House of Representatives passes the Innovation Act

The United States has been discussing reducing the activities of NPEs/PAEs/trolls through new legislation for a long time now. The SHIELD Act was already addressing this topic, and now the Innovation Act is making its way up Capitol Hill to tackle the same issue. As many readers know, this topic has been already discussed many times on the IPKat; there remains an  ongoing debate as to whether it constitutes an issue and, if so, to what extent.

Many solutions have indeed been proposed by law makers, academics and practitioners to fight against abusive patent lawsuits. One way is to act not against patentability in itself but on the way patents are enforced before a US court. That is the path chosen by this new piece of law.

On 5 December 2013 the Innovation Act passed the House of Representatives and is now going to be proposed to the Senate. This text, spearheaded by Republican Bob Goodlatte, was approved by a vote of 325 to 91.

Rep Bob Goodlatte

This bill has gained wide support among the rest of the House of 

Representatives as well as outside Congress. Indeed, the White House has already made it clear that abusive patent litigation has to be fought, stating: 

“It is clear that the abuse of the patent system is stifling innovation and putting a drag on our economy. The trolling has gotten out of control, and it’s time to act".

This support probably explains why the bill, introduced to Congress on October 23 and marked-up on November 20, was passed so quickly.

The aim of this legislation is to amend the American Invent Act in order to limit the possibilities for patent assertion entities to enforce their patents.  

The act aims first at transparency by requiring a plaintiff to disclose at an early stage a good deal of information including identification of patents allegedly infringed, claims infringed, process, machine or any products related to the infringement. Starting infringement proceedings should be harder than before, considering the increased amount of work to be done before the first hearing.

Moreover, a significant change relates to the fee and expenses of the trial. In section 285 (a), the bill states:

The court shall award, to a prevailing party, reasonable fees and other expenses incurred by that party in connection  with a civil action in which any party asserts a claim for relief  arising under any Act of Congress relating to patents, unless the court  finds that the position and conduct of the non prevailing party or  parties were reasonably justified in law and fact or that special  circumstances (such as severe economic hardship to a named inventor)  make an award unjust [Here comes the loser pays rule, yells Merpel].

 This means that the loser of a patent infringement litigation has to pay the winner's attorney fees unless the loser’s positions were objectively reasonable. While Europe is quite familiar with this rule, itss introduction into the US system would be an important change. 

Another point relates to transparency of patent ownership. When filing a complaint for patent infringement, the plaintiff will have to disclose the assignee of the patent or patents at issue, any entity with a right to sublicense or enforce the patents at issue, or any entity that the plaintiff knows to have a financial interest in the patent or patents at issue. This could potentially mean that the Congress is not only trying to fight against frivolous assertion but also to avoid any privateering strategies.

Demand letters are also adressed in this bill, following an amendment made before the vote by Congressman Jared Polis, which strengthens the demand letter transparency language that was already included within the Innovation Act. An aggressive troll business model implies to send many demand letters offering to settle a dispute newly initiated between a company and the allegedly infringer. Another Bill, supported by Senator Patrick Leahy called the Transparency and Improvements Act of 2013, addresses the same issue.

Further, in the situation where a lawsuit might be launched against manufacturers and retailers/customers,  the bill proposes that Courts stay the proceeding against end user companies until the court reaches a decision on manufacturer infringement. This is called the customer suit exception.

The bill proposes the stay to apply only to the patents, products, systems, or components accused of infringement in the action. A customer is here defined as a party accused of infringing a patent based on a covered product or process. Many questions arise from that and the consequences on the lP market.

*       Since no one can define what a patent troll is or what kind business model should be regulated regarding patent litigation, everybody will be affected by this bill. This means that the bill is not only going to make it harder to enforce a patent for PAEs but will do so potentially for any kind of business. Another point to consider is that this law will affect all industries. PAEs do not conduct business in all industries and indeed most patent owners will never have to deal with them.

*       The level of details relating to the disclosing requirements remains unclear.

*      The efficiency of this bill against PAEs remains the main concern. The bill aims at fighting frivolous assertions. Indeed, everybody seems to agree  that a PAE trying to get a small settlement on the basis of a weak patent by using the threat of a costly litigation should not be allowed. But many people fear that this bill will do more harm than good.

*    Is it going to be less expensive to enforce a patent before? Maybe, if starting litigation will cost more money, the discovery phase would be reduced to core documents. The bill states that discovery should be limited to " information necessary for the court to determine the meaning of the terms used in the patent claim, including any interpretation of those terms used to support the claim of infringement."

Like every significant change in US IP law, this Act has already split the US asunder. Many big companies such as Google, Yahoo and ITC big pockets, have already expressed their support in favour of this Act, as well as the Electronic Frontier Foundation This makes sense since they are the one fighting everyday with PAEs. On the other hand, many professional associations have raised their concerns against the Innovation Act, for diverse reasons. This group includes the American Intellectual Property Association and the Biotechnology Industry Organization.
It is unlikely that the Innovation Act will pass through Senate before the new year, and the debate will surely raise more thoughts and comments, depending on the way this Act will be amended.