Coons and Hirono Raise Concerns Over Pride in Patent Ownership Act Penalties

By Eileen McDermott
October 19, 2021

“I do want us to also be mindful about not inadvertently harming U.S. inventors or innovators in the process, and making sure we’re not weakening patent rights or creating administrative pitfalls for their proper enforcement.” – Senator Chris Coons on the Pride in Patent Ownership Act

Pride in Patent Ownership Act During a hearing of the Senate Judiciary Committee’s IP Subcommittee today, Senators Chris Coons (D-DE) and Mazie Hirono (D-HI) were the only senators present to question the Pride in Patent Ownership Act’s (PPOA’s) approach to penalizing patent owners who fail to record accurate ownership information within 90 days after the issuance date.

The hearing included testimony from four witnesses on the topic of the PPOA introduced by Senators Patrick Leahy (D-VT) and Thom Tillis (R-NC) in September. Leahy explained in his introduction that the same fundamental principle of disclosure that underpins issuance of a patent should extend to patent ownership information. There is presently no requirement that ownership information be publicly available after a patent issues.

The PPOA would require a patent owner to record updated ownership information with the U.S. Patent and Trademark Office (USPTO) when a patent changes hand. The information would be publicly available and searchable in a USPTO-maintained database. If patent owners fail to record information in a timely manner, they would not be eligible to obtain enhanced damages for willful infringement for the time period the information was not recorded. Leahy argued that the current system results in costly litigation just to discover who is accusing a party of patent infringement. “The lack of clarity about patent ownership information also brings about inefficient licensing discussions,” Leahy added.

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IPWatchdog Founder and CEO Gene Quinn pointed out in his analysis of the bill that the PPOA approach is “one-sided”: “Predictably, the PPOA only addresses ownership of patents, and does not seek to provide true transparency that would be a two-way street identifying those funding and benefiting from PTAB challenges,” Quinn wrote.

Pride in Patent Ownership Act During the question and answer period, Senator Leahy asked witness David Kappos of Cravath Swaine & Moore, and the former USPTO Director, to expand on his written testimony’s reference to national security concerns around foreign governments’ funding of applications. He explained that the current system represents a “possible instability of the funding source for the USPTO” because filings coming from overseas that are funded by nation-states pay the cost to file a patent and prosecute a patent application – a subsidized cost that is meant to be recouped by maintenance fees – but then they don’t pay those maintenance fees. “That’s another instability of the system that’s going to come about,” Kappos said. The PPOA’s disclosure requirements for patent filings funded by government actors and its grant of authority to the USPTO on this point would go a long way toward solving this problem.

However, Kappos also addressed some of the imbalances in the proposed bill, both in his written testimony and during the hearing.  In particular, the penalty for non-infringement—”loss of recovery for willful infringement—doesn’t feel connected to the
recordation requirement,” Kappos wrote in his testimony.

Pride in Patent Ownership Act When questioned further on this point by Senator Coons and asked for alternatives to that remedy, Kappos said “what I go to is opportunities to reduce maintenance fees and issuance fees as a positive incentive to record the information.” If the policy goal is to keep the ownership records correct at all points in time, mistakes are always going to be found and “we should provide a mechanism to go back and fix these things in good faith,” he added.

Coons commented at the hearing that, while he agrees with the premise of the bill, he would not want to “inadvertently” harm U.S. inventors:

I do want us to also be mindful about not inadvertently harming U.S. inventors or innovators in the process, and making sure we’re not weakening patent rights or creating administrative pitfalls for their proper enforcement…. I think we strengthen our global competitiveness when we find ways to advantage and strengthen the rights and opportunities for innovation here in the United States.

Pride in Patent Ownership Act Senator Hirono questioned why such a remedy as stripping a patent owner of the possibility of enhanced damages was necessary at all, since there are already incentives to record ownership, such as advantages against subsequent recordals of interest from good faith purchasers, as Kappos noted. But he also noted that the current recordal system is “clearly not strong enough.”

Professor Robin Feldman of the University of California Hastings Law, responded to the request for alternative mechanisms to incentivize recordation with the note that “laws aren’t helpful unless they can be enforced.” While both positive and negative enforcement mechanisms can be helpful in the legal context, “we do need a way to hold people’s feet to the fire,” she said. “This bill has chosen an area that’s connected to willfulness and touches on a limited area of the patent litigation flow, but I do believe some areas must be there in order to hold people accountable [for] their behaviors.”

Pride in Patent Ownership Act According to witness Abigail Rives of Engine, 158 district court decisions of the several thousand filed between 2013 and 2018 reached a final decision on willful infringement and of those, 62 found willfulness and 32 awarded enhanced damages. While that’s a very small percentage of patent litigation to which the remedy would apply, it arguably could strip damages in the most egregious cases.

The other witness was Allen Stabinsky, Senior Vice President; Chief Deputy General Counsel at Intel, who focused his comments on the bill’s relevance to combating the rise of investor-funded litigation, particularly with respect to integrated circuit/ semiconductor technology.

In a statement sent to IPWatchdog, Innovation Alliance Executive Director Brian Pomper said the bill as drafted “would have unintended consequences, for small inventors and others, and would ultimately work to undermine innovation.” Pomper explained:

As written, the bill would prohibit any patent owner who fails to record any change in certain rights or interests to a patent with the U.S. Patent and Trademark Office within a 90-day period from collecting enhanced damages from a willful infringer.  We have a few concerns with this approach that we hope can be addressed as the bill moves through the legislative process.

First, there is no apparent connection between the infraction of failing to record a change in rights or interests to a patent and the penalty of foregoing willful damages.  That is especially concerning given that prohibiting willful damages would give a windfall benefit to a truly bad actor, one guilty of purposely and willfully infringing a patent in bad faith, due to an unintentional honest mistake or oversight on the part of a rights holder.  As one commentator noted, that would be like the police refusing to respond to a report of burglary or trespassing because a homeowner had failed inadvertently to record their deed properly.

Second, for resource-constrained small inventors, entrepreneurs with multiple funders and investors, or even large companies engaged in a complex transaction, we fear the 90-day period is too short.  That is compounded by an additional concern – the lack of any ability to cure honest mistakes in failing to meet this timeline.  A mechanism to allow recordation after the 90-day period without penalty in cases of an honest mistake or oversight would be a welcome addition to this bill.

Kappos agreed during the hearing that the 90-day timeframe would present problems and should be longer than what it proposes in the bill, since, in the real world of transactions many times changes come about as the result of larger transactions with many moving parts.

 

The Author

Eileen McDermott

Eileen McDermott is the Editor-in-Chief of IPWatchdog.com. Eileen is a veteran IP and legal journalist, and no stranger to the intellectual property world, having held editorial and managerial positions at several publications and industry organizations. She has acted as editorial consultant for the International Trademark Association (INTA), chiefly overseeing the editorial process for the Association’s twice-monthly newsletter, the INTA Bulletin. Eileen has also served as a freelance editor for the World Intellectual Property Organization (WIPO); as senior consulting editor for the Intellectual Property Owners Association (IPO) from 2015 to 2017; as Managing Editor and Editor-in-Chief at INTA from 2013 to 2016; and was Americas Editor for Managing Intellectual Property magazine from 2007 to 2013.

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 as of the time of publication and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 8 Comments comments. Join the discussion.

  1. Josh Malone October 19, 2021 8:36 pm

    Great reporting. Great testimony by Mr. Kappos. Great engagement by Senators Coons and Hirono.

    Next step – skip the markup and jam it through in the next omnibus bill!

  2. Jacek October 20, 2021 12:50 pm

    The message is:
    If you want to be an Inventor in the United States first study the law. Then become a patent attorney for at least 10years to have some experience, After that, and after receiving a sizable inheritance from your uncle (to cover your legal costs) you can start inventing.

    Wow. I am looking forward, to the future as an Inventor in the US

  3. Matt October 20, 2021 12:56 pm

    Dear Ms. McDermott,

    Thank you for bringing this issue to the forefront. It is remarkable that the self-serving Senators keep their work mostly unpublicized. If not for your and IPWatchDog’s diligence to report, it’s a wonder whether their work would get the much needed sunshine.

    My main question for the senators is what ever happened to our right of privacy? It is bewildering to me that these supposed stewards of the Constitution and related Bill of Rights are so cavalier about ignoring basic human rights and at the same time adamantly generating divisive matters/ topics. The special interest bureaucracy has twisted our constitutional republic into a direction somewhere between crony capitalism and communism. These encroachments must be stopped in my opinion.

    This isn’t an either or situation. We can protect the American inventor’s rights to privacy and make a law that any entities with foreign ownership must be identified as the patent owner. I would really like to see these sworn servants of We The People start working in the interest of the United States of America.

    Again, I really appreciate your article and thank you for the insightful analysis.

    Best regards,
    Matt

  4. mike October 20, 2021 3:50 pm

    Thanks for reporting on this Eileen. I find Leahy’s decision to use the word “Pride” in this bill fallacious. (Explained below.) I applaud Senator Hirono and Senator Coons for standing up for inventors in this hearing and pointing out the fallacies in Leahy’s bill.

    Leahy: Your tricks to circumvent inventors don’t work anymore. Fool me once. I mean, members from your own political party are calling out your proposed legislation as problematic. I hope you realize that time is running out for how people will view your legacy. Now is your last opportunity to fix the AIA in support of inventors. If you fail to do that, your legacy in IP policy will be known by an entire inventor generation as a stain on America because, not only did you forget to consider the voice of inventors a decade ago (not just my opinion), but when you came back and had an opportunity to fix it, you failed to listen again. So now is your opportunity to man up and be a hero. Realize that inventors have been thrown under the bus, and pull us out. It’s your choice. How do you want to go down in history?

    Pomper said it right in his statement:

    There is no apparent connection between the infraction of failing to record a change in rights or interests to a patent and the penalty of foregoing willful damages. That is especially concerning given that prohibiting willful damages would give a windfall benefit to a truly bad actor, one guilty of purposely and willfully infringing a patent in bad faith, due to an unintentional honest mistake or oversight on the part of a rights holder. As one commentator noted, that would be like the police refusing to respond to a report of burglary or trespassing because a homeowner had failed inadvertently to record their deed properly.

    Gene’s question regarding one-sided nonsense is spot on. Put another way:

    In the name of “transparency”, where in the bill is the required disclosure where patent challengers must identify all parties who fund and benefit from challenges at the PTAB?

    This sings with what Hardin said in a comment regarding Leahy’s recent legislative attempts to undermine inventors:

    These attempts [by Leahy] to “fool me twice” after the AIA disaster are grim.

    The Unleashing bill purports to increase underrepresented inventor participation, but it fails to address what over 75% of underrepresented inventors said in the SUCCESS Act—the inability to enforce a patent is a barrier to participating in the patent system in the first place.

    Indeed, Pride has become lost in patent ownership. Yet, the ironically-named Pride bill purports transparency, but it increases inventor burden to disclose ownership interests (strangely enabling legal infringement during failure to disclose—with no relationship to the merits), and it lacks language bringing transparency regarding parties funding and benefiting from PTAB challenges—the new subscriber business model the AIA inadvertently created that challenge patents without [time bar limitations].

  5. Anon October 21, 2021 9:57 am

    mike,

    As a matter of form, what tags are you using for the “bar” set-off?

    That style makes it very easy to distinguish the material that you are providing as quoted material, and I enjoy it very much.

    (I also applaud your message)

  6. mike October 21, 2021 5:57 pm

    Anon,

    That would be the “blockquote” tag/element. Note that you do not need to include the “cite” attribute on it.

    Also, I have a question for you at this link. Please oblige. Expires in 24 hours. I’m posting this at 4:50pm EDT on Oct 21.

    Answering this will get you in:
    “Who’s scissors?” (not possessive, and all lowercase)

    Cheers,
    mike

  7. Anon October 22, 2021 10:02 am

    Mike,

    The second link did not carry through.

    I suppose that something “shifty” may have occurred.

  8. mike October 22, 2021 9:24 pm

    Anon, thanks for trying. We’ll try again later when I can create the links again. Currently tied up for a while.

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