The Electronic Frontier Foundation, a stalwart defender of free speech, privacy, innovation, and consumer rights, called the act “the best shot we’ve had at meaningful patent reform yet,” making the world harder for trolls and “safer for true innovators.” Companies with an Apple-sized litigation budget may be less concerned with more expensive access to the courts, something that would be felt most by small inventors, small businesses, nonprofits, and the like.
Is the Building On Fire?
So who’s right? NPE litigation is a very real problem for companies both large and small, and it’s a drain on the economy. With the stakes so high, getting this right should be the first priority.
In his testimony before the committee, David Kappos, the former head of the USPTO (who is now in private practice), questioned the urgency in the room: “Caution also calls for us to ask: is the building on fire? Do we have an emergency that requires immediate action? No. The building is not on fire.”
The concerns of the leading alliance of patent practitioners, the former head of the USPTO, and former chief judge of the nation’s highest patent-specific court should cause everyone to stop for a moment and consider whether this is the best approach. In a laudable attempt to discourage abusive NPE litigation, the act increases costs for everyone and ties the hands of the judges who are at the front lines of the problem. Everyone, not just Intellectual Ventures and its subsidiaries, are discouraged and inhibited from availing the resources of the federal courts.
Next Stop: The Senate
Meanwhile, next door in the Senate, the Patent Transparency and Improvements Act of 2013 has been introduced. The act (here’s a handy summary) lacks the fee-shifting, loser-pays, and discovery limitation provisions of its House counterpart, but keeps a version of transparency of ownership and invokes the FTC in the fight.
A press release from Sen. Pat Leahy D-Vt. (and a sponsor of the act) voiced the same concerns as Judge Michel and the AIPLA so this might take a while.
Hearings begin December 17.