Innovation Act Fast Tracked Despite Committee Concerns

Congressman Goodlatte (R-VA), Chair of the House Judiciary Committee

UPDATED: Monday, Nov. 18, 2013 at 1:13pm

Last week CQ Roll Call reported that House Judiciary Chairman, Congressman Bob Goodlatte (R-VA), is continuing to fast track the Innovation Act (HR 3309) despite growing concerns from both Republican and Democrat members of the House Judiciary Committee. CQ Roll Call reports that there are 8 members of the Judiciary Committee who are asking for more time to study the legislative proposal. Two of those 8 are Congressman John Conyers (D-MI), who is currently Ranking Member on the Committee and himself a former Chair of the House Judiciary Committee, and Congressman James Sensenbrenner (R-WI), also a former House Judiciary Chair.

It is hard to understand the rush to move on the Innovation Act, which was only introduced a little more than three weeks ago on October 23, 2013. Yet, despite bipartisan misgivings within the House Judiciary Committee and a growing concern among innovators and Universities, Goodlatte is planning a markup of the legislation for Wednesday, November 20, 2013.

By e-mail sent late this morning House Judiciary Committee Members were advised that if they wanted Amendments to be considered they needed to be pre-filed no later than 11:15am on Tuesday, November 19, 2013. Accompanying this e-mail were the current version of HR 3309 as well as the Manager’s Amendment.

Of course, action in Committee does not guarantee passage by the full House of Representatives, but a bill supported by a senior member of Republican leadership like Goodlatte should certainly get its day on the floor in the House if it makes it out of Committee, which I suspect it will. Even then it would have to go across the Capitol to the Senate before it would ever wind up on the President’s desk.

Senate Majority Leader Harry Reid (D-NV) has shown virtually no willingness to bring up any Republican supported House legislation to the Senate, so perhaps he continues that trend and any House patent reform bill will die like so many others in the Senate. With patent reform being largely apolitical, I’m not holding my breath that Reid would stall. In fact, with such an apolitical issue Congress may actually rush this through in order to say that they have accomplished something — anything really.

Time is of the essence for those who are not happy with the Innovation Act. It may already be too late to influence the outcome in the House, but with a bipartisan group of Judiciary Committee members questioning the bill there may still be time. Long thinkers may want to start plotting a Senate strategy.

Perhaps Senator Mary Landrieu (D-LA) may be someone who could come to the rescue. Over the years she has been very attentive to the small business community, and in past patent reform legislative debates has wanted to not only hear from the small business community, but has also wanted studies conducted to determine the impact on small businesses. Furthermore, if news reports are to be believed, Senator Landrieu will be in for a significant battle to retain her Senate seat in 2014. Perhaps she might see the wisdom in coming to the defense of independent inventors, small businesses, start-ups, biotechnology companies and Universities who are opposed to the Innovation Act?

It would seem logical that someone like Landrieu could be persuaded to call a “time-out” here given that the House Judiciary Committee has not sought the input of any independent inventors or small businesses. The fact that no inventors or small businesses have been consulted in and of itself raises serious questions given the speed with which Goodlatte wants to move this bill. What is the hurry? Why so fast? Is this part of a strategy to make sure that the less politically organized and motivated within the innovation community won’t be able to mount a challenge and affect changes to the bill?

Seriously, what is the hurry to pass the Innovation Act? It has been barely two years since the America Invents Act (AIA) was passed, being signed into law on September 16, 2011. See The Bill is Signed. And the most dramatic of the changes contained within the AIA didn’t become effective until March 16, 2013, which is just 8 months ago. See A Brave New Patent World. Simply stated, there hasn’t been enough time to see what impact the AIA will have on innovation policy and the business of innovation.

Substantively speaking, the Innovation Act has some good ideas that many can support, such as requiring patent infringement complaints to contain more detail. That nicely fits within our idea of justice and fair play because it puts defendants on notice of what they are being charged with. But there are significant areas of grave concern among the most innovative entities in the United States, and questions being raised by influential members of the House Judiciary Committee.

One major question is whether we really want to go to a loser pay system with respect to patent infringement litigation? That sounds nice, but it will no doubt have a chilling effect, perhaps most chilling on the entities that are not abusers of the litigation system. It will undoubtedly make it harder for small businesses and start-ups to obtain the critical funding they need because investors will rightfully worry about whether the company may ultimately become embroiled in patent litigation, lose and then have to foot the bill for the entirety of the litigation. Even more problematic is the loser pay provisions coupled with the joinder provisions, which the University community believes could lead to entities being pulled into patent litigation against their will. If that happens and they lose they would be on the hook for paying the fees of the other side despite not willingly participating in the litigation. How is that fair? That would have a significant chilling effect without a doubt.

Believing the ills of the litigation system can be solved by moving to a loser pays system strikes me as both naive and wishful thinking. Additionally, to the extent there has been a spike in patent litigation it has been in direct response to the America Invents Act. Indeed, it was by design. Congress wanted to prevent the bad actors from suing many dozens of defendants in the same case where there was no commonality between claims other than the patent that was alleged to be infringed. Indeed, virtually all district courts already followed that sensible rule, but a few district courts allowed dozens, or even a hundred or more defendants to be sued in the same case. Congress put a stop to that and apparently it didn’t even cross anyone’s mind that the patent owners would still sue, but sue far fewer defendants and thereby require far more lawsuits to accomplish their goal.

If Congress couldn’t predict that unintended consequence when it was clearly obvious to everyone in the industry, why should we think that they can any better predict the unintended consequences associated with moving to a loser pay system? Particularly when a loser pay system will strike at the heart of the incentive to patent in the first place and could drive innovation underground straight into the arms of trade secret protection, which prevents organic growth and relying upon the efforts of others to slowly improve over time. Never until passage of the AIA did U.S. patent policy favor trade secrets. It is a mistake to tip the incentive structures without a thorough and complete study of the likely outcomes. It would be unconscionable to do so without independent inventors, small businesses and Universities being heard.

Believing loser pay is the silver bullet solution also perpetuates the myth that district court judges are wholly incapable of managing their courtrooms to prevent the bad actors from engaging in shakedown litigation. Judges have substantial power to run their courtrooms, many do exert that power appropriately and more should in order to prevent some of the truly egregious actions by a handful of entities that sue on bad patents and don’t care at all whether the defendant is infringing. These actors will settle at times for a little as $500 to $1,000 dollars. I understand that Judges are not wired to believe malfeasance is occurring, but it happens so broadly that if I were a district court judge I would be ordering scheduling hearings immediately and push hard to know what is really going on. The local rules for patent cases in the Northern District of Illinois are a model for proactive management of patent litigation.

Furthermore, acting as if loser pays is the answer perpetuates the myth that the litigation abuses we see are the result of the patent system. In fact, the litigation abuses we see are no different than litigation abuses in other areas, such as medical malpractice, for example. There have always been and there will always be lawyers that seek to exploit judicial inefficiencies to achieve some kind of settlement during litigation even if the claims they bring are bad, or even really bad to the point that they are nearly frivolous (or are frivolous).

Finally, allow me to point out that the loser pay provisions of the Innovation Act are not the only provisions that demand further scrutiny. However, the loser pay provisions are at this point drawing the most attention.

Stay tuned!