On Thursday, December 5, 2013, the United States House of Representatives passed the Innovation Act by a vote of 325-91.
Surprisingly, the Innovation Act (HR 3309) had only been introduced on October 23, 2013, and was marked-up on November 20, 2013. So what was the rush? This break-neck pace, which took place in a Congress that has been noted for its extraordinary inaction, is curious to say the least. Indeed, one Member of Congress went much further than raising a curious eyebrow. “This schedule suggests the fix was in,” said Congressman Dana Rohrabacher (R-CA) on December 3, 2013, “The clear message to little inventors: give thanks for your intellectual property rights, because you may not have them by this time next year.”
There is no doubt that Congressman Rohrabacher is correct, even if his criticism seems at first glance to be a bit over the top. There can be no serious disagreement over the undeniable truth that over the last 7 or 8 years there has been a steady erosion of patent rights both in the Courts and thanks to laws passed by Congress. There can also be little serious disagreement that the speedy process afforded the Innovation Act prevented those who favor strong patent rights from mounting a credible opposition to the bill. Unfortunately, the forces that seek to weaken patent rights are well funded and fight the battle each and every day. Even before the America Invents Act (AIA) was passed in 2011 there were efforts underway to plant the seeds of what will be the next “industry ask” of Congress, which is stripping the ITC of its patent jurisdiction or at the least preventing the ITC from issuing exclusion orders. See Follow the Money and Weakening the ITC Will Harm the US Economy and Are Some Patent Holders More Equal Than Others?
The Truth is that while innovators spend their time inventing and doing business, not focusing on what has been taken for granted in the United States since the days of Thomas Edison, which is a strong patent system. Indeed, in this round of patent reform Universities, small businesses, technology based start-ups and independent inventors were given no meaningful opportunity to express their views. At the one hearing on the bill David Kappos, former Director of the USPTO and now a partner at Cravath, Swaine & Moore, cautioned Congress about going to fast and pointed out that no independent inventors were even invited to testify. But there is no rest for those who seek patent reforms that make patents less valuable, they are hard at work on whatever the current attempt is to chip away at patent rights, but also working to lay the foundation for further erosion of patent rights.
Regardless of the reality of the behind the scenes wrangling, the Innovation Act has now passed in the House. Here is a rundown on what happened.
Despite efforts of many in the House, the Innovation Act as passed includes fee-shifting provisions, which provide that the loser of a patent infringement litigation would have to pay the attorneys fees of the winner unless the loser’s positions were objectively reasonable. This is a deviation in the burden of paying for litigation that is extraordinarily rare within the U.S. legal system. The most alarming thing about this fee-shifting provision is that about whether it was a good idea was never asked. It was decided entering into this rushed process that fee-shifting was a good idea and the only relevant question for discussion was how was it going to be implemented.
While it has to be seen as ridiculous by objective observers to make such a fundamental change without debate or discussion, sadly that seems to be the only way anything gets done in Washington, DC, any more. Rush, rush, rush. Don’t give the people, or Members of Congress, time to read or thoughtfully consider anything. Don’t ask the critical questions. Rush, rush, rush so opponents cannot mount any challenge. Vote and then move on quickly. Somehow I’m not sure this is how the Founding Fathers envisioned government functioning.
Truthfully, the fee-shifting provisions, which everyone touts as a step toward stopping patent trolls, are unlikely to prevent the nefarious actors in the industry from continuing to engage in shakedown tactics, but are almost certainly going to prevent independent inventors, small business, start-ups and Universities from fully exercising their patent rights. Those who are sending $500 or $1,000 demands and settling patent infringement cases aren’t going to be affected. Neither will the next level patent trolls who allegedly plague industry by seeking $25,000 to $50,000 from large corporations after suit is filed. Indeed, the Silicon Valley elite that would prefer a weaker patent system already settle these garbage cases, they think it is good business to settle rather than fight, they will continue to settle those cases because they think their strategy which has never affected change in behavior — is brilliant, and as a result the fee-shifting provisions will never kick in to stop the nefarious actors.
So the Silicon Valley elite get what they want, which is disincentive in the innovative community and then in a couple years they can come back and tell Congress that the Innovation Act didn’t go far enough to sold the problems of the nefarious actors. We have seen this play run over and over again, each time the wool is pulled over the collective eyes of Congress. It would be comical if it weren’t doing such damage to the U.S. patent system and the innovators who up until the past few years have always been revered in the U.S.
The sad reality is that so many of the Silicon Valley elite pay the garbage cases and fight cases against true innovators with strong patents for 8, 10, 12 years or more. They fight the war of attrition, and they frequently lose at the end. But along the way many innovators simply can’t keep afloat and continue the challenge. That is why companies like Acacia Research and contingent fee litigators like Ray Niro are such an important equalizer. But what impact will fee-shifting have? It is hard to know since it was never discussed in any meaningful way whatsoever.
But wouldn’t it be ironic if the war of attrition model preferred by the Silicon Valley elite wound up with them having to pay extraordinary attorneys fees to both their attorneys and the attorneys of the innovators they seem to enjoy pushing around with their own brand of abusive patent litigation tactics? While no one really knows how the fee-shifting provisions will play out it would be such poetic justice if it wound up backfiring against those seeking to weaken the patent system. Indeed, I think much of the “patents need to be weaker” lobbying efforts will backfire in the long run and eventually cause many current Silicon Valley elites to go the way of the dinosaurs, but that is another topic for another day.
The other particularly problematic provision of the Innovation Act is the change to the estoppel provisions that apply to post-grant review and inter partes review. The America Invents Act (AIA), which was enacted on September 16, 2011, sought to prevent serial challenges to patents. Provisions were inserted that required those challenging patents in post-grant proceedings at the United States Patent and Trademark Office to bring their best prior art forward and essentially speak now of forever remain silent. The estoppel provisions that passed in the AIA would prevent those challenging patents, as well as those in privy with them, from raising serial challenges by saying that they could not challenge the same patent claims again based on any prior art that was raised or could have been raised. The Innovation Act removes the “or could have been raised,” which ensures that serial patent challenges are possible. Indeed they will be likely since those in the high-tech industry who don’t innovate prefer to fight a war of attrition against the true innovators who are nearly universally smaller companies.
Fee Shifting Amendment Fails
One of the most watched amendments to the Innovation Act was the amendment submitted by Congressman Mel Watt (D-NC), which would strip the fee-shifting provisions from the Act. The Watt amendment lost by a vote of 213-199. In the days leading up to the House vote opponents, had really given up on prevailing in the House, realizing that the speed and lack of substantive debate was an indicator that the deal was done and no one was going to be able to say or do anything that would change the large issues of greatest concern. That is why many, including myself, were starting to encourage interested parties to focus on the Senate. Still, the Association of University Technology Managers (AUTM) was still fighting and encouraged its members to at least try and make the vote as close as possibly by lobbying to the last minute. The hope here is that with a close vote the Senate may take a harder look at some of the provisions. Mission accomplished, I suppose, in some small way at least. With a 14 vote margin and a Senate that is historically suspicious of most of what comes out of the House of Representatives, perhaps there is a legitimate opportunity to mount a meaningful campaign in the Senate.
Customer Suit Exception Amendment Fails
Another hot-button issue was the so-called customer suit exception. Congressman Thomas Massie (R-KY) submitted an amendment that would strike the customer suit exception, which is a provision intended to defer patent litigation against end-users, retailers or wholesalers in cases where the manufacturer of the infringing product joins the litigation. The customer suit exception was widely popular in theory, although few if any actually took the time to look at or discuss the provisions specifically. For example, the Biotechnology Industry Organization (BIO), an entity that you might not suspect would have a dog in this fight, supported the Massie amendment.
After the passage of the Innovation Act, in a blog post BIO explained:
[I]n its current form, the [customer suit exception] provision is ambiguous, and applies not just to end-users or resellers. Even manufacturing businesses that are properly sued for patent infringement would be able to deflect lawsuits towards their parts suppliers and put off the question of their own liability until much later in the case.
In this way, the current provision would invite piecemeal adjudication and opportunities for systematic delays in cases where patent owners must defend their businesses against ongoing patent infringement. This provision, which is intended to simplify and streamline litigation, could end up doing the exact opposite.
Demand Letter Amendment Prevails
Despite the major provisions of the Innovation Act escaping unscathed from the amendment process, there were three amendments to the bill approved on the floor prior to the vote. One amendment was an Amendment offered by Congressman Jared Polis (D-CO), which strengthens the demand letter transparency language that was already included within the Innovation Act by mandating those claiming willful infringement to identify the ultimate parent entity in the demand letters they send to their targets. The purpose of this amendment, as explained by Congressman Polis, is to “ensure that patent trolls can no longer hide behind shell companies to conceal their true identity from the demand letter recipient.” The Polis Amendment was co-sponsored by Congressman Jason Chaffetz (R-UT), Congressman Tom Marino (R-PA), and Congressman Gerry Connolly (D-VA).
USPTO Appeals to District Court Prevails
Another amendment approved was submitted by Congressman Rohrabacher, which preserved 35 U.S.C. 145, which allows allows a patent applicant to sue in the United States Federal District Court for the Eastern District of Virginia, to obtain a patent after a USPTO rejection. The patent laws have long included a unique dual appeal process. The applicant can go either to the district court or directly to the United States Court of Appeals for the Federal Circuit. The overwhelming majority of cases do go directly to the United States Court of Appeals for the Federal Circuit, which lead many to accurately characterize the appeal to the district court as a seldom used procedure. The procedure isn’t one that is broken, and in the right case it may really be beneficial to go to an Article III court that can accept evidence rather than an appeals court that will only review the cold record. The Rohrabacher amendment passed by a vote of 260-156.
Study on Certain Small Businesses Prevails
The final amendment that passed was one submitted by Congresswoman Sheila Jackson-Lee (D-TX). This amendment requires an economic impact study, which will study whether the provisions of the Innovation Act continue to provide individuals and small businesses owned by women, veterans and minorities an opportunity to protect their inventions. I suppose this amendment is one that is hard to vote against, but the first thing that went through my mind is why are we limiting the study to small businesses owned by women, veterans and minorities? What about the impact of the Innovation Act on small businesses period? What about the impact of the Innovation Act on Universities and University start-ups? What about the impact more broadly on high-tech start-ups? Depending on how the actual study questions are formed we could get little or no useful information. If those conducting the study don’t want to say anything bad about this further erosion of patent rights all they have to conclude is that small businesses owned by women, veterans and minorities are not impacted any more or any less than any other small business. Of course, all small businesses will be enormously and very negatively impacted if the Innovation Act becomes law, but because of political correctness that story may not be studied. Don’t you just love government at work!
Statements from the Industry
What follows are some of the immediate reactions from industry organizations who shot out press releases in the wake of the House passing the Innovation Act.
The American Intellectual Property Law Association (AIPLA) commented as follows:
“AIPLA appreciates the interest and effort shown by the House of Representatives to both improve the U.S. patent system and deal with concerns regarding certain abusive litigation behavior. We also agree with leaders on both sides of the aisle that while this legislation represents a significant step, there remains a lot more work to be done as it moves on to the U.S. Senate,” said AIPLA Executive Director, Q. Todd Dickinson.
“We also appreciate improvements that were made to the bill since its introduction, including the removal of provisions that would have expanded the Transitional Program for Covered Business Method Patents, and the rejection of some proposed amendments, such as a bonding requirement which would have burdened small inventors and start-ups.”“As this progresses, we look forward to continuing to work together with Congress toward a goal of ensuring that any legislation strikes the right balance between restraining abusive behavior while not impairing the legitimate rights of patent owners,” said Dickinson.
Innovation Alliance Executive Director Brian Pomper released the following statement:
“Today’s vote in the House on the Innovation Act, while disappointing, was not a surprise, given the massive effort to speed it through the legislative process without real consideration. What is clear to a large and diverse group of stakeholders – including inventors, manufacturers, universities and many other organizations representing America’s innovators – is this: H.R. 3309, as approved by the House today, will hurt U.S. innovation, economic growth and job creation. That’s something our nation cannot afford.
“The good news is that this debate is far from over. Even many of those who spoke in support of the bill in the House today emphasized that it remains a work in progress, and that further improvements to address the many concerns that have been raised are needed. As the national conversation about patents and their role in innovation and job creation shifts to the Senate, the Innovation Alliance looks forward to working with Chairman Leahy and his colleagues to achieve a consensus product that will successfully target abusive behavior but not harm innovators and the economy.”