Innovation Act Receives Support from Intellectual Property Professors; Education Organizations Express Reservations

Patent Legislation
By Aditya Gupta – Edited by Kathleen McGuinness Professors' Letter In Support of Patent Reform Legislation (Nov. 25, 2013), letter hosted by Statement from the Higher Education Community on H.R. 3309, The Innovation Act (Nov. 8, 2013), statement hosted by Statement from the Higher Education Community on Amendment in the Nature of a Substitute to H.R. 3309 (Nov. 19, 2013), statement hosted by [caption id="attachment_4011" align="alignleft" width="150"] Photo By: Kate Ter Haar - CC BY 2.0[/caption] The Innovation Act, a legislation that received bipartisan support in the House Judiciary Committee and more recently the House of Representatives, has also received support from a group of sixty professors teaching intellectual property law at universities across the United States. The professors have addressed a letter to Congress expressing strong support for the patent reform legislation, citing the “abusive practices” adopted by patent trolls and the negative impact of such practices on small companies and large manufacturers. In contrast, a group of six major education organizations have issued two statements, dated November 8 and 19, 2013 raising concerns over the draft of the Innovation Act and claiming that, in its current form, the provisions of the Act raise a “specter of unintended problems.” PatentlyO reports the letter by the law professors stating that the professors’ case has merit but contains certain broad – brush statements and is overtly in favor of large corporate entities. Timothy Lee of The Washington Post is surprised by the stance taken by the university organizations, though he suggests that the unintended effects of the legislation may be beneficial, since they could rein in aggressive patent licensing efforts by universities. The Innovation Act, a bill purported to tackle the “patent troll” problem, has generated a lot of interest and has received the attention of stakeholders from throughout the United States. The JOLT Digest has covered the Act’s introduction before the House of Representatives and its salient provisions. In a letter dated November 25, 2013, a group of intellectual property law professors argues in favor of the Act, claiming that misuse of the patent system by patent assertion entities (“PAEs”, colloquially known as “patent trolls”) deters innovation. They point out that traditionally the costs of patent litigation between two product-producing companies have been a concern for both parties since the plaintiff could be countersued for infringement. This led to an equalization of costs that disincentivized litigation. However, since PAEs do not make or sell products, they cannot be countersued for infringement, which disturbs this balance and enables PAEs to threaten accused infringers with discovery costs and coerce them into settlements. This problem is exacerbated by the PAEs’ strategy of enforcing patents against large numbers of small companies downstream, which may be more averse to bearing litigation costs and less aware of the nuances of patent law. Relying on empirical data evidencing the extent of such abusive practices, the professors ask Congress to consider patent reform with respect to the following: (i) increasing the frequency of award of attorney fees, (ii) limiting discovery, especially electronic discovery, prior to issuing a claim  construction order, (iii) staying suits against retailers and end users until litigation between the patentee and the manufacturer concludes, (iv) requiring patentees to plead infringement with greater specificity, and (v) requiring patentees to disclose details of parties with ownership stakes and financial interests in the patent. In addition to the above, the professors ask Congress to consider additional legislation to curb fraudulent or misleading patent licensing demands. In contrast, a group of six university organizations have expressed reservations. First, they question the fairness of the Act’s fee-shifting provisions, which they believe will have a chilling effect on litigation by parties with limited means. The group suggests limiting the provision to cases where the plaintiff is not the named inventor or assignee of the asserted patent and does not make or sell a related product. Second, the universities argue that the definition of “interested party” in the joinder provisions is overbroad, as universities, their inventors, and non-profit technology transfer organizations are likely to be brought within the purview of the fee-shifting provisions. This may not only disincentivize patent litigation by universities and startups, but may ultimately have a deterrent effect on innovation. Additionally, the universities object to the Act’s pleading requirement, which they argue imposes a standard that may not be possible to meet until after discovery. The Act also does not clarify if the Plaintiff may amend the complaint to include new patent claims or infringing products after discovery. They argue that providing the information required by the provisions relating to the increased transparency of patent ownership may be beyond the capacity of even the best-intentioned plaintiff, and that the discovery limitations ought to be left to the discretion of judges. The contrasting positions taken by these groups reflect some potential ills and gains from the Act. Though many argue that the Act has a commendable purpose, its overbroad language may have unintended effects on universities and individual inventors.