Critics of the patent system, and specifically the critics of software patents, would have the United States forfeit the future in favor of something that has never worked. Curtailing patent rights has never worked to produce more innovation anywhere it has been tried. So why would we try such an experiment in the United States when it hasn’t ever worked anywhere ever? Unfortunately, it seems that many of our leaders in Washington, DC, are listening to those who have fanned the flames and worked exceptionally hard to create an unhealthy anti-patent climate.
Newsflash — innovators are not evil. The fact that this even needs to be said shows just how far we have come and how pervasive the anti-patent climate has become. Rather than celebrate innovation day after day like the drone of a metronome we hear how patents are evil and how they stifle innovation. But if you actually look through the rhetoric you notice that those claims are made with zero supporting evidence, but that is because all of the available objective evidence directly contradicts the growing orthodoxy.
Once upon a time the United States celebrated innovators, and gave them a meaningful opportunity to reap the deserved reward from their hard work and ingenuity. Today, we vilify innovators as evil all because there are a handful of bad actors that engage in abusive patent litigation tactics. Of course, these tactics have nothing to do with patents substantively and everything to do with the fact that these bad actors are allowed to manipulate the judicial process and exploit inefficiencies in the litigation system that are wholly unrelated to the substance of a patent.
The purpose of the U.S. patent system has been to promote innovation. The various “Patent Reform” bills will in fact retard innovation and cost America jobs. They are contrary to the Founding Fathers’ intent in Article 1, Section 8, Clause 8 of the Constitution, contrary to the policies of over 220 years of patent law, contrary to the advice of the Office of Advocacy of the Small Business Administration,[i] and contrary to prior statements of President Obama.[ii] We urge every small business inventor to contact their Senators and urge them to strongly oppose S.1013 (Cornyn), S. 866 (Schumer), and S.1612 (Hatch). Although the current version of S.1720 (Leahy) is not as horrific as the other bills, it is problematic and should also be opposed as it does not fix the Troll problem, but does harm independent and small business inventors. If your Senator is not on the Judiciary committee, please ask him or her to contact their colleagues on Judiciary to let them know they are uncomfortable with the above proposed bills. We also encourage you to contact your Congressmen and ask them to oppose HR 3309 should it ever come back to the House. Finally, we suggest you contact the White House and let them know that the Patent Troll bills don’t fix the patent troll problem, but do harm the innovation ecosystem in America, and will be bad for your business.
Part I of this five part series focused on the national economic impact of the pending patent reform bills. These included the disincentive to invent, job losses, shifting jobs overseas, and loss of American wealth. Part II looked at the impacts of “Loser Pays,” “Pay to Play,” and “Fee Shifting-Joinder” provisions. Part III talked about Covered Business Methods (CBM) and Elimination of Post Grant Review Estoppel. Part IV discusses the mechanisms of how the other provisions of the bills will make us poorer and kill jobs for ourselves and our children. Part V will summarize our discussion.
In this Part IV, we will discuss:
Disclosure of All Plaintiff Interested Parties;
Enhanced Pleadings and Limiting Discovery, and
While some of these provisions may seem to make sense on their surface, and tailored to provide greater transparency, the reality is that the provisions are extraordinarily burdensome. For example, as written one proposal would require a corporation bringing a patent infringement lawsuit to disclose every stockholder, even if they only own a single share. Furthermore, by micromanaging patent litigation, discretion will be taken away from district court judges while at the same time onerous obligations are placed on small businesses before they can even begin to assert patent infringement. This is additionally problematic, as so many entities already knowingly choose to infringe rather than negotiate licenses or engineer around patent rights. Finally, customer stays will prohibit some patent holders from ever receiving a remedy.
Part I of this five part series focused on the national economic impact of the pending patent reform bills. These included the disincentive to invent, job losses, shifting jobs overseas, and loss of American wealth. Part II looked at the impacts of “Loser Pays,” “Pay to Play,” and “Fee Shifting-Joinder” provisions. Parts III and IV discuss mechanisms of how the other provisions of the bills will make us poorer and kill jobs for ourselves and our children. Part V will summarize our discussion.
In this Part III, we will discuss
Covered Business Methods (CBM) and
Elimination of Post Grant Review Estoppel
If Covered Business Methods (CBM) expansion and the proposed elimination of post grant review estoppel provisions are enacted, it will provide greater incentive to challenge granted patents, making serial challenges the new norm. These provisions will substantially and negatively impact small business innovators who will be forced to continually fight to keep the patents they have obtained after having already spent many years during patent prosecution to obtain the rights. This means patent rights will never be more than an expectation and not a true property right. Therefore, if these provisions are enacted it will mean no patent is every truly safe, no title is every quieted, and this will substantially, and negatively, impact investment opportunity and ultimately the commercialization of innovations. (Think about what it would do to the real estate market if you could never be sure you had good title to your home.)
The recent “Patent Reform” bills have an insidious effect on small businesses. The proposed legislation ensures small inventors will never be able to get the best inventions to market by imposing: Fee Shifting “Joinder”, Loser Pays, Pay to Play, Covered Business Methods (CBM), Elimination of Post Grant Review Estoppel, Disclosure of All Plaintiff Interested Parties, Enhanced Pleadings and Limiting Discovery, and Customer Stay provisions that are so onerous, only large corporations will be able to commercialize inventions. The provisions will make small inventing companies “Toxic Assets” to investors. Small inventors will likely need at least $5 million in the bank, not for their own use, but to cover the infringers’ costs. This is part of the shift in Congress to cater to big money interests, leaving the middle class behind. The details of these legislative “potholes” will be explained in this five part series.
As the National Co-Chairs and Executive Director of the Small Business Technology Council (SBTC), a council of the National Small Business Association, we support the highly inventive firms that participate in the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. The SBTC is a council of the National Small Business Association (NSBA), the nation’s first small-business advocacy organization, advocating on behalf of America’s entrepreneurs. A staunchly nonpartisan organization, NSBA’s 65,000 members represent every state and every industry in the U.S.
Small business creates about 5 times more patents per employee than large firms and 20 times more than universities.[i] The SBIR program delivers 58% more patents than all U.S. universities combined.[ii] Furthermore, small firms patents are more important (more often cited) than large firm patents.[iii]
The US patent system has a storied history: written into the Constitution by Madison; the Patent Act itself written by Jefferson; and, requested to be passed in Washington’s first State of the Union speech. As a former speech writer for the Commissioner back in 1985, I had the fun task of finding little interesting factotums about the US patent system to add some flavor to whatever audience the Commissioner was addressing. Such facts might include: local inventors, known statewide innovative companies, or just interesting moments in the course of the system and its contribution to the development of the then brand new United States.
Some fun stuff: Abraham Lincoln reckoned that, along with the invention of the printing press and Columbus discovery of America, the US patent system was among the three most important events in the history of the world. Of the 4 faces on Mt. Rushmore, 3 are inventors (Roosevelt is the exception); but, only Lincoln got a patent. The British burned pretty much everything in Washington that mattered in 1812; except, the Patent Office, around which they placed a guard. And so it goes.
Why am I resorting to the emotional heart strings; because the current round of patent reform is an existential threat to the US patent system. If these proposals pass, we will be left with a very, very expensive registration system in which the Fortune 50, and no one else, will be able to participate. In case no one has noticed, the Fortune 50 do not innovate (with few exceptions, it is those who will become the Fortune 50 that do the innovating) and so, the system ceases to exist. Let me explain.
On Thursday, March 27, 2014, the Senate Judiciary Committee held another meeting on patent reform legislation. A markup of Senator Leahy’s bill (S. 1720, “Patent Transparency and Improvements Act”) may happen as early as this week. During Thursday’s meeting Senator Leahy, who Chairs the Committee, indicated a willingness to incorporate in his bill other provisions from Senator Cornyn’s and Senator Hatch’s bills.
Momentum is clearly building for more patent legislation, but the myriad bills and provisions make it difficult even for folks close to Capitol Hill to keep track of them all. To fill that need, today’s post is part of a series of articles based on the white paper, Patent Reform 2014. IPWatchdog.com has already published articles on Joinder of Interested Parties and Loser-Pays Fee-Shifting. Today’s focus is on the proposed FTC enforcement provisions found in several pending bills.
In September 2013, Senator Klobuchar’s staff circulated draft language that would require the FTC to initiate a rulemaking proceeding, in accordance with 5 U.S.C. §553, to prohibit the assertion or enforcement of patents in a manner that is an unfair method of competition, or unfair or deceptive act or practice, under section 5 of the Federal Trade Commission Act (15 U.S.C. 45).
Editorial Note: This article is a portion of a larger work byAndrew BaluchtitledPatent Reform 2014, modified here for purposes of publication on IPWatchdog.com. Baluch’s article is a comprehensive review of pending legislation developments in Congress, the Executive Branch, the Courts and the States.
Congressman Goodlatte, chief architect of patent reform in the House of Representatives.
Patent legislation currently pending in Congress contains several controversial provisions. One of those provisions, which finds both proponents and opponents, is the provision to mandate the joinder of “interested parties.”
Those in favor of moving the U.S. patent litigation system to a loser-pays fee-shifting regime are usually also in favor of mandatory joinder, so that fee awards against a losing patentee can be collected against the “true” entity that may be hiding behind the plaintiff patentee. Opponents of the rule point out that it could lead to unwilling and unnecessary joinder — a point raised particularly by universities and venture capitalists who fear they may be hauled into costly patent litigation against their will if their licensees/startups ever need to enforce their patent rights in court. Still others point to the fact that these joinder provisions would only apply to patent cases — and only against plaintiffs — and would thus create a litigation process unique to patents in district courts. Furthermore, district court judges would lose most of their existing broad discretion to determine whether the facts truly warrant joinder in each unique case.
Editorial Note: This article is a portion of a larger work by Andrew Baluch titled Patent Reform 2014, modified here for purposes of publication on IPWatchdog.com. Baluch’s article is a comprehensive review of pending legislation developments in Congress, the Executive Branch, the Courts and the States. For more specifically on fee-shifting please also see Will Fee Shifting Solve the Patent Troll Problem?
U.S. patent litigation has followed the centuries-old “American Rule” under which each party to a litigation pays its own legal fees and costs, regardless whether it wins or loses the litigation. A narrow exception exists in patent cases, but only in “exceptional cases” under 35 U.S.C. § 285, such as where the losing party engaged in litigation misconduct, or if the patent was fraudulently procured, or if the losing party raised arguments that were both objectively baseless and made in bad faith.
Despite the long tradition of litigants paying their own legal fees and costs, Congress has shown interest in changing the playing field and deviating from the American Rule in patent cases. This comes at a time when the U.S. Supreme Court is already considering two cases that relate to the definition of “exceptional cases” in § 285 that may well alter how this existing exception to the American Rule is applied in practice.
What follows is discussion of various legislative proposals relative to fee-shifting, as well as a brief discussion of the two cases currently pending before the Supreme Court.
EDITORIAL NOTE: The following article has been posted as an online petition you may sign by visiting IndependentInventorsofAmerica.org. On Friday the United States Senate held additional hearings and seem poised to act relatively quickly on the Senate version of patent reform. For information about how to directly contact your U.S. Senators please see Senators of the 113th Congress.
We represent independent inventors and small patent-based businesses across the country and we are against any patent legislation that includes provisions of the Innovation Act (H.R. 3309) and the many variations and additions under consideration in the Senate. This legislation will levy grave harm upon independent inventors and small patent-based businesses, as well as the investors we need to help commercialize new technologies and to protect our inventions.
The American patent system is a trade between an inventor and society. An inventor discloses an invention for all to see and build upon, and the government grants and protects for the inventor an exclusive right to the invention for a short period. The American patent system was intended to enable anyone, regardless of economic status, race or gender, to profit from the invention of something new and valuable. This system has worked as intended for over 200 years, fueling the creation of the greatest economy in the world.