Innovation Act of 2013 – Latest Effort to Disarm Patent Trolls

By Mengyi Wang - Edited by Kathleen McGuinness H.R. 3309 - Innovation Act [caption id="attachment_3832" align="alignleft" width="150"] Photo By: Domas Mituzas - CC BY 2.0[/caption] The perceived “patent troll” problem has plagued the U.S. patent system for years. To curb abusive patent litigation, Representative Bob Goodlatte (R-VA), with a bipartisan coalition, introduced the "Innovation Act" in the House of Representatives on Oct 23, 2013. The patent reform bill contains a number of provisions that seek to change the landscape of patent procurement, ownership, and enforcement, Patently-O reports. Patently-O, Info World, and the Electronic Frontier Foundation ("EFF") provide an overview of the legislation and comment on its significance. The American Intellectual Property Law Association has summarized each section of the bill. Patent Docs and The Software Alliance voice concerns. According to the EFF, patent trolls are entities that “do not create, invent, or sell anything useful, instead acquir[ing] patents solely to threaten folks who might be using technologies related to the patents.” They frequently target and extract settlements from small businesses, independent developers, and nonprofits that cannot afford to battle the issues in court. Some small players have been driven out of business as a result. Several key provisions of the Innovation Act tackle patent trolls head-on. First, as discussed by Info World, many patent trolls currently merely name the patents infringed in their complaints. The heightened initial pleading requirements under Section 281A of the Innovation Act would force patent holders to identify in their complaints how the accused instrumentality has infringed with more specificity. H.R. 3309 at 2-5. Second, to promote transparency of patent ownership, Section 4 requires a plaintiff to disclose and update basic information about the patent (such as the ultimate parent entity or parties with financial interests) for the life of the patent, id. at 11-17, thereby stopping trolls from hiding behind shell companies. An example of a private company using a massive number of shell companies is Intellectual Ventures: it had two thousand shell companies in 2012, as previously covered by Techdirt. Third, section 285 requires a court to award a prevailing party reasonable fees and allows for limited joinder of parties (such as those covered under the transparency provision) to satisfy the award. Id. at 6 -9. Patent Docs maintains that this fee-shifting provision is meant to grant courts the power to "punish" non-practicing entities that are deemed to “assert their patents abusively.” The EFF and Info World suggest that this provision would deter trolls from threatening prohibitively expensive patent litigation to force a settlement. The bill also aims to reshape discovery. It not only constrains the scope of discovery until claim construction occurs, id. at 10-11, relieving defendants of burdensome discovery in frivolous lawsuits, but also directs the Judiciary Conference to address the asymmetries in discovery burdens. Id. at 21. Additionally, observing that suits against end-users tend to be coercive, the authors added a customer-suit exception to the bill. The exception permits an action against a customer to be stayed so long as the customer agrees to be bound by the results of a parallel litigation against the manufacturer. Id. at 17-18. The proposal also expands the time-limited covered business method (“CBM”) patents review program, a venue for third parties to attack business method patents using post-grant review proceedings. The bill renders the program permanent and clarifies the definition of “CBM patent” by codifying the capacious construction of “practice, administration, or management of a financial product or service” in SAP America, Inc. v. Versata Dev. Group, Inc., CBM2012–00001, Paper 36 (January 9, 2013). Id. at 43-45. While many (such as Patently-O, Ars Technica, and Info World) applaud the proposed statutory reform, others have reservations. Patent Docs reminds its readers that the bill is not narrowly tailored to combat patent trolls: the bill does not define a “patent troll” and therefore does not clearly differentiate between practicing and non-practicing entities. In addition, Patent Docs contends that a likely collateral effect of the fee-shifting provision is stifling legitimate patent infringement lawsuits. The Software Alliance takes issue with the expanded CBM program. It argues that the expansion “could inadvertently undermine many valid patents by giving infringers a new procedural loophole to delay enforcement,” and that singling out CBM potentially conflicts with the obligation of the United States under the TRIPS Agreement to make patents “available and patent rights enjoyable without discrimination as to . . . the field of technology.”