Patent Reform riddled with intended, unintended, and unknown consequences

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.