Innovation Act most likely to face additional hearings before Senate takes action

WASHINGTON (Legal Newsline) – A bill aimed at curbing abusive patent litigation passed by the U.S. House of Representatives last month is still awaiting its fate in the U.S. Senate.

The Innovation Act, or House of Representatives Bill 3309, was approved in an overwhelming bipartisan vote of 325-91 Dec. 5 and has since been sent to the Senate.

A Senate committee hearing on the Innovation Act was held Dec. 17. But most likely, the legislation will face additional scrutiny before senators take any action.

Q. Todd Dickinson, executive director of the 17,000-member American Intellectual Property Law Association, said last week he expects more hearings to be held.

“Other entities, like small inventors and the academic community, haven’t been heard from yet,” he explained.

“Senate Democrats, in particular, have said that more voices need to be heard — not just the tech folks and retailers — before they proceed on this.”

Currently, the legislation requires:

• Plaintiffs to disclose who the owner of a patent is before litigation, so that it is clear who the real parties behind the litigation are. This will ensure that so-called patent trolls cannot hide behind a web of shell companies to avoid accountability for bringing frivolous litigation;

• Plaintiffs to actually explain why they are suing a company in their court pleadings;

• Courts to make decisions about whether a patent is valid or invalid early in the litigation process so that patent trolls cannot drag patent cases on for years based on invalid claims. This prevents invalid patents from being used to extort money from retailers and end users;

• The U.S. Judicial Conference to make rules to reduce the costs of discovery in patent litigation so that patent trolls cannot use the high costs of discovery to extort money from small businesses and entrepreneurs; and

• The U.S. Patent and Trademark Office to provide educational resources for those facing abusive patent litigation claims.

Also, when parties bring lawsuits or claims that have no reasonable basis in law and fact, the Innovation Act requires judges to award attorneys’ fees to the victims of the frivolous lawsuit. 

The bill allows judges to waive the award of attorneys’ fees in special circumstances. This provision applies to both plaintiffs and defendants who file frivolous claims.

The measure also creates a voluntary process for small businesses to postpone expensive patent lawsuits while their larger sellers complete similar patent lawsuits against the same plaintiffs, to protect customers who simply bought the product off-the-shelf.

Dickinson testified during last month’s hearing on “Protecting Small Businesses and Promoting Innovation by Limiting Patent Troll Abuse” on behalf of the AIPLA, a national bar association made up primarily of intellectual property lawyers.

He argued that the reforms of the Leahy-Smith America Invents Act, or AIA, should be given a chance to work first.

“We believe that the prudent course is to give these reforms the chance to demonstrate their efficacy to deal with the concerns for which they were created before we consider making significant additional changes, which may have their own unintended consequences,” Dickinson told federal lawmakers.

The AIA, signed into law in 2011 and its central provisions put into effect in March 2013, switched the U.S. patent system from a “first to invent” to a “first inventor to file” system, eliminated interference proceedings and developed post-grant opposition.

“In support of this proposition to wait and see how they are working, we would simply point out that the AIA itself requires that the USPTO study the reforms implemented by the AIA and report back to Congress by Sept. 16, 2015,” Dickinson said at the hearing last month.

Dickinson served as the director of the USPTO from 1999 to 2001.

“Those reports would serve as an important and more empirically-driven body of data, which would allow for greater clarity and direction in making any necessary changes,” he said.

But the group does understand some lawmakers’ concerns.

“Since the passage of the AIA, there has emerged a practice by some patent rights holders of sending widespread distributions of demand letters — often to small and patent unsophisticated end users such as ‘mom and pop’ businesses, coffee shops, retail stores or restaurants, who have often acquired and used equipment or services often ancillary to their primary business,” Dickinson testified.

“These letters, often threatening, allege infringement of a patent or patents, sometime without citing to them specifically, rarely suggesting how the end-user is infringing specifically other than perhaps by using a particular broadly identified technology, such as ‘scanner,’ and demanding relatively small amounts to settle an alleged dispute or provide a license.

“Demand letters are nothing new and have been sent and received by both large and small companies for years. However, the law has evolved such that it has become more difficult for patent holders to assert allegations of direct infringement against service providers or product suppliers, with the result that more and more patent holders have reached out to downstream customers to assert their patents.”

The AIPLA is among those groups urging Congress to take a “balanced approach” when it comes to any additional reforms.

“We believe that it is imperative that any legislation in this area, which aims to reduce incentives for abuse, should do so while preserving the traditional rights of patent owners to protect and secure reasonable returns on their innovations, safeguarding the interests of users before the USPTO and the courts, and maintaining judicial discretion to appropriately manage litigation,” President Wayne Sobon wrote to House leaders ahead of the Dec. 5 vote.

“AIPLA believes that such legislative reforms should approach the process by carefully targeting specific abusive actions, rather than singling out patent litigation or a particular category of litigant with inflexible statutory changes to the judicial process. Instead, it should encourage individual courts to more readily exercise their discretion in applying existing tools for case management, or, where necessary, the courts acting collectively could provide new tools that maintain the discretion and flexibility so important to trial judges.”

A Senate version of the Innovation Act was introduced by U.S. Sen. Patrick Leahy, D-Vt., in November.

The Patent Transparency and Improvements Act of 2013, or Senate Bill 1720, also is lingering in the Senate. It was assigned to a congressional committee on Nov. 18. It must be considered before it is possibly sent on to the House or Senate as a whole.

The biggest difference between the Innovation Act and Leahy’s proposed legislation is that S. 1720 does not include the provisions that would force patent infringement case management rules on the district courts or procedures as to pleading, discovery timing and limits, cost-shifting related to discovery or loser-pays fee shifting.

From Legal Newsline: Reach Jessica Karmasek by email at patents@legalnewsline.com.