innovation act

Tomorrow, the US House of Representatives is likely to vote on the Innovation Act, a landmark bill that has bipartisan support and would make life harder for the patent trolls that file frivolous lawsuits in order to extort payments from companies, and particularly tech companies. Rep. Bob Goodlatte’s bill passed the House Judiciary Committee by a margin of 33-5 votes, giving it rare bipartisan momentum as it heads to the floor for a full House vote.

The bill contains a number of provisions that would weaken patent trolls, including:

  • The institution of a “loser pays” system that would require litigants to cover the legal fees of the winning party in a patent dispute

  • Increased transparency requirements that would put an end to trolls hiding behind shell companies in patent suits

  • Heightened pleading criteria, which would demand that patent owners explain exactly how their patents are being infringed – a simple requirement that in many cases would prevent disputes from getting to court

The tech industry and the startup community are broadly supportive of the Innovation Act – the Electronic Frontier Foundation has called it “the best troll-killing act so far” – but that doesn’t translate to universal love. As well as the positives, there are some areas for concern. Here are five things to watch as the debate moves to the House floor on Thursday.

1. A way to double-check a patent’s worthiness is not part of the bill

Danny Siegle, director of operations at FindTheBest, a startup that has been vocal in its calls for patent system reform, says organizations such as Microsoft, IBM, and the University of California school system have been lobbying against an extension of a Covered Business Method (CBM) program that would empower the US Patent & Trademark Office to review the strength of patents that are due to be contested in court. The CMB provision, which today applies only to the financial sector, was not included in the Innovation Act, despite expectations to the contrary. Opponents fear it would slow patent disputes down and allow infringers to buy time in the litigation process.

Michael Beckerman, President and CEO of the Internet Association, shares Siegle’s concern. “If you’re a patent holder, and you have a business method patent, and you’re confident enough in that patent that you’re willing to sue somebody,” Beckerman asks, “how could you be fearful or opposed to the patent office taking a second look at it?”

Proponents of the CMB extension might have more luck in the Senate, if the process advances that far, where the provision is covered in a bill put forward by Sen. Chuck Schumer.

2. Demand letter transparency isn’t addressed

Part of the problem with trolls is that when they send demand letters to alleged infringers, they don’t specify the grounds on which they make their allegations. In most cases, recipients simply pay the fee in order to avoid the cost, risk, and protracted discovery and litigation process in court. While fraudulent and abusive, demand letters are addressed in Sen. Patrick Leahy’s bill before the Senate, they aren’t in the Innovation Act. But the issue still might come up for discussion.

“We anticipate this issue will be discussed during the floor debate,” says Jon Potter, president of the Application Development Alliance. “We welcome the discussion and affirmation that further legislation regarding demand letters will be forthcoming.”

3. A substitute amendment could undercut the bill

Reps John Conyers and Melvin Watt have put forward a substitute amendment would strip out the “loser pays” element of the bill, along with other key provisions. Mike McGeary, Engine Advocacy’s political director, sums up the substitute as saying: “Let’s not pass this patent bill. Let’s pass a totally different one that really doesn’t do any of the things we set out to do.”

Both Engine and the Consumer Electronics Association (CEA) are concerned about the substitute. “The substitute amendment coming from the two highest-ranking Democrats on the Judiciary Committee would undercut the bill to the point of gutting it,” says McGeary.

4. Will the vote count be high enough?

There have been rumbles on both sides of the aisle that Rep. Goodlatte is rushing the bill through, which could make the amendment process messier, notes PolitHacks’ Craig Montuori. That’s exactly the concern that the National Small Business Association has raised in calling for lawmakers to oppose the act. Similarly, the Coalition for 21st Century Patent Reform has said the bill needs more revisions in order to better protect manufacturers.

But it’s possible that opposition to the bill is being exaggerated. The CEA’s Michael Petricone says media coverage so far indicates that press is overstating the opposition in order to make a story. “The fact is that the majority of the US economy is strongly in support [of the bill],” he says. “Even pharma does not oppose it.”

Tech advocates are hoping for 300+ votes in favor of the bill so that it sends a strong message to the Senate. “We hope this will encourage our Senate allies to continue their good work and have hearings and a bill to debate early in the new year,” says Engine’s McGeary.

5. The bill treats the symptoms instead of the cause of the problem

While tech advocates consider the Innovation Act and other bills before the Senate important steps forward, many still think the bigger problem is that the patent office issues too many software and business process patents aren’t novel and are overly broad. “While all this legislation is necessary to help combat the abuse of the patent/legal system,” says FindTheBest’s Danny Siegel, “the root of the problem is with the USPTO issuing low quality patents.”

[Illustration by Hallie Bateman for Pandodaily]