Everything you need to know about how Congress is debating patent reform
The tech industry has been vocal in the immigration debate, which took a major step forward when the Senate passed a comprehensive bill that, if signed into law, would provide a path to citizenship for undocumented immigrants and enact a number of tech-friendly measures, including upping the cap on high-skilled immigrants under the H-1B visa, and introducing a “startup visa” for foreign entrepreneurs who want to start companies in the US. Now that immigration reform has moved onto the US House of Representatives, some tech parties are pushing forward with the next legislative priority: patent law reform – the subject of our special report this month, “Patent Troll Smackdown.” (This is the first post in that series.)
In June, President Obama signalled his support for sweeping reforms by signing an array of executive orders and legislative recommendations that would make it harder for patent-holding companies -- “patent trolls,” in particular -- to embark on spurious litigation. “While no single law or policy can address all these issues, much can and should be done to increase clarity and level the playing field for innovators,” the White House said in a statement at the time.
Tech groups such as the Application Developers Alliance (the sponsor of this special report) and the Electronic Frontier Foundation have been lobbying hard against the existing patent laws, which they say are too accommodating to patent trolls and effectively serve as a “tax on innovation.” These groups and the members of Congress submitting patent reform bills are reacting in part to a sharp increase in the number of patent infringement law suits filed in recent years. The number of such suits jumped from 2,304 in 2009 to 4,731 in 2012, according to patent defense group RPX. As the New York Times pointed out in a profile of alleged patent troll Erich Spanenberg, a study by researchers from Boston University has found that US companies collectively spent $29 billion on patent assertion cases in 2011 alone.
Since Obama signed the executive orders, the push for legislative reform on patent issues has only intensified. There are now six bills and discussion drafts before Congress that strive to change the way the US considers, awards, and litigates patents. Here’s an overview of what is in each proposal.
Introduced by Reps. Jason Chaffetz (R-UT) and Peter DeFazio (D-OR) in February, the “Saving High-Tech Innovators from Egregious Legal Disputes” bill would create a “loser pays” system for lawsuits in which patent assertion entities that aren’t actively using their patents would be forced to pay a defendant’s legal bills if they lose their lawsuits. Losing defendants, however, wouldn’t have to pay. The bill also seeks to define what a “patent troll” is. According to the SHIELD Act, the patent holder would fit that description unless it is an inventor or original asignee, is actively using the patent, or is a university of “technology transfer organization.”
The tech sector likes the bill, but some, such as the Applications Developers Alliance, have pointed out that some developers and startups can’t afford to pay lawyers for even one litigation in the first place.
Sen. Chuck Schumer (D-NY) introduced the Patent Quality Improvement Act in May in an effort to save companies “billions of dollars in litigation fees by allowing the Patent and Trademark Office to review unwarranted claims in lieu of expensive lawsuits.” The bill would better accommodate startups and software developers by changing the language around what types of businesses are covered under the America Invents Act, a 2011 law that changed the patent system from a “first to invent” to a “first inventor file” system.
The EFF welcomed the bill, but wished it would go further. Because the PTO often issues overly broad patents, the EFF charged, anyone should be able to challenge questionable patents -- not just those threatened with a lawsuit.
Also in May, Rep. Ted Deutch (D-FL) introduced a bill that would provide a way to confirm who owns a particular patent, and which patents a particular person or company owns. In short, it would require the disclosure and ownership, and transfer of ownership, of patents. Thanks to poor record-keeping and some underhand business tricks, there is a lack of transparency in the patent system that can be worked to patent trolls’ advantage. NPR’s This American Life, for instance, recently exposed the complicated connections Intellectual Ventures had to patent assertion entities that effectively masked how much IV was benefitting from patent infringement lawsuits.
The EFF’s take: “Rep. Deutch's bill provides a welcome fix to a legitimate problem with patent transparency, but repairing one component still leaves us with a broken machine. Real patent reform must be bigger.”
At the end of May, House Judiciary Committe Chairman Bob Goodlatte (R-VA) issued a bipartisan discussion draft designed to help reduce the costs of frivilous litigation and increase patent certainty. The main points covered in the discussion draft concern incentivizing settlement in patent litigation, require greater specifity on patent infringement forms filed to courts, and improve transparency in patent assertion.
Introduced in late May by Sen. John Cornyn (R-TX), the Patent Abuse Reducation Act proposes “fee shifting” in patent assertion litigation, which would mean any party accused of infringing on a patent that wins a case in court would have its costs covered by the bringer of the lawsuit. The bill would also force patent assertion entities to be specific about their complaints, while removing their anonymity by requiring them to identify themselves and other businesses and individuals connected with the patent in question (thus preventing “trolls” from hiding behind shell companies). It would also prevent trolls to “double sue” alleged infringers by first suing with a shell company and then suing with a different shell company.
While Rackspace, which is fighting a patent infringement suit, called the Corneyn bill a “breath of fresh air,” the EFF had the same response to this one that it had to Schumer’s bill. “[T]hese reforms are all litigation focused and, thus, limited. We believe the problem is much bigger. The bill does not address patent quality and fails to consider what the Patent Office could do to help those facing lawsuit threats.”
Just a few days ago, Hakeem Jeffries (D-NY) and Blake Farenthold (R-TX) introduced the Patent Litigation and Innovation Act, which would set a higher bar for patent infringement actions and give alleged infringers more opportunity to assess and protest the legitimacy of such claims. (In many cases, alleged infringers choose to settle such lawsuits out of court rather than go through a costly defense process.) It also seeks “to discourage frivilous matters from being commenced” by increasing judicial scrutiny for abusive litigation.
The Internet Assocation, the Applications Developers Alliance, and the Consumer Electronics Association have all praised the bill. “The Patent Litigation and Innovation Act focuses like a laser beam on the important issue offrivolous lawsuits brought by patent trolls -- companies that do not produce products or services, but sue those who do,” CEA president and CEO Gary Shapiro said in a statement. As ever, though, the tech groups suggested the bill was a piece of an overall solution, and not enough on its own.
In sum, the tech sector appears to be relatively happy about the progress that the patent law debate has so far made on Capitol Hill, but groups such as the EFF and the App Developers Alliance are hoping for much more. While there appears to be a genuine appetite in Congress to tackle the problems associated with patent trolls, the legislative proposals stop short of completely cauterizing the problems in the system. Mike Masnick summed up those perceived shortcomings on his blog Tech Dirt. “There's nothing like an independent invention defense (or independent development as evidence of obviousness),” Masnick wrote of the bills, “or any effort to seek out peer review of patent proposals – both of which would cut down on many bad patent trolling shakedowns.”
Because the debate over patent law is likely to be drawn out -- the America Invents Act took seven years to become law -- it’s also possible that the bills will be watered down amid the political jockeying as they travel through the legislative process. Says Masnick: “If we're already starting with relatively weak proposals, once they go through the ringer and the pharmaceutical companies (mainly) strip out the parts they don't like, we may be in for another toothless bill.”
For those on the side of patent law reform, in other words, progress is certainly being made, but, as with anything in politics, it is uncertain progress.
[Illustration by Hallie Bateman]
* The PandoDaily series "Patent Troll Smackdown" is brought to you by the Application Developers alliance. To join the fight against patent trolls and tell Congress that innovators need patent reform please visit devsbuild.it/fightpatenttrolls. (Sponsored message.)