Posts in Capitol Hill

At the end of a three-hour long hearing held by the U.S. Senate Committee on the Judiciary this Thursday, June 4th, S.1137, the proposed legislation known as the PATENT Act, was approved to move to the floor of the United States Senate by a 16-4 vote of the Senate committee. Proponents of the bill lauded the bipartisan support which brought the bill committee approval. Interestingly, a small but vocal bipartisan minority has developed, a couple of whom have pledged to continue debate aspects of this legislation which they fear will pose a threat to American innovation.

Senators repeatedly brought up the Hatch-Waxman legislation. One after another Senators discussed how inter partes review (IPR) of pharmaceutical patents at the United States Patent and Trademark Office (USPTO) has, in an unanticipated way, upset the delicate balance reached in Hatch-Waxman to ensure that generic drugs would come to market quickly. Those familiar with IPR and Hatch-Waxman will undoubtedly recognize that this concern is entirely misplaced. A successful IPR would result in the immediate death of patent claims, which would inure to the benefit of all generics, which would in fact result in generics entering the market quickly.

Although the latest version of the PATENT Act (S.1137) represents an improvement over previous versions of the legislation, it would still make all U.S. patents less enforceable and cast an ominous cloud over startups and small inventors… The latest version of the PATENT Act notably fails to address the critical overbreadth problems of the customer stay, heightened pleadings, and discovery provisions. Together these provisions place an undue burden on the enforcement rights of legitimate patent owners.

According to Grassley’s office, the amended PATENT Act will provide important reforms for the way that the Patent Trial and Appeals Board (PTAB) of the United States Patent and Trademark Office (USPTO) operates. For instance, the managers amendment would: (1) Require the PTAB to apply the claim construction standard used in federal district court (i.e., the Phillips standard) and further requires the PTAB to consider if claims have previously been construed in district court. (2) Makes explicit that for purposes of PTAB adjudications patents are presumed to be valid, although does so retaining the current law providing that the petitioner has the burden to prove a proposition of unpatentability by a preponderance of the evidence. (3) Makes clear that the Director has discretion not to institute an IPR or PGR if doing so would not serve the interests of justice. (4) Allows patent owners to submit evidence in response to a petition to institute an IPR or PGR, and petitioners to file a reply to respond to new issues. (5) Directs the PTO to modify the institution process so that the same panels do not make institution and merits decisions. (6) Directs the PTO to engage in rulemaking in order to institute a Rule 11-type obligation in IPR and PGR proceedings.

The mainstream media has been aflame over a recently unveiled Google innovation which poses an Orwellian challenge to family privacy in the eyes of some critics. A patent application published May 21st by the U.S. Patent and Trademark Office describes a smart toy developed by Google which can respond to a child’s voice or gestures. Some of the creep factor inspired by this invention might simply be the result of Google’s ability to create products which naturally ingratiate themselves with users. For instance, the patent application cites the benefits of the anthropomorphic device taking on a “cute” and “toy-like” form, specifically where it comes to attracting the attention of young children.

Strong patent protection is almost universally considered critical to robust innovation. Venture capital and private investment in new technology-based businesses heavily depend upon it. Yet, the Innovation Act is positioned to significantly reduce the value of patents by making the risk of enforcement prohibitively high.

The proposed bill comes as welcome news to large companies like Google and Amazon which have been looking for ways to start developing beyond line-of-sight flight plans and other complex operations. The rules may, however, be less well suited for smaller UAV innovators. As an article published by Motherboard points out, the Booker/Hoeven legislation will require commercial drone operators to register for a license whereas currently allowable commercial drone operations operate in a non-licensed legal grey area. The undisclosed registration fees that would be put in place for licensing is also a cause for concern among small commercial players with limited financial resources.

A new PricewaterhouseCoopers 2015 patent litigation study, released today, points to a 13% drop in patent lawsuits filed in 2014. That’s right—patent cases more than doubled from 2009 (2,792) to 2013 (6,497) and then sharply dropped (5,686) in 2014. What is more incredible is that the report credits the Supreme Court’s recent decisions for the decline in patent litigation.

A truism in politics is that issues are driven by stories. One of the most successful is the saga of the patent troll. That’s driving the current debate creating a sense of a malfunctioning patent system which is a danger to the public. If one side’s story frames the argument, those in opposition are at a real disadvantage and many times never recover. We have done a poor job as a community over the years presenting the importance of the patent system to the American public and our political leaders. That’s now come back to bite us.

The problem facing the country as embodied in Congressional proposals to change the patent system is that it’s stuck in a time warp. Congress acts as if the landscape today was exactly the way it looked in 2010 or 2011, but in fact it has totally turned upside down in the last two years. We used to have, for the most part in this country, what I’ll call an honor system where companies that were using technologies patented by others willingly took licenses without being forced by court orders to do so. The honor system now is largely gone.

Another discrepancy is between the stated legislative goals and the actual proposed language. This is perhaps demonstrated in starkest relief in the “customer stay” provision found in both the Innovation Act bill in the House of Representatives and in the PATENT Act bill in the Senate. It ostensibly would exist to protect downstream customers of a patent infringer, such as a small coffee shop offering Wi-Fi service using a device that unbeknownst to the coffee shop infringes a patent. But while the Senate Judiciary Committee’s summary of the PATENT Act says that the “customer stay is available only to those at the end of the supply chain,” like the coffee shop, the language found in the bill is actually far broader in scope.

Given the collective bias of the witness panel, it is hardly surprising that on the issue of the PATENT Act there was a clear, positive consensus in the witness panel. But there is no such consensus within the industry and those voices were brought to the table by Sens. Dick Durbin (D-IL) and Chris Coons (D-DE), two of the sponsors of the STRONG Patents Act that has been debated in Senate committee as recently as March. Durbin, who pointed out that “this panel is divided between people who love the bill and people who really love the bill,” read part of a strongly worded letter submitted by the National Venture Capital Association who is worried that the PATENT Act, as worded currently, could hurt investment.

Patent reform is the new normal and we can expect that it will continually be raised in every new Congress for the foreseeable future. Currently there are four serious proposals for patent reform in various stages of consideration in Congress. They are: (1) The Innovation Act; (2) The TROL Act; (3) the STRONG Patents Act; and (4) the PATENT Act. There is also another bill – the Innovation Protection Act – that likely has no chance of passing but which is eminently reasonable. A summary of each of these five bills follows, along with one thing to watch for which could completely upset all predictions.

In the patent arena it is not hypocrisy that is fueling the misguided strategies of tech companies. Instead it is the self-interest of tech CEOs who are increasingly only concerned about the short term. This is tragic because corporations are supposed to exist in perpetuity, not just until the current CEO can cash out with his or her golden parachute. Short term thinking of tech CEOs is destroying the patent system and wasting shareholder assets. What are these companies going to do when foreign corporations push their way into the U.S. marketplace? How will CEOs explain away the existential threat they face when foreign manufacturers flood the market with goods and services without regard to long since crippled patent portfolios of the former tech elite?

Microsoft applauded the introduction of the PATENT Act. Universities seem to be on the fence, recognizing that the Senate alternative is an improvement, but likely to support amendments. The Innovation Alliance opposes the bill, pointing primarily to customer stay language that could effectively immunize large corporations from patent infringement liability. Meanwhile, according to BIO, any patent reform bill that does not address abusive filings of inter partes review (IPR) petitions will be opposed.