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By Mengyi Wang – Edited by Kathleen McGuinness

H.R. 3309 - Innovation Act

Photo By: Domas MituzasCC BY 2.0

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.”

Posted On Nov - 3 - 2013 5 Comments

5 Responses so far.

  1. HR 3309, the so-called “Innovation Act”, was introduced in Congress only two weeks ago. It’s already through the House Judiciary Committee and on the fast track. It’s really an “Anti-Innovation Act”, designed to make it more expensive for inventors to enforce their patents by making litigation more expensive and complex.

    HR 3309, like the previous “SHIELD Act”, is supposed to stop “patent trolls”. But it’s much broader. It makes “loser pays winner’s legal costs” the standard. For a small entity to sue a big company with expensive lawyers becomes financial suicide. The SHIELD act had something similar, but it exempted the original patent holder, someone manufacturing the invention, and universities. HR 3309 doesn’t do any of that. It allows big infringers to crush small companies and inventors beneath their boots.

    This bill is a triumph of effective lobbying by the American Association of Advertising Agencies and the Direct Marketing Association (the junk-mail lobby). This is a surprising source of opposition to patent enforcement, but there’s a specific reason for their interest. There are four patents related to targeted advertising which cause advertising agencies problems. To get rid of those patents, the advertising industry has convinced other ad-supported companies to support a huge change in patent law. The changes all favor big companies over little ones by making litigation more expensive.

    None of the PR supporting HR 3309 mentions specific patents. Past complaints about patents were typically about ones involving picture or video compression (the GIF patent, the JPEG and MPEG-LA patent family) or communications protocols (the classic Hayes modem patent). Not this time. It’s all about making litigation tougher for the patent holder.

    The A4s (what the American Association of Advertising Agencies calls itself) has a list on their web site of patents they are concerned about:

    6,628,314 and 6,771,290 (relates to targeted advertising),
    5,251,294 (“Accessing, assembling, and using bodies of information” – rather vague),
    5,930,474 (store locators)

    That’s the source of the push behind this bill. Other companies have signed on, but the ones behind it are all involved heavily in online and mobile advertising.

    This bill isn’t about “bad patents”. There’s nothing in this bill about increasing patent quality by raising the “obviousness” bar. That’s because of opposition from the pharmaceutical industry, where many drugs are “me-too” drugs, very similar to existing drugs. (Ref: http://community.seattletimes.nwsource.com/archive/?date=20020416&slug=clarinex16) As the A4s wrote in their letter to the FTC (http://www.ftc.gov/os/comments/pae/pae-0035.pdf)

    “What seems like a bizarre and wasteful tactic in the high-tech industry can be a basic good practice in the pharmaceutical industry.”

    They thus advocate a double standard so as not to antagonize a group of heavy advertisers.

    The patent troll industry exists because, in the last decade, it’s become much tougher for inventors to enforce patent rights. Four changes in law did this:

    (2006) “eBay v. MercExchange ” The patent holder can’t get an injunction against infringement any more, except in extreme cases. This destroyed the concept of a patent as property that only the patent holder could use.

    (2007) “In re Seagate” The patent holder can’t get triple damages unless there is “reckless infringement”, which means the worst that can happen to an infringer is that they have to pay a royalty, the same royalty they might have negotiated. So infringement by a big company is risk-free.

    (2007) MedImmune, Inc. v. Genentech, Inc. If a patent holder writes to an infringer asking them to pay royalties, they can be sued for a judgement that the patent is invalid, in a court of the infringer’s choosing. So, as a patent holder, you have to file suit before you can negotiate. This is why “patent trolling” became necessary.

    (2011) The “America Invents Act” The “America Invents Act” added “post-grant opposition” proceedings, so now infringers can harass patent owners and stall infringement claims in multiple forums. Note that one of the “features” of HR 3309 is to limit estoppel so that similar issues can be raised once in a post-grant opposition and then re-raised in an infringement case. This makes it clear it’s all about raising the cost of enforcing a patent by wearing down the patent holder.)

    Because of those changes, enforcing a single patent is no longer financially feasible in most cases. A big patent portfolio is needed. You either have to be a big patent holder like IBM or Google, or you have to deal with a company that aggregates patents to monetize them. This created the “patent troll” industry.

    One effect of all this anti-patent effort is a shortage of new ideas. The Silicon Valley venture capital community, which had been profitable since the 1970s, has been losing money as a group since 2001. Most “new ideas” presented to VCs today are rather banal. VCs complain about this. Everyone seems to want to do a “app”. Without strong intellectual property laws, what matters is time to market and promotion, not innovation.

    So, to save innovation, write your Congressional rep and ask them to oppose HR 3309. Send them the facts above. Many people don’t know what’s really going on here.

    John Nagle

  2. [...] Innovation Act of 2013 – Latest Effort to Disarm Patent Trolls (jolt.law.harvard.edu) [...]

  3. staff says:

    ‘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’

    Now that is some first rate dissembling. The word on the street is EFF is a paid puppet for some of the world’s biggest invention thieves.

    “patent troll”

    infringers and their paid puppets’ definition of ‘patent troll’:

    anyone who has the nerve to sue us for stealing their invention

    This is just spin control by large infringers to cover up their theft.

    The patent system now teeters on the brink of lawlessness. Call it what you will…patent hoarder, patent troll, non-practicing entity, shell company, etc. It all means one thing: “we’re using your invention and we’re not going to stop or pay”. It’s a pure red herring by large invention thieves and their paid puppets to kill any inventor support system. Their goal is to legalize theft. The fact is, many of the large multinationals and their puppets who defame inventors in this way themselves make no products in the US or create any American jobs and it is their continued blatant theft which makes it impossible for the true creators to do so. To them the only patents that are legitimate are their own -if they have any. Meanwhile, the huge multinationals ship more and more US jobs overseas.

    It’s about property rights. They should not only be for the rich and powerful -campaign contributors. Our founders: Jefferson, Franklin, Madison and others felt so strongly about the rights of inventors that they included inventors rights to their creations and discoveries in the Constitution. They understood the trade off. Inventors are given a limited monopoly and in turn society gets the benefits of their inventions (telephone, computer, airplane, automobile, lighting, etc) into perpetuity and the jobs the commercialization of those inventions bring. For 200 years the patent system has not only fueled the US economy, but the world’s. If we weaken the patent system, we force inventors underground like Stradivarius (anyone know how to make a Stradivarius violin?) and in turn weaken our economy and job creation. Worse yet, we destroy the American dream -the ability to prosper from our ingenuity for the benefit of our families and communities. To kill or weaken the patent system is to kill their futures. Show me a country with weak or ineffective property rights and I’ll show you a weak economy with high unemployment. If we cannot own the product of our minds or labors, what can we be said to truly own. Life and liberty are fundamentally tied to and in fact based on property rights. Our very lives are inseparably tied to our property.

    Prior to the Supreme Court case eBay v Mercexchange, small entities had a viable chance at commercializing their inventions. If the defendant was found guilty, an injunction was most always issued. Then the inventor small entity could enjoy the exclusive use of his invention in commercializing it. Unfortunately, injunctions are often no longer available to small entity inventors because of the eBay decision so we have no fair chance to compete with much larger entities who are now free to use our inventions. Essentially, large infringers now have your gun and all the bullets. Worse yet, inability to commercialize means those same small entities will not be hiring new employees to roll out their products and services. And now those same parties who killed injunctions for small entities and thus blocked their chance at commercializing now complain that small entity inventors are not commercializing. They created the problem and now they want to blame small entities for it. What dissembling! If you don’t like this state of affairs (your unemployment is running out), tell your Congress member. Then maybe we can get some sense back into the patent system with injunctions fully enforceable on all infringers by all patentees, large and small.

    Those wishing to help fight big business giveaways should contact us as below and join the fight as we are building a network of inventors and other stakeholders to lobby Congress to restore property rights for all patent owners -large and small.

    For the truth about trolls, please see http://truereform.piausa.org/default.html#pt.

  4. [...] There is legislation pending in the U.S. to help stop patent trolls. Help support it. [...]

  5. [...] More info from Harvard Journal of Law and Technology : [...]

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