Innovation Act makes patents harder to enforce, easier to infringe

By Brian Pomper
April 16, 2015

anchor-businessmanMany of the provisions of H.R. 9 would unnecessarily undermine the enforceability of all U.S. patent rights, even when clearly valid patents are being enforced in good faith against clearly infringing actors. While a consensus on measures to target abusive behavior in patent litigation is achievable, the sweeping provisions of the Innovation Act cannot be supported.

A wide and diverse group of stakeholders from throughout the U.S. economy – including the university, individual inventor, biotech, pharmaceutical, venture capital, medical device, and startup communities – have repeatedly articulated specific concerns with H.R. 9 and offered changes to address those concerns while still targeting abusive behavior in patent litigation. These efforts have not led to the significant changes necessary to keep H.R. 9 from harming the U.S. economy.

In the time since the Innovation Act first passed in December of 2013, multiple changes to the patent legal landscape have reduced the patent litigation rate by 18 percent year-over-year from 2013 to 2014. The U.S. Supreme Court decided six patent cases in 2014, which together make it easier to defeat weak patents, harder to prove infringement, and easier for courts to impose attorney’s fees and costs on those who file abusive lawsuits. Recent studies found that courts have invalidated between 70 and 80 percent of patents challenged under the Supreme Court’s Alice v. CLS Bank International decision, and that fee awards to prevailing accused infringers have quadrupled since the Supreme Court’s decision in Octane Fitness v. Icon Health & Fitness. In addition to these court decisions, the Judicial Conference of the United States adopted changes to the Federal Rules of Civil Procedure that would hold patent cases to the same heightened pleading standards as other federal cases. Moreover, the new inter partes review system (“IPR”) created by the America Invents Act of 2011 provides a faster and less expensive means to challenge weak patents and has had a profound impact on the patent landscape. Since the U.S. Patent and Trademark Office began implementing the IPR system in late 2012, more than 2500 IPR petitions have been filed. Of those proceedings reaching a final decision, fully 80% of the involved claims have been found outright unpatentable, and only around 35% of challenged claims have survived the proceeding without changes. Finally, the Federal Trade Commission and state attorneys general have increasingly asserted their authority to protect consumers from abusive patent demand letters.

Congress should fully consider the still-emerging impact of these judicial and administrative developments before considering further changes to the patent system. Unfortunately, inasmuch as H.R. 9 appears to virtually identical to the Innovation Act that passed in late 2013, the bill before the Committee takes none of these developments into account. The goal of any patent legislation should be to narrowly target abusive behavior without harming America’s innovation economy. H.R. 9 does not meet this goal because it contains overbroad provisions that will harm the U.S. economy and increase rather than decrease patent litigation.

One example of an overbroad and harmful provision is the customer-stay provision in Section 5. We understand this provision to be motivated by a desire to protect innocent customers from patent litigation suits that would more appropriately have been brought against the manufacturer of the infringing product. As drafted, however, the customer-stay provision in H.R. 9 would immunize from liability virtually any entity accused of patent infringement and encourage unscrupulous actors to copy U.S. technology. Its overbreadth would entitle nearly all entities throughout the supply chain – not just end users – to a stay. The customer-stay provision in H.R. 9 will prohibit the defense of patent rights where it makes most sense – against entities in the supply chain that are directly infringing the patent and profits most from the infringing sale. Instead, it would require innovators to attempt to enforce their rights piece by piece, starting with indirect infringement cases against entities far up the supply chain who are often overseas and outside the jurisdiction of United States.

The result in many circumstances will be to increase litigation, shield entities profiting most from infringing the patent rights of U.S. companies, and leave U.S. innovators with virtually no recourse to enforce their rights. Judges currently have the authority to stay litigation against a customer when a suit is better lodged against a manufacturer, and they have done so in appropriate cases. Some complain that judges are refusing to exercise their discretion to stay cases in circumstances in which it is manifestly unjust for them to do so. If so, a better approach to the customer-suit exception would be to define the set of factual circumstances in which a decision to deny a motion to stay an action would be so manifestly unjust that it should be required in those instances. Another way to target the legislation more appropriately at those it is intended to protect without causing unintended damage to the entire system would be to define “covered customer” as an entity meeting the definition of a small business under the Small Business Act, and to define a “covered product or process” in a way that is more targeted to an end product and to the use of the product or process by an end user.

Another example is the discovery stay provision in Section 3(d). That provision would stay virtually all merits discovery for an indefinite period of time. The provision restricts initial discovery only to the information necessary for claim construction, but as a practical matter there is very little discovery that is relevant to claim construction. All core discovery in the case would be subject to the stay. The stay would only be lifted after the court issues a claim construction ruling, but there is no time limit within which courts must make such a ruling, meaning the stay can be in place indefinitely. Many courts do not make claim construction rulings for many months, if ever. This would unfairly burden both patent owners, who would likely be deprived of information necessary to prosecute their claims, and defendants, who may require discovery to adequately defend against a charge of infringement. It will also result in additional litigation. It is extremely common for patent holders to discover additional infringement, including of patents beyond those listed in the complaint, as well as additional products that operate in substantially the same way as products known to infringe, during the course of merits discovery. Restricting merits discovery prior to claim construction would therefore result in piecemeal litigation as the new infringement may require yet another claim construction hearing. And if the merits discovery on the newly discovered infringement of additional patents was similarly restricted prior to the claim construction on those additional patents, the pattern could continue once again.

Judges already have discretion to limit discovery in individual cases as necessary to manage a case. Rather than impose a rigid statutory stay of discovery that will lead to the absurd results described above, Congress should structure discovery to allow litigants to receive basic information to prosecute or defend an infringement case – information about the structure and operation of the accused products, and about the conception and reduction to practice of the patented invention, for example. For instance, Congress could sequence discovery so that “core” discovery would proceed first, followed by “non-core” discovery. The most burdensome and expensive type of discovery, e-mail discovery, could be deferred until the “non-core” phase. Phasing discovery in this manner, with an initial exchange of core documents followed by required disclosure of significant email custodians and related permissible discovery, would serve to focus the issues, narrow the number of relevant custodians, and help craft search terms all in an effort to reduce litigation costs and burden.

The heightened pleading standards in Section 3(a) of H.R. 9 would create a threshold barrier to enforcing U.S. patent rights by imposing burdensome pleading standards on patent plaintiffs far beyond what is necessary or what is required in any other type of litigation. In essence, it requires patent plaintiffs to prove much of their case in advance of filing a complaint, often an impossibility in complex litigation. It is a fallacy to believe that a patent owner has complete information about the full scope of infringement at the outset of a case. A patent owner may have enough of a good faith basis for believing that a particular product infringes a particular one of its patents to file suit, but the full extent of the infringement may not be knowable based on public information. While Section 3(a) requires specific pleading “unless the information is not reasonably accessible,” in many cases a patent owner may not know what he does not know at the outset of a case. For instance, a patent owner may learn in discovery that other claims of its patent are infringed. It may learn that other products infringe. It may not be clear what all the various permutations of product models of a defendant are without discovery. It may not be known what all the various products of a defendant are that operate in a substantially same way as an infringing product. It may not be knowable which products get imported into the United States, or how they get imported, because sales and supply chain information is not public. These are just examples. In addition, it is highly unlikely that courts would permit discovery into any products not specifically identified in a complaint, such that by requiring with particularity how “all” claims of “all” patents are infringed by “all” accused instrumentalities, H.R. 9 would effectively immunize from liability any infringement that takes place behind closed doors, outside the public domain.

In addition, the pleading requirements in H.R. 9 would in themselves increase litigation cost, expense, and delay by spawning new pleading disputes as savvy defendants challenge the sufficiency of a complaint by arguing that plaintiffs failed to plead facts they should have known or that were readily accessible if the plaintiff had conducted a reasonable investigation. Patent cases will become mired in month-long delays over the sufficiency of pleadings, with endless cycles of defendants filing motions to dismiss, plaintiffs amending to address defendants’ concerns, defendants challenging the amended complaint and second amended complaints as insufficient, and so on. Even where complaints unquestionably provide defendants with sufficient notice to defend themselves, Section 3(a) will open the door to defendant demands for discovery of what the plaintiff knew at the time the complaint was filed, whether information was “readily accessible,” and what kind of investigation the plaintiff undertook before filing the complaint.

All this is especially unnecessary as the Judicial Conference has already voted to eliminate Form 18 of the Federal Rules of Civil Procedure, which does not require plaintiffs in patent cases to plead specific claims or how these claims relate to the features of the device or instrumentality alleged to infringe the patent. With the elimination of Form 18, which will automatically occur later this year, patent cases will be subject to the same heightened pleading requirements as all other federal cases. Any further statutory pleading requirements are unnecessary and unwise and would materially harm the enforceability of all U.S. patents.

The pendulum has already swung far against U.S. innovators in light of recent judicial and administrative developments that make patents easier to invalidate and more difficult to enforce. Congress should not push the pendulum further against innovators by passing a comprehensive overhaul of this crucial sector of the economy to make it even more difficult to plead a patent case, more difficult to get discovery in a patent case, and more difficult to hold the responsible party liable for infringing U.S. patent rights. All of these measures are overbroad and would have the effect of making all U.S. patent rights harder to enforce and easier to infringe.

The Author

Brian Pomper

Brian Pomper is the Executive Director of the Innovation Alliance, a group that represents a broad range of research organizations on policy issues.

CLICK HERE to visit Mr. Pomper's web page.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 26 Comments comments.

  1. American Cowboy April 16, 2015 9:49 am

    Innovation Act makes patents harder to enforce, easier to infringe

    Man! What a good time to be Chinese!

  2. angry dude April 16, 2015 10:36 am

    Bottom line: if you are trying to invent in any field and trade secrets don’t work in that particular field, then do nothing, that’s right, sit on your butt and do absolutely NOTHING – at least your years of effort and money will not be wasted.
    My own damage from US Patent system, just in wasted work, time and patent prosecution costs, are well into 6 figures.
    Had I invested this sum of money in low risk financial instruments 13 years ago I would be able to buy a nice vacation house today

  3. Michael April 16, 2015 10:43 am

    Brian,

    I was an elected official for eight years in my local government. During that time, I witnessed firsthand how powerful interests manipulate government for their gain at the expense of all other constituencies. These interests are organized and act accordingly to a well-crafted plan implemented over years. Each step in the plan is designed so that the endgame is difficult to identify and easy to deny. Opponents are labeled conspiracy “nuts” or worse. So this brings me to the ongoing reforms to the US patent system.

    First, there was KSR v. Teleflex which fundamentally changed how the United States views innovation. After KSR, only revolutionary inventions are patentable. Anything less than revolutionary is obvious when either examined by the USPTO or litigated before a court.

    Next, there was Alice and other related decisions which fundamentally changed how the United States views patentable subject material. After Alice and others, even revolutionary inventions are no longer patentable.

    Then, there was the AIA which fundamentally changed how the United States views the certainty of the patents granted by the USPTO. After the AIA, the predictability afforded by the property rights embodied in a patent evaporated.

    Now, other reforms before Congress which will fundamentally change how the United States views the enforcement of patent rights. After these reforms, enforcement will be risky and when unsuccessful the consequences to the patent holder will be punitive.

    Now that all pieces to the puzzle are nearly in place, it is clear that the government has been manipulated once again to allow implementation of another well-crafted plan detrimental to the interests of so many.

  4. Gene Quinn April 16, 2015 11:35 am

    angry dude-

    You really are telling people that if they invent something they should do nothing? That is absolutely ridiculous advice. Your comments any more are bordering on the insane.

    The fact that you feel that you have been betrayed by the system does not mean that others shouldn’t pursue a patent, which should be self-evident.

    I’m also growing tired of your negative commentary given that you refuse to provide any information about your situation so that we can evaluate your claims. But the more I listen to you the more I believe that you are just a crazy inventor who over estimated the value of what you came up with and now you think the system is rigged against you.

    -Gene

  5. angry dude April 16, 2015 1:34 pm

    Gene,

    I am angry as hell but certainly not crazy

    As I told you before I prefer to remain anonymous because I pissed off some folks in SV (they lost $$$$$$$$$ with some help from me) and NDA I signed hasn’t expired.

    Why do you think those SV jokers are buying congress critters one by one ?
    They just don’t want this sh1t to repeat on a much bigger scale

  6. Gene Quinn April 16, 2015 1:51 pm

    angry dude-

    If you want to remain anonymous that is certainly fine, but your anonymous rantings are increasingly sounding paranoid and crazy. You claim that the system has conspired against you without any proof and even though your patent (if you actually have one) and the entire file history, as well as the litigation filings are all public record information.

    You can comment if you like, but as your rantings become more cynical, conspiratorial and paranoid you run the risk of preventing meaningful debate on the topics. If and when that happens your comments will no longer be welcomed.

    -Gene

  7. Pro Se April 16, 2015 5:40 pm

    I can understand where Angry Dude is coming from and just a word of warning from something I just experienced:

    I found an examiner with signing authority that started at the PTO in 2008 and used to work as a licensing lawyer at the 3rd largest IP law firm in America…

    This examiner was used to switch out from an established examiner of a family of continuing patents where the parent is in an IPR and in litigation.. his job is to support the IPR process by not granting any child patents that may further support litigation efforts.. Where the established examiner has established a reference theory that was previously cleared, this patent lawyer examiner starts over totally ignoring the established file history in the parent cases…

    Ask yourself: why would a top flight IP lawyer move away from the lucrative field of IP litigation and able to become an instant GS-14 level examiner upon joining the PTO (with signing power).

    IP law firms have stealth workers at the USPTO posing as examiners… that the PTO secretly support.

    I have known examiners that move on to become IP lawyers, but I just haven’t known of a big firm IP lawyer that moved on to become a patent examiner. A patent director maybe, but an examiner?

    In closing: the saying is TRUE: if the PTO recognize that a pending patent is for a highly lucrative technology that they believe will be used for big litigation, they WILL NOT issue it..

    Now that I’ve been recognized for having patents successful in securing deals out of litigation, I feel the AIA system is designed to make sure my ability to enforce can be contained “at will” with the PTAB ability to pull my plug should the IP system feel I’m enforcing too much for comfort.

    Ebay-V-Merch, IPRs, and AIA has cost me billions in value because every big defendant have the $3million to defend and the $1million for IPR.. but I don’t and because I can’t stop all of the infringing products importing and made in America…

    I get top dollar nuisance fees…

  8. Gene Quinn April 16, 2015 5:52 pm

    Pro Se-

    You say: “IP law firms have stealth workers at the USPTO posing as examiners…”

    Either retract the comment or provide evidence that proves the assertion. Mere conjecture will not suffice when you allege malfeasance like this.

    -Gene

  9. Pro Se April 16, 2015 6:01 pm

    Gene:

    I will send you an email with the evidence I am making the assertion on.

    I can understand if the comment is viewed as too sharp without publicly posting evidence.

    To sustain my voice here, I agree to retract.

  10. Gene Quinn April 16, 2015 6:17 pm

    Pro Se-

    Sorry to jump on you, but that is a serious allegation. There are a variety of reasons why an experienced attorney may go to the USPTO. I have known that choice to be made for family reasons, including health insurance and other benefits. I suspect that some experienced attorneys who were at a firm but did not make partner have decided to go to work for the USPTO. At least I have heard that rumor more than once, although I have not been able to verify. I have also known attorneys to make that choice later in their career because they feel there is a missing whole on their resume. People who have worked at the USPTO have a special bond, and some have described to me that they were at a point where kids were grown, retirement secure, so they wanted to work at the USPTO in whatever role for the experience of it all.

    -Gene

  11. angry dude April 16, 2015 7:19 pm

    2Pro Se:

    About lawyer form big IP litigation firm becoming GS-14 PTO examiner:

    Perhaps some of those lawyers are starting to feel the things to come….
    According to Eric Spangenberg patent “reform” will pass and it will include fee shifting, this will be followed by major staff reductions in IP litigations firms (followed by cuts in IP prosecution firms – this is my own prediction)
    GS-14 is not bad after all

  12. Gene Quinn April 17, 2015 8:53 am

    angry dude-

    As I’ve tried to explain so many times before… when the law gets more complicated that is ALWAYS better for lawyers. It is utter nonsense to believe that any lawyer would leave the profession because there is a fear about more comprehensive legislation, or due to any court decisions. I guess you haven’t noticed, but last year the USPTO granted over 300,000 utility patents and the number of applications continues to grow year after year. Only the unknowledgeable would suspect that lawyers will not do well moving forward. The people who will be screwed are the clients. Not sure why you don’t believe this. Again you sound like a conspiracy nut.

    As for patent reform, there is very little chance that anything will pass. Fee shifting will not be among the provisions that are enacted even if something does pass.

    -Gene

  13. American Cowboy April 17, 2015 10:03 am

    Gene, I wish I was as sanguine as you about the prospect for patent lawyers. When client realize that patents have no value because the system is set with kill squads and penalties for errors of judgment by patentees, the demand for patents will go down, along with the demand for those who make their living obtaining or dealing with patents.

    I have been in this game since the late 70’s when patents and patentees were treated like ebola carriers; patent law was an afterthought/backwater of the legal profession. Then the CAFC came along like an ebola vaccine, and patents gained in value, along with the popularity, prosperity and prominence of patent lawyers. As the new virus kills patents the way the old ebola did, those 3p’s will wither again.

    I am not glad to be the bearer of this bad news, but gotta call ’em as I see ’em. As far as I can tell it will take a much more pro-patent Congress to come up with a new vaccine.

  14. Gene Quinn April 17, 2015 12:01 pm

    AC-

    There is no doubt that things are bad now for innovators. But this isn’t the first time, and likely won’t be the last time. Patent law is cyclical, and there are already signs of a bounce back. Patent reform is stalled, the Federal Circuit found patent claims on software valid, and Members of Congress are actually submitting serious pro-patent legislation. There are more pro-innovator stories and even Senator Schumer is signing a different tune of late.

    Patents are being granted in record numbers. Those who choose not to use the patent system today will almost certainly regret their decision as the law and statute continue to evolve. After all, for many if not most commercially viable innovations it will take a minimum of 3 years to get a patent, likely closer to 5 or 6, maybe more. By then things will be completely different.

    -Gene

  15. American Cowboy April 17, 2015 1:40 pm

    I hope you’re right, Gene.

  16. angry dude April 17, 2015 2:37 pm

    Gene,

    You are a very optimistic person
    Sorry to ask, but how old are you ?
    I just can’t wait for another 5-6-10 years while congress is screwing around with US patent system
    – I’m in upper 40s
    it’s “Now or Never”

  17. Randy Landreneau April 18, 2015 2:28 pm

    Gene,

    This regards “…there is very little chance that anything will pass.” I have been to DC a number of times this year, including the last two weeks, and I’ve talked with many offices, and I can tell you that once they have the facts, the vast majority of them see this as very bad bill. I was getting pretty optimistic myself, and then I got schooled by a Judiciary Member staffer whose boss is against the bill. When the Chairman of the Judiciary is heavily behind a bill, as is the case here, it is very hard for other Judiciary Members of his party to go against him. Also, and this really makes my head explode, those who voted for the bill last time are heavily obligated to vote for it again, even though they didn’t have good information and everything has changed since then anyway (SCOTUS decisons creating an effective, non-presumptive “Loser Pays” for frivolous cases that is based on judicial discretion). As a result of all this, it is way too possible that the Innovation Act will come out of the Judiciary even though most of the members appear to be against it!

    It is not time to get over-confident. Everyone who cares needs to email and call his or her Representatives.

    Randy Landreneau, Founder
    Independent Inventors of America

  18. Randy Landreneau April 18, 2015 2:29 pm

    One more thing – they are trying to do the Markup next week. Time is of the essence in opposing this legislation.

  19. Gene Quinn April 19, 2015 5:33 pm

    Randy-

    First, you and the other working to get the word to Congress are doing great work! The industry owes you a debt of gratitude.

    Second, I don’t mean to suggest that anyone should become complacent or too confident. I predict nothing will happen, or that we will only get demand letter reform, because of the hard work you, Paul and others are doing, as well as a number of pro-patent lobbyists and companies.

    -Gene

  20. Night Writer April 22, 2015 9:24 pm

    Pro Se, I’ve known attorneys at big law firms to go to the PTO for family reasons. I find it very hard to believe what you said. But, more concerning to me is the implication that the PTO assigns people to insure that no patents issue from continuations of patents that are under IPR. That sounds like something that may actually be happening, although in a more proper form of assigning maybe more experienced people to handle sensitive continuations.

  21. Night Writer April 22, 2015 9:30 pm

    Oh and the PTO used to have a program (I don’t know if they do anymore) that would fast track people with experience at big law firms. The idea was to give them similar type of pay (or at least not so much of a cut) and not put them through the machine at the PTO. Probably a good program.

    A study could be done on the continuations and IPRs. Although, you know, you should consider the PTO’s point of view. If a patent is invalidated in an IPR (or the claims) and there is a continuation pending, then the PTO is going to look pretty bad (deservingly so) if another patent issues from the continuation that clearly should not in view of the art cited in the IPR. So, maybe the PTO is just insuring that the PTAB IPR work is respected by the examiner of the continuation.

    I’ve had a fair bit of dealings with the PTO and I’ve never seen anything like what you said.

  22. Night Writer April 23, 2015 7:09 am

    Hi Randy, that is interesting information. My sense is that there is this constant push of lobbying and money that want to weaken patents at every turn. Is there any good source of information about who those people are?

  23. Randy Landreneau April 23, 2015 10:20 am

    Night Writer – try http://www.opensecrets.org/ . This is the source of an article that showed that $130 million was spent lobbying on this issue last year: http://www.iam-media.com/blog/detail.aspx?g=b10e1856-6d33-4f6f-b239-e61f398e05f8&c=5987344

  24. Randy Landreneau April 23, 2015 5:23 pm

    Night Writer – Yes, there is a constant push. B. Zorina Kahn has researched and written about this issue. Efforts to weaken and even destroy our patent system go all the way back to the mid-1800s! What was said about the Wright Brothers in the media by big corporations is very similar to what is being said about “patent trolls.” We have to fight this onslaught, and right now, we have more momentum than we have had in a long time. You should get lots of people to http://www.IndependentInventorsofAmerica.org and help win this fight.

  25. VoiceofReason June 11, 2015 7:35 pm

    In support of this article, consider the real politics behind this legislation:

    http://inventorswatch.blogspot.com/2015/06/oped-for-distribution-please-light-up.html

  26. Congressional Hammer July 2, 2015 3:33 pm

    Yes, support Patents and the American Inventor:

    CONGRESSIONAL HAMMER:

    CONGRESS DECLARES WAR ON AMERICAN INVENTORS AND FOUNDERS
    Bills S. 1137 and HR. 9 Would End American Dream

    http://congressionalhammer.blogspot.com/

    Bills S. 1137 and HR. 9 Would Virtually Sanction Corporate Theft
    of Inventors’ Patented Technology

    The Patent Act of 2015: The Patent Theft Act of 2015

    “Have no doubt about it: The outraged ghosts of Tesla, Bell, Noyce, and the Wright Brothers are awakened from their eternal slumber by this profanation of invention once protected by our Constitution, and are now roaming the halls of Congress.”

    “Inventors, individual patent holders, and small business patent holders are about to see the not so invisible hands of Congress reaching out to tear the patents off their walls in order to hand them to wealthy corporations.”

    “Within the present system, even with solid patents in hand against clear and ongoing infringement, inventors are as likely to end up bankrupt as successful in their pursuit of infringement claims.”