Patent Reform riddled with intended, unintended, and unknown consequences

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In the rush to pass inventor killing legislation, only one inventor was allowed to testify in House Judiciary Committee hearings and inventors were silenced altogether by the Senate Judiciary Committee.  Almost all of the hearing witnesses were supportive of the patent infringer lobby, which is anti-inventor. I guess if you know your bill will significantly damage the pro-innovation climate that has existed for generations, it’s better not to ask any questions of those it harms.

But, if you don’t ask questions, you can’t solve problems.  We should not be surprised that H.R.9 (the Innovation Act) and S.1137 (the PATENT Act) are riddled with intended, unintended, and unknown consequences.

US Inventor sat down with over 350 House and Senate offices laying out how H.R.9 and S.1137 levies enormous damage on inventors and small innovation companies.  Most Congressional offices now understand how loser-pay, bonding and joinder stops the flow of capital to innovation startups, how customer stays make defending patent rights impossibly difficult, why eliminating PRG estoppel perpetuates litigation shifting almost all of the costs onto inventors, and how IPR’s and CBM’s unjustly strip property rights and devalue all patents.  Rank and file offices seem to be listening.  However, key offices are deliberately deaf.

Just when you thought patent reform couldn’t get any more bizarre, and un-American, both Judiciary Committees replaced the entire original bills with Manager’s Amendments at the last minute carving out favored groups from the most damaging provisions. The Manager’s Amendments were then rammed them through Committee and onto the floor with virtually no discussion. What’s worse, both Senator Grassley (R-IA) and Congressman Goodlatte (R-VA), Chairs of the respective Judiciary Committees, recognized that more changes need to be made even after passing their Committees before the bills can be voted on by the full Senate and full House. Taking them at their word, that means we don’t even know what the bills will actually be if and when they come up for a vote.

Carve outs are the hallmark of flawed legislation and the red flag of cronyism.  If it doesn’t work for one group, it won’t work for another, thus a carve out distorts the market in favor of those with political clout or money.  That is the case here.  Both Judiciary Committees hoped to split opposition by gaining the support of carved out groups.  It appears that the tactic may not be working because H.R.9 is stalled on the floor, however Goodlatte is still pushing members to pass it and Grassley is still pushing the Senate.

The problem is that hasty carve outs create their own problems. The carve outs in the Innovation Act and PATENT Act are no exception.

Recently, IPWatchdog described how university carve outs would not actually work because many universities use Research Institutions to hold and manage patents.  The Research Institutions are not carved out thus rendering the carve out meaningless for dozens of top universities.

Even though no inventor groups requested a carve out, we got one anyway.  US Inventor has written repeatedly about how the inventor carve outs do nothing because inventors need money to commercialize inventions and rely on investors to provide financial help.  However, investors are not carved out, so patent assets become radioactive for investment, thus making it impossible to attract the funding that is critical for innovation. The fact that investors would be on the hook will kill the incentive to invent – the very purpose of the patent system.

Recently another very serious problem has been discovered by Randy Landreneau. Deeply obscured by legalese of the bills, if passed patent reform create a fee-shifting system for inventors while eliminating fee shifting for infringers.  This should not be a surprise as both bills were written by the patent infringer lobby. Such an anti-inventor pro infringer provision creates a double standard that is simply unacceptable. If fee-shifting is good then it absolutely must apply in both directions. Fee-shifting must be a two-way street because everyone in the industry knows that bad litigation behavior can happen on both sides. It is pure fantasy to believe that only patent owners engage in litigation misconduct.

Of course, the fee-shifting provisions contained in H.R. 9 and S. 1137, which the patent infringer lobby touts as a step toward stopping patent trolls, are extremely unlikely to prevent the nefarious actors in the industry from continuing to engage in shakedown tactics. This inconvenient truth is due to the fact that in order to be awarded attorneys fees even under the presumption that would be created by the Innovation Act there must be a prevailing party. This means that the defendants sued for patent infringement would have to fight the case to the end and actually win. Of course, that won’t happen because it is too easy to pay $25,000, $50,000 or $75,000 to a patent troll rather than risk losing after a long an expensive trial. So only true innovators will be hurt by fee-shifting, not the nefarious actors who send out extortion-like demand letters and those who engage in litigation misconduct.

If Congress had taken the time to speak with true innovators these bills would be very different. Rather than make the system better these bills will further destroy the incentive to innovate.

The Author

Gene Quinn & Paul Morinville

Gene Quinn & Paul Morinville   

Gene Quinn is a patent attorney and the founder of IPWatchdog.com. He is also a principal lecturer in the PLI Patent Bar Review Course and an attorney with Widerman & Malek.

Paul Morinville is Managing Director of US Inventor, Inc., a 501(c)(4) established in 2015 to encourage inventors to contact or visit their elected representative in Washington DC, to show the impact inventors make in their districts, and to ask for legislation to correct the damage caused by the America Invents Act, Congress, the courts and the administration. For the last two years, Paul has been walking the halls of both the Senate and the House knocking on doors and sitting down with hundreds of offices to explain the damage suffered by inventors due to patent reforms. He is an independent inventor with dozens of patents and pending patent applications in enterprise software. He is also CEO of OrgStructure, LLC, an early stage enterprise software company in Northwest Indiana.

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 6 Comments comments.

  1. Dennis Dohogne, P.E., Inventor July 28, 2015 7:43 am

    Gene,
    I received your newsletter and Randy’s (http://www.independentinventorsofamerica.org/wp-content/uploads/2015/07/Outrageous-HR9-Find.pdf) at the same time this morning. I have already sent both articles to my congressman.

    To ALL of you reading this I urge you to do the same. I was surprised and pleased to find out that my congressman’s office actually has listened and has called me to discuss this. I have urged him that the bill is not the same as when he initially voted on it so he cannot be seen as flip-flopping for changing his vote. Also, that carve-outs are fundamentally wrong, but Gene explains that even better in this article. Never again must we allow “We have to pass this bill to find out what’s in it.”!!!!!!!

    It is unconscionable that the “testimony” has been so one-sided! Can anyone say “Kangaroo Court”? America is about freedom based on fairness. How can it be fair for a group to not be allowed to state their case?

    Contact your congressmen and senators – NOW! It does work.

  2. Matt July 28, 2015 9:39 am

    Certainly there are reasons to be skeptical, but isn’t it just as reasonable to assume that 273(f) — which prohibits “unreasonable” assertions of prior use — was deleted in HR 9 because it would be rendered superfluous by the amended Section 285 — which mandates an award of attorneys’ fees unless the non-prevailing party’s position was “reasonably justified in law and fact”?

  3. David Stein July 28, 2015 1:39 pm

    Excellent post, Gene.

    First: No patent system – neither U.S., nor foreign, nor any historical version to date – has ever before provided materially different patent rights based on the identity of the patentee. Even looking past the economic wisdom of these efforts, these ideas are legally unprecedented – and poorly tested, as demonstrated by the “university” vs. “foundation” hiccup.

    Let’s not forget that much of these “reform” initiatives are based on perceptions of a gigantic “troll” problem that is receding due to decisions like Alice – and was based on deceptive information in the first place. How many times has that “$29 billion” figure from Bessen and Meurer been cited in these conversations, notwithstanding the revelation that it is pure speculation?

    Second: Let’s be honest about the “unintended” part. I find it plausible that the legislators who’ve been persuaded (by various means) to support these efforts do not understand the full consequences. But I don’t believe for one moment that the corporate partners behind these “reform” efforts do not understand the implications. The consequences of these efforts are:

    * A system that is vastly more complicated and affordable… and thus, practically usable only by the most well-funded entities.

    * A system that favors established companies over startups – and thus, enables innovation from startups to be freely harvested, Zynga-style, by other companies – while continuing to afford protection for these large entities.

    * A system that more heavily favors the product lines and technology areas of well-established companies – and that discriminates against products in bleeding-edge technology areas.

    Those results are not incidental: they are fully intentional. They have nothing to do with the “patent troll” problem, and shoehorning them into the context of “patent reform” is savvy but totally disingenuous.

  4. Paul Morinville July 29, 2015 4:56 pm

    Matt, Fee reversal for prior use was a hard fought provision in the AIA. If it were not part of the bill, these economically unsound prior use provisions would likely not have passed.

    In a prior use defense, the infringer is in sole control of the evidence and thus it is easy (and tempting) to game the system. Fee reversal was put in the AIA as a disincentive to playing with the evidence, or asserting the prior use defense to increase the litigation costs of an inventor.

    It is clear why eliminating a fee reversal provision helps infringers by encouraging an unjustified prior use defense. However, neither HR9 and S1137 is supposedly intended to help infringers. They are both intended to kill the abstract idea of a patent troll. It is unclear to me how this can possibly help target the bad behavior of patent trolls.

  5. Saint Cad July 29, 2015 9:01 pm

    I think the problem is that according to Congress, a patent-troll is the same as an inventor wishing to protect their patent. I think anyone who knows how nuisance lawsuits work can tell the difference at least 90% of the time between “My claims vaguely resemble what you are trying to do so I’ll sue until you pay me to go away” v. “This appears to be a clear violation of my claim. Why should you be making money off of infringing my patent.”

    So now apparently patent infringers are the truly the oppressed party because anyone wishing to protect their patent is a troll. Thank goodness Congress is taking their cue from them .

  6. Randy Landreneau July 29, 2015 10:18 pm

    Matt – Regarding the possibility of 273(f) being removed because of the new standard, text just above it in the Senate’s PATENT Act, S.1137 (Manager’s Amendment Version), appears to render that argument without merit.

    On page 31, lines 5-8, see the following: “In a civil action that includes a claim for relief arising under section 271(e), the court may in EXCEPTIONAL cases award reasonable attorney fees to the prevailing party.”

    I’m not an attorney, but this appears to mean that in a drug or animal related GMO patent infringement case, the court may only award attorney fees if the case is EXCEPTIONAL. Then, a few lines down, the removal of 273(f) means that false claims of prior use will no longer cause a case to be considered EXCEPTIONAL.

    Perhaps some attorneys out there could indicate whether or not I am reading this correctly. Looks to me like this is direct attempt to shield guilty patent infringers from penalty.