Patent Reform Could Affect All Patent Owners

united-states-capitol-92Stopping “patent trolls” has become a cause celebre among members of the US Congress. There is broad bipartisan support to push through legislation that would slow down this perceived “tax on innovation.”

The only problem with these efforts is that in trying to rein in abusive practices by a small number of firms, Congress may pass legislation that will have a major impact on every patent owner’s ability to protect his or her intellectual property.

The House of Representatives passed the “Innovation Act” in December.  The Innovation Act has numerous provisions that could help curb abusive practices, such as requiring plaintiffs to provide more detail in the initial paperwork they prepare when filing a lawsuit.  It could also help lower the costs of patent litigation – which could benefit patentees as well as companies accused of infringement – by placing limits on expensive discovery.

There are, however, several provisions that should cause concern to every patent owner:

  1. Fee-shifting. The Innovation Act would make it the “default” that the loser pays the winner’s legal fees in patent litigation.  This is intended to slow down patent trolls, because they presumably would think twice before bringing lawsuits on the basis of weak patents or questionable infringement.  Unfortunately, this could harm smaller companies that own patents because even when a case has merit, victory is not assured.  A small company suing a large company such as Google or Facebook for patent infringement would face greatly increased risk in enforcing its intellectual property rights – especially since the large company could take steps that intentionally increase the legal costs with the intent to pressure the smaller patent owner to settle on unfavorable terms.
  2. Joinder.  Joinder is a provision that would allow anyone with a financial interest in the outcome of patent litigation to be joined as a party to the lawsuit.  Considering that patent litigation often costs more than $1 million, smaller companies usually have to find someone willing to help finance a patent enforcement action.  If the company providing the financing knows it may be joined as a party to the lawsuit, the result will be a higher price of capital to cover the higher risk, or in some cases the loss of the availability of financing.  Either way, this provision would be bad news for patent owners who don’t have the financial resources to finance patent enforcement on their own.
  3. Covered Business Method (CBM) Patent Reexamination.  CBM reexam is a patent office procedure that came into being in 2012 as part of the America Invents Act.  It was intended to address a perceived problem caused by the existence of weak software patents in the financial services industry.  The Innovation Act would make this “temporary” provision permanent and it would broaden the scope of patents that are “covered” by the procedure.  This should be of concern to every patent owner: so far the administrative arm of the patent office that is responsible for conducting these reviews, the Patent Trial and Appeals Board, has cancelled all or part of every patent that it has reviewed.

The “action” is currently in the Senate, which is considering the necessary “companion” legislation that would have to pass before the bill could become law.  The Senate seems to be taking a more measured approach than the House did.  Even though patent reform also enjoys strong bipartisan support in the Senate, the provisions that are problematic for patent owners do not have universal support.  It looks like the extension of CBM reexam will not be a part of the Senate bill, and there seems to be support for an alternative to ‘joinder’ as a method to ensure that patent plaintiffs can pay the other side’s legal fees if they lose. The central bill in the Senate is Senator Patrick Leahy’s “Patent Transparency and Improvements Act of 2013.” But there are those in the Senate lobbying in favor of the provisions that are most objectionable to patent owners, so there is still cause for concern.

If the US Congress does pass patent reform this term, it is virtually certain that President Obama will sign it into law – he even mentioned ‘patent trolls’ in his State of the Union address.  We will periodically update our readers on the progress of patent legislation in the US Congress.  Stay tuned.

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