Patent Reform Dead – Off the Senate Agenda

Senator Patrick Leahy

UPDATED May 21, 2014 @ 5:48pm ET

The writing has been on the walls for some time, as the Senate Judiciary Committee has repeatedly failed to produce a revised version of S. 1720, the Senate version of patent reform. Over the past several months an announcement would come that the Senate Judiciary Committee would be releasing a Managers’ Amendment to the pending legislation, only to have that postponed time after time. Today, Senator Patrick Leahy (D-VT) announced what many have been expecting for weeks, namely that patent reform would be tabled due to lack of consensus. But Leahy’s announcement went further, noting that not only would the Committee not release the long awaited updated version of the bill, but that patent reform would be removed from the Committee calendar altogether.

While Senator Leahy said that he hopes to be able to return to patent reform this year, the legislative calendar does not look good. Now removed from the Committee calendar patent reform seems to dead for this Congress.

No vote will be taken on the Senate version of patent reform until the next draft is released and voted on by the Judiciary Committee, which doesn’t seem likely to happen anytime soon. Then if the Senate does pass patent reform it is guaranteed to be different than the version passed by the House of Representatives. Ordinarily one might suspect that would lead to a Conference between the House and Senate, but Judiciary bills are rarely, if ever, sent to Conference. That means even if the Senate passes patent reform the bill would bounce back to the House, and we could see an ensuing game of ping-pong, with greatly intensified lobbying by both sides. All the while legislative days are dwindling, and useful legislative days in advance of the November election are even more limited. Indeed, with this announcement today it seems that patent reform is now dead for 2014. The only hope proponents have is that patent reform will sneak back in a lame duck session of Congress, but I believe that hope to be somewhat far-fetched.

The statement put out by Senator Leahy today read:

We have been working for almost a year with countless stakeholders on legislation to address the problem of patent trolls who are misusing the patent system. This is a real problem facing businesses in Vermont and across the country. Unfortunately, there has been no agreement on how to combat the scourge of patent trolls on our economy without burdening the companies and universities who rely on the patent system every day to protect their inventions. We have heard repeated concerns that the House-passed bill went beyond the scope of addressing patent trolls, and would have severe unintended consequences on legitimate patent holders who employ thousands of Americans. I have said all along that we needed broad bipartisan support to get a bill through the Senate. Regrettably, competing companies on both sides of this issue refused to come to agreement on how to achieve that goal. Because there is not sufficient support behind any comprehensive deal, I am taking the patent bill off the Senate Judiciary Committee agenda. If the stakeholders are able to reach a more targeted agreement that focuses on the problem of patent trolls, there will be a path for passage this year and I will bring it immediately to the Committee. We can all agree that patent trolls abuse the current patent system. I hope we are able to return to this issue this year.

The lack of consensus that Senator Leahy cited was real, and was undoubtedly what caused this patent legislation to die. Patents are not an issue that drives voters to the ballot box, and with what will be a very contentious election less than 6 months away, the Senate was obviously not in a mood to force members to cast a vote where there was such a significant disagreement between interest groups on basic, fundamental issues. The cynical observer would also notice that vast sums have been spent lobbying this patent reform issue, and when that happens and there is no consensus kicking the can into the next Congress just guarantees the continuous flow of money on Capitol Hill.

Substantively, the problem with this round of patent legislation was that there was real and legitimate concern that the legislation was going to cause significant problems for innovators and not just so-called patent trolls. See Why Patent Reform Harms Small Innovative Businesses and For Whom the Bell Tolls: The US Patent System. Adding to this reality was the fact that the ink is really barely dry on the America Invents Act (AIA), which was the most sweeping changes to U.S. patent laws since perhaps 1790. With the most radical of the changes ushered in by the AIA barely 14 months old, and the new contested challenges of issued patents at the USPTO being available since only September 2012, it was hard to understand the need to layer on yet more “reforms” without first giving time to see the impact of the AIA. This was the position of the AIPLA. It was just too early. The Federal Circuit just now lining up to hear the first wave of appeals. In short, additional changes on an already foundationally altered U.S. patent system were ill-considered, to be kind.

Politically, and procedurally, the problem for this round of patent legislation is that the United States Supreme Court recently mooted one of the leading drivers of this round of reform. Indeed, it is no understatement to say that in the wake of the Supreme Court’s decisions in both Octane Fitness LLC v. Icon Health & Fitness Inc. and Highmark Inc. v. Allcare Health Management Systems Inc., which both related to attorney fee shifting, the raison d’etre of the legislation was fundamentally called into question. In essence, these decisions gave Senators already skeptical and sympathetic to innovators who need patents to say that reform is simply unnecessary.

The fee shifting provisions of the patent legislation would have made it much easier for a prevailing party to obtain their attorneys fees in a patent infringement litigation. This was viewed by many as essential to combating patent trolls, who are those who engage in abusive litigation tactics and who exploit judicial inefficiencies to force defendants to pay far less than even nuisance value, which some federal courts have called “extortion like” behavior. But in Octane and Highmark, the Supreme Court discarded the framework under which the Federal Circuit has handled attorney fees for the past decade. With Octane Fitness the Supreme Court makes it easier for district courts to sanction plaintiffs for bringing meritless patent infringement suits, while Highmark makes it more difficult for the Federal Circuit to reverse district court decisions under the statute. See Easing the Standard for Recovering Attorneys Fees in Patent Cases and Supreme Give Broad Discretion to District Courts. The primary driver of the legislation, the anti-patent troll provisions, became moot and with it the legislation was doomed to die.

For more on fee shifting generally please see Patent Reform: Will Fee Shifting Solve the Patent Troll Problem?

For more on patent reform passing in the House of Representatives please see House Passes Innovation Act.

 

Comments from Industry Organizations:

In a statement received from the American Intellectual Property Law Association (AIPLA), Executive Director Todd Dickinson said:

This shows pretty clearly that addressing these issues is more complicated than many may have thought. The key has always been to find the right balance: deal with truly abusive behavior, while making sure that real innovators can enforce their rights. This is especially true for smaller inventors and entrepreneurs who may have been at greater risk in this process.

Just as with the Leahy-Smith America Invents Act, more time and broader constituent input may make for even better legislation, and we appreciate all the incredibly hard work that the Chairman, the Committee members and their staff put in on this bill to find balanced solutions to challenging concerns.

Pharmaceutical Research and Manufacturers of America (PhRMA) Executive Vice President and General Counsel Mit Spears issued the following statement on the patent legislation pending in the U.S. Senate:

PhRMA appreciates the efforts of Senate Judiciary Committee Chairman Patrick Leahy (D-VT) to achieve consensus on patent legislation and for recognizing that an overly broad bill could harm innovative companies and universities that depend on strong intellectual property protection.

We continue to support targeted efforts to curb abusive patent litigation rather than a broad, one-size-fits-all approach which would undermine the ability of patent holders to enforce their rights by filing and litigating a patent suit. This could impose substantial burdens on the ability to enforce legitimate patents effectively and efficiently, potentially decreasing the value of patents and weakening incentives for biomedical innovation.

PhRMA encourages the Committee to ensure that any legislation it considers would not create burdensome pleading requirements, impose undue restrictions on discovery prior to a claim construction ruling, create discriminatory standards for the award of attorney fees, or otherwise advance policies that restrict the rights of patent holders and chill innovation.  We look forward to working with Chairman Leahy and the Committee on a narrowly-focused approach to address so-called patent trolls.

Strong intellectual property protections are necessary to sustain America’s role as the worldwide leader in biopharmaceutical research and are critical to the industry’s ability to make the significant, long-term investment necessary to develop new therapies for the patients who need them.

“The first rule of patent legislation should be to do no harm,” said John Vaughn, Executive Vice President of the Association of American Universities. “We appreciate the efforts of Chairman Leahy and the entire Judiciary Committee to ensure that in addressing abusive behavior, we don’t undermine the system that all patent holders, including America’s inventors, entrepreneurs and universities rely upon to maintain and strengthen our country’s legacy as the global innovation leader.”

“The Innovation Alliance has long supported efforts to address abusive behavior, provided it does not come at the expense of a patent system that supports inventors and entrepreneurs, and has created the greatest economy in the world,” said Brian Pomper, Executive Director of the Innovation Alliance. “We applaud Chairman Leahy and all Judiciary Committee Members for their thoughtful recognition that an unbalanced policy will substantially weaken all patents and the rights of patent holders large and small, shortchanging job creation and our overall future economic growth. We appreciate the opportunity to work together to find a more balanced pathway forward.”

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14 comments so far.

  • [Avatar for Gene Quinn]
    Gene Quinn
    May 30, 2014 03:55 pm

    Lisa-

    IBM has never been a champion of the latest patent legislative reform. Google has been the big backer of those reforms.

    See:

    http://www.ipwatchdog.com/2013/04/01/ibm-chief-patent-counsel-on-patent-litigation-reform/id=38375/

    and

    http://partnershipforamericaninnovation.org/category/frompai/

    -Gene

  • [Avatar for Lisalisa]
    Lisalisa
    May 30, 2014 02:34 pm

    “This is a real problem facing businesses in Vermont.”
    Really? It’s hurting Killington Ski Resorts and Ben and Jerry’s?!?
    Not much going on in Vermont except IBM. Leahy is such a shill for IBM.

  • [Avatar for Anon]
    Anon
    May 22, 2014 02:07 pm

    American Cowboy,

    The best reason that I have seen given for wanting to know who owns a patent is the facilitation of a decision by a potential infringer as to whether to infringe or not.

    If one can ascertain the risk of being sued, then the decision to infringe or not can be made with a more certain risk/reward calculation.

    At least that is the thinking that I have seen. I am not sure just how certain that thinking is, given the result in the I4I case, but I would imagine that a certain level of certainty could be achieved if one can see that the patent holder is a small entity with a very limited financial position or a well-financed “Troll” entity or an entity (“Troll” or non-“Troll”) that has a history of pursuing litigation.

    While patent infringement as an offense is supposed to be a type of strict liability offense that would reaffirm your view of “If you infringe, [you] infringe, regardless of who the owner is,” the real world in which the various actors inhabit will provide certain advantages when more information is available.

    A better question might be geared to what might be the effect of making infringement decisions more like an actuarial, contract law “efficient breach” event as opposed to a stronger respect for the exclusiveness of patent right that would be reflected in a strong patent law.

    We do have a certain amount of history that correlates strong patent law with more innovation.

  • [Avatar for American Cowboy]
    American Cowboy
    May 22, 2014 01:50 pm

    I don’t see what the big deal is about hiding who owns the patent. If you infringe, your infringe, regardless of who the owner is.

    The Big Co. strategy of filing counterclaims when sued, of course gets frustrated when you don’t see any commercial activity by the patentee/plaintiff, but BigCo. thinks the true owner is a real business competitor who is genuinely infringing a BigCo patent, why not just go ahead and be the patentee/plaintiff in your own lawsuit? You even get to pick the forum! if it turns out your defendant was not related to the outfit suing you, so what? You still have a competitors infringement to curtail in your own suit.

  • [Avatar for Paul Morinville]
    Paul Morinville
    May 22, 2014 12:59 pm

    The problem with bringing it up year after year is that it creates confusion. Whatever the state of the law, it needs to be stable. Since the late 90’s it has not been. If it isn’t congress mucking around with it, the courts are. I think the message to congress needs to be back off. Let the AIA chips fall where they may and then look at the results before firing up another round of legislation. Just the fact that congress talks about another round is damaging in itself.

  • [Avatar for EG]
    EG
    May 22, 2014 12:31 pm

    Gene,

    Good riddance, hope (probably a faint one) that this legislation dies completely or at least is greatly modified to address what should be correctly called “litigation abuse,” not “patent abuse” (which it is not). Leahy’s snide remark for why S. 1720 failed is disingenuous in the extreme; S. 1720 (and even more so, HR 3309) are misguided and very poorly thought-through. Leahy and his henchmen should stop “throwing rocks” at the wrong “houses.”

  • [Avatar for patent leather]
    patent leather
    May 22, 2014 11:37 am

    Hopefully the “attributable owner” rules set forth by the USPTO is also going to be tabled for now (or at least revised)

  • [Avatar for Gene Quinn]
    Gene Quinn
    May 22, 2014 11:23 am

    Step at #3 above is exactly right! The anti-patent forces will continue to push for more and more “reform.” The war will continue in the next Congress and in the Courts.

  • [Avatar for angry dude]
    angry dude
    May 22, 2014 11:21 am

    “Troll” is not a legal term
    Until they stop crying about “trolls” and start thinking about improving PTO examination process and making patent enforcement drastically cheaper and more streamlined for every patent holder, large or small, there will be no solution to their (and our) problems.

  • [Avatar for Anon]
    Anon
    May 22, 2014 10:25 am

    Ron,

    I would suggest that we do not have a “Troll” problem per se.

    Rather, we have larger systemic problems that show themselves in patent litigation contexts.

    The larger systemic problems may have solutions that when enacted may draw even larger criticisms.

    For example, one of the criticisms is that bringing suit is too expensive, and this leads to shakedown suits. When one realizes that one cannot legitimately refuse to allow anyone their day in court, the only avenue of relief is to make suits less expensive. This will have the not-so-unforeseen effect of increasing (perhaps dramatically) the number of suits that can or might be pursued in court. The underlying desired but unstated result being aimed for is less enforcement of patent rights. Read between the lines and that is what is being aimed for by those who want weaker patents and more inoculation against being held accountable for infringement.

    The counter-intuitive answer is to make patent rights stronger and clearer. If rights were stronger and clearer, it would be less likely to have infringement in the first place, and instances of enforcement through the courts would drop. Of course, what this really means is that there needs to be more respect for patent rights in the first place, and less rhetoric from those invested in weak patents and the desire to infringe patents. Unfortunately, that is not likely to occur.

    Another systemic problem is general corporate structure. We as a society allow the underlying multitude of corporate structures – for a variety of reasons. The easy answer (that will not be taken for reasons of vested interests) is to simply overhaul corporations and tax law – stripping out and greatly simplifying the entire structure of what is allowed by law. In our little world, the myopic view is on the “hiding” of patent ownership. But that is literally only the tip of the iceberg, and patents are easily not the only asset that corporations hide and play shell games with. The real answer to this problem lay not with changing patent law. It lay in something far more extensive – with some real power players that will not let any real solutions to the underlying problems be put in place. Do you realize that the entire accounting industry could be wiped out with the stroke of a pen? Do you know how many non-patent business lawyers would be excess-ed (and with relative ease)? Would you be interested in any study showing the cost-benefit of revamping and greatly simplifying corporate structure and tax laws? But do you realize exactly why such will never ever happen?

    Real solutions to the “troll” problem begin with realizing that we do not have a troll problem. We have smokescreens and vested interests and politics as normal and lack of respect for patents problems.

  • [Avatar for Ron Hilton]
    Ron Hilton
    May 22, 2014 10:01 am

    A nice reprieve, but we do need to remain vigilant and also put forth a real solution to the troll problem, to head off any future attempts at the wrong solution. Unfortunately we have little agreement among ourselves as to what the right solution should be. I continue to believe that a right to sue based on crowd-sourced reexamination would go a long way toward increasing patent quality, reducing frivolous litigation, and strengthening and protecting legitimate IP rights.

  • [Avatar for step back]
    step back
    May 22, 2014 07:08 am

    Cause for celebration is premature.

    The anti-patents crowd has unlimited patience and unlimited resources.
    This was merely a minor battle.
    The war continues.

  • [Avatar for Paul Morinville]
    Paul Morinville
    May 21, 2014 09:50 pm

    Steve, The best would add “and we’re not going to pursue it next year either.”

  • [Avatar for Steve]
    Steve
    May 21, 2014 09:25 pm

    Best patent news of the month … if not the entire year.