Posts in Capitol Hill

Members of both major American political parties from both the Senate and the House of Representatives came together at a press conference held on the afternoon of Tuesday, July 14th, to oppose the most recent round of proposed patent reform bills in either chamber of Congress. Meanwhile, rumors are swirling that suggest that the Innovation Act (H.R. 9) has been tabled for the rest of the summer in the House of Representatives.

During the last hearing of the House Judiciary Committee there was an attempt to insert language via amendment that would make it impossible for Kyle Bass and others to challenge pharmaceutical patents via post grant challenge at the Patent Office. Judiciary Chair Congressman Bob Goodlatte (R-VA) vociferously objected saying that if the amendment to prevent post grant challenges to pharmaceutical patents passed it would create a so-called scoring problem with the Congressional Budget Office (CBO). What an admission by Goodlatte! No legislative help is coming for pharma’s post grant challenge problem because the federal government likes the idea of some patents on important drugs being invalidated, which will save Medicare money.

Senator Chuck Grassley (R-IA) added language to the fee-shifting provisions in the PATENT Act that would offer an economic hardship exception to fee shifting for “an institution of higher education.” The reason that Iowa State and the University of Iowa find themselves on the outside looking in is because of the way they have structured their patent ownership and licensing efforts. As is rather common, Iowa State and the University of Iowa place ownership of patents outside the institution and in the hands of a Research Foundation, which is a separate entity altogether.

Patent prosecution describes the interaction between applicants and their representatives, and a patent office with regard to a patent, or an application for a patent. (source: Wikipedia). It is a well-known term of art commonly used in the IP community. On the other hand, patent persecution describes the activities among various actors currently dismantling the US patent system, block by block. It is a recent phenomenon and seems to know no boundaries. (source: read the news!).

One of the more active areas during this round of public comments collected by the Copyright Office involves the prohibitions against circumvention for Proposed Class 21, which covers vehicle software for diagnosis, repair or modification. John Deere also suggests that enabling these exemptions could encourage the piracy of copyrighted music or film recordings by tampering with infotainment software systems installed on vehicles. As well, modifying vehicle software to reduce the car’s maximum speed when lending it to a teenager or activate lights when the windshield wipers are turned on, both of which are suggested by John Deere, constitutes commercial activity which goes against non-profit fair use principles used to consider exemptions.

Today, our patent system is faltering. For the first time in our history, inventors and their counsel are considered villains for defending hard-earned patent rights. Companies that steal patents from inventors are called our innovators. The innovation world has turned up-side-down. A few misguided decisions by the courts and the “so-called” America Invents Act of 2011 has made it a CEO’s fiduciary responsibility to steal patented inventions and massively commercialize them with no concern for patent rights.

Having to defend their patent in post grant reviews such as an IPR can easily cost patent owners between $700,000 to over $1 million when the subject matter of the patent under challenge relates to the biological or pharmaceutical sciences, due in part to the need to cast a wide net for relevant prior art, according to experienced practitioners like Brad Olson, a partner with Barnes and Thornburg, LLP. Such expenses are particularly threatening to new companies finding the patents that drive their business under attack just as they are desperately trying to raise money for their very survival. Given the track record of IPR’s as “patent death squads” potential investors or licensees can’t be blamed for waiting until the reviews are completed to finalize pending deals.

The reach of the veil piercing is also unprecedented. The proposal implies that an inventor who assigns to other companies that make no products and stand to make a royalty is an interested party. Think about that – we are no longer considering charging just investors or shell company owners with attorneys’ fees. Instead, the proposal would pierce the veil all the way down to the inventor that assigned the patent to his or her employer. If this broad a reading seems unreasonable, consider the recent manager’s amendment, which clarifies to exclude lenders, because the language is so broad it might have included lenders before.

One thing that all the changes in patent law over the last decade has accomplished is to make it a far better business decision to infringe. There has always been concern in the patent holder community about something called the efficient infringement theory. Under this theory it makes more sense to infringe rather than to negotiate and seek an amicable resolution. In the past this was a problem largely isolated to small businesses and independent inventors who simply didn’t have the resources to fight when their rights were being infringed by a large entity that was not interested in participating in a responsible way in the honor system that Judge Michel describes. Today, however, efficient infringement is alive and well, and is a problem for all patent owners regardless of size.

Dissent among members of Congress on the nature of the Innovation Act was evident from the opening remarks of the committee’s two ranking members. Congressman Bob Goodlatte (R-VA), the House Judiciary Committee Chairman and the Innovation Act’s major sponsor, stated that the Innovation Act would “ensure that the patent system lives up to its constitutional underpinnings” while targeting the abusive patent litigation which has been central to the debate on patent trolls. The ranking Democratic member of the committee, Congressman John Conyers (D-MI), said the bill was overly broad and yet it didn’t adequately address issues significant to this debate, including abusive demand letters and the ending of fee diversions from the U.S. Patent and Trademark Office’s budget.

Goodlatte was incredulous, explaining that he sees no substantive difference between the language in the Innovation Act and the language in the PATENT Act. The difference between the House bill and the Senate bill boils down to the presumptions made and who will wind up bearing the burden of proof. Congressman Goodlatte is sophisticated and knowledgeable. Surely he has to understand both that there is a difference and that the difference is meaningful.

Issa’s amendment changes the language so that a party bringing a patent infringement suit where the defendant has its principle place of business, where the defendant has a physical presence, or where the patent owner has a meaningful physical presence due to research and development or manufacturing. At first glance these venue provisions seem reasonable because they would curtail the extreme forum shopping that does go on in patent cases, as witnessed in the Eastern District of Texas. On closer consideration, however, this provision could create problems for those patent owners who are not bad actors that seek to abuse the system or take advantage by only filing in favorable, remote forums.

One of the issues that took up a significant amount of time during the first half of the hearing was the proposed extension of the transitional program covered business method review. The amendment submitted by Congressman Issa (R-CA) sought to extend CBM by pushing back the sunset period until December 31, 2026. The Issa amendment to extend CBM was defeated by a vote of 18-13.

The House Judiciary Committee will hold a hearing on Thursday morning, June 11, 2015, at 10am ET in order to markup the Innovation Act. The Manager’s Amendment is currently available on the hearing webpage. Additional proposed amendments by Judiciary Committee members are excepted to come in and be posted sometime later today. While a markup of this legislation has been rumored numerous times only to be postponed, it seems that this hearing will go forward. It is widely expected that the Innovation Act will easily clear the House Judiciary Committee. The resulting bill with whatever amendments may be approved may move quickly to the full House of Representatives for a vote.

The need for Rep. Issa’s company to enforce its rights reminds us that inventors and small businesses often have to protect their patents through litigation. But the patent legislation supported by Rep. Issa will make it much harder for all patent owners to protect their rights, imposing extensive financial and procedural burdens that go far beyond what is necessary (or helpful) to curb abusive litigation practices. Whereas true patent reform should be a scalpel, this patent legislation is a sledgehammer. All legitimate inventors and startup companies, like Reps. Issa and Massie, are treated as acceptable collateral damage in the effort to eliminate the handful of bad actors who file nuisance lawsuits.