Rep. Goodlatte Introduces "Innovation Act" to Combat Patent Trolls

By Andrew Williams --

After releasing two "discussion drafts," Rep. Bob Goodlatte (R-VA) (at right), the Chairman of the House Committee on the Judiciary, finally introduced a bill in the House on October 23, 2013, with the non-descript title of "Innovation Act."  Rep. Goodlatte had released his first discussion draft on May 23, 2013, and a substantially revised draft dated September 6, 2013.  Many of the provisions of the second draft were met with skepticism in the patent community, and unfortunately, the currently introduced bill differs only on minor respects.  At the time of release of the second discussion draft, we highlighted some of the major provisions (see "Rep. Goodlatte Introduces Second 'Discussion Draft' of Legislation Aimed at Curbing 'Abusive Patent Litigation'").  In an effort to minimize repetition, we will point out some of the changes that were made to the bill in the intervening month, and we highlight some of the issues or concerns that the bill presents.

We will also only focus on the section dealing with patent infringement actions here, considering the motivation behind the present bill was to combat the perceived "patent troll" problem.  Rep. Goodlatte explained when he release the first discussion draft:  "This bill helps to address the issues that businesses of all sizes and industries face from patent troll-type behavior and aims to correct the current asymmetries surrounding abusive patent litigation."  Of course, as whenever the derogative term is invoked, this bill does not attempt to define what a "patent troll" is.  As such, the bill does not adequately differentiate between practicing and non-practicing entities.  In other words, the bill is not narrowly tailored to address the problem that it was introduced to solve.  Therefore, even if the goal is to take down the trolls, this bill could have the unintended consequence of taking down the entire patent system with it.

One of the most significant problems with the present bill is the move from "notice" pleading to initiate a patent infringement lawsuit towards something that much more resembles the detail required by infringement contentions not normally required until much later in the litigation.  Therefore, the type of information that the bill will require any party asserting a patent (whether in the complaint, counter-claim, or cross-claim) to plead includes an identification of each patent and each claim allegedly infringed, an explanation as to where each element of each claim is found in each "accused instrumentality," whether each element is infringed literally or under the doctrine of equivalents, and how the terms of each claim correspond to the functionality of the accused instrument.  It is unclear with this level of detail whether claim charts will be required to satisfy this pleading requirement.  The pleadings will also require a description of the direct infringement, the acts of any alleged indirect infringement, and the right of the party to assert the patent, a list of complaints already filed which identify the same patent, and whether the patent is subject to any licensing terms or pricing commitments.  Of course, a similar requirement is not imposed on an alleged infringer pleading invalidity of the patent, which may by understandable considering the time constraints involved in answering a complaint.  However, this is not true when a potential infringer brings a declaratory judgment action including a count of invalidity, but the bill does not address this situation.

One of the problems with such heightened pleading standard is that accused infringers might be able to successfully challenge a patent infringement lawsuit on the sufficiency of the pleadings without ever having to address the merits of the case.  Even though the bill provides what type of information must be included in the complaint, it does not specify the level of detail required.  It is also unclear what the penalty will be for patent holder failing such a sufficiency challenge.  Parties normally have the right to amend the complaint once without seeking leave of the Court, but will the courts freely grant leave if more than one complaint is needed?  More importantly, if the patent holder's infringement contentions are modified during discovery, will an amended complaint need to be filed?  Will information contained in the complaint lead to any estoppel issues down the road?  And, if the alleged infringer challenges the sufficiency of the Complaint, can the patent holder seek limited discovery for the purposes satisfying the pleading requirements?  Unfortunately, none of these issues are addressed by the bill.

On the bright-side, one of the changes included in the bill since the second discussion draft is that it now includes a provision for situations in which the information is not readily accessible to a party.  However, to invoke this provision, the patent holder will still need to include in the pleadings why the undisclosed information was not available and the efforts undertaken to access this information.  Of course, as with the issues raised above, it is unclear what the standard will be to determine if information is, in fact, unavailable, and what that standard will be to determine whether research efforts were satisfactory.  The newly introduced bill also includes a provision for filing such a complaint under seal if it contains confidential information.

Another controversial provision of the bill relates to significant proposed changes to 35 U.S.C. § 285.  This section currently provides for the possibility of awarding attorney's fees to the prevailing party in "exceptional circumstances."  However, the newly introduced bill flips the default, so instead of attorney's fees being a possibility in certain cases, the bill requires courts to award reasonable fees to the prevailing party unless they "find that the position of the nonprevailing party or parties was substantially justified or that special circumstances make an award unjust."  It is clear that the purpose of this provision is to provide the courts with the ability to "punish" non-practicing entities that are considered to assert their patents abusively.  However, this provision will likely to have the consequence of stifling legitimate patent infringement lawsuits, regardless of whether the patent holder is a practicing entity or not.  If the goal is to enable the courts to curb patent abuse, 35 U.S.C. § 285 as it currently stands can be amended to remove the "exceptional circumstances" requirement, as many commenters have suggested and as introduced in other bills currently pending in Congress.

Rep. Goodlatte and others were motivated to introduce this bill to curb the perceived patent assertion abuses that have been so frequently reported in the mainstream media (usually without much factual support for the proposition).  Instead, the bill that was introduced is not narrowly tailored, but rather is a blunt instrument that will impact all patent infringement actions (outside of Hatch-Waxman actions brought pursuant to 35 U.S.C. § 271(e)(2)).  It is important to note, however, that this bill has yet to be discussed by the Committee on the Judiciary, so the chance of it passing the House in its current state, much less passing the Senate, is highly unlikely.  We will, of course, continue to follow and report on the progress of this bill, as well any comparable bills that are introduced in either the House or the Senate.

Comments

[Skeptical]

Please let the bill die quickly.

[EG]

Andrew,

Ill-conceived and unnecessary legislation, like the AIA (Abominable Inane Act) to have unfortunate and unintended consequences that will hurt more the "innocent," rather than the alleged "patent trolls." Goodlatte and his colleagues would do better to address more pressing problems that include the failure to pass a federal budget, the failure to control our spiraling federal debt, and the utter "meltdown" of the (Un)Affordable Care Act.

[LOL]

a dumb proposed law from an even dumber low maker.

did this moron shut down the government?

[GD]

This is so discouraging. Why call patent owners patent trolls, even if they are NPEs? The "troll" term is pejorative. That term is intended to inject condescending, dismissive emotion, i.e., trolls are bad things, not objective clarity into the debate. Emotion skews clear-headed logical thinking.

People who use this term have already decided what they think based on their ideology/prejudices/ignorance/self-interest. Facts and reality do not matter nearly as much as the end conclusion. What if it is the case that patent trolls, witches, goblins and/or alien baby snatchers actually contribute to the creation of wealth and our standard of living? Bring on the unspun data and unbiased analysis. If "trolls" are bad, then they are bad. But what if they are good?

It sounds about like this: Federal judges make up their minds on a patent case based on whatever emotional bias they have.

Or, does that never, ever happen? (Hint: See Scalia's dissent in the Myriad case) Here it isn't a federal judge. It is a "selfless" politician. Unfortunately, intellectual nonsense is so very easy.

[GD]

Oops. Not Scalia's dissent. His concurrence. Nuts.

[Bruce from ELO]

"One of the problems with such heightened pleading standard is that accused infringers might be able to successfully challenge a patent infringement lawsuit on the sufficiency of the pleadings without ever having to address the merits of the case."

That's a "problem" for plaintiffs who can't follow the rules but otherwise it's not a problem for anybody.

[John Nagle, Silicon Valley, CA]

HR 3309 is already through the House Judiciary Committee and on the fast track.

HR 3309, like the previous "SHIELD Act",is supposed to stop "patent trolls". But it's much broader. It makes "loser pays winner's legal costs" the standard. For a small entity to sue a big company with expensive lawyers becomes financial suicide. The SHIELD act had something similar, but it exempted the original patent holder, someone manufacturing the invention, and universities. HR 3309 doesn't do any of that. It allows big infringers to crush small companies and inventors beneath their boots.

This bill is a triumph of effective lobbying by the American Association of Advertising Agencies and the Direct Marketing Association (the junk-mail lobby). This is a surprising source of opposition to patent enforcement, but there's a specific reason for their interest. There are four patents related to targeted advertising which cause advertising agencies problems. To get rid of those patents, the advertising industry has convinced other ad-supported companies to support a huge change in patent law. The changes all favor big companies over little ones by making litigation more expensive.

The A4s (what the American Association of Advertising Agencies calls itself) has a list on their web site of patents they are concerned about:

6,628,314 and 6,771,290 (relates to targeted advertising),
5,251,294 ("Accessing, assembling, and using bodies of information" - rather vague),
5,930,474 (store locators)

These are all "business method patents". That's the source of the push behind this bill. Other companies have signed on, but the ones behind it are all involved heavily in online and mobile advertising.

This bill isn't about "bad patents". There's nothing in this bill about increasing patent quality by raising the "obviousness" bar. That's because of opposition from the pharmaceutical industry, where many drugs are "me-too" drugs, very similar to existing drugs. (Ref: http://community.seattletimes.nwsource.com/archive/?date=20020416&slug=clarinex16) As the A4s wrote in their letter to the FTC (http://www.ftc.gov/os/comments/pae/pae-0035.pdf)

"What seems like a bizarre and wasteful tactic in the high-tech industry can be a basic good practice in the pharmaceutical industry."

I'll leave it to the people in this forum to hash out that issue. I'm in computing and robotics, not biotech or pharma.

The patent troll industry exists because, in the last decade, it's become much tougher for inventors to enforce patent rights. Four changes in law did this:

(2006) "eBay v. MercExchange " The patent holder can't get an injunction against infringement any more, except in extreme cases. This destroyed the concept of a patent as property that only the patent holder could use.

(2007) "In re Seagate" The patent holder can't get triple damages unless there is "reckless infringement", which means the worst that can happen to an infringer is that they have to pay a royalty, the same royalty they might have negotiated. So infringement by a big company is risk-free.

(2007) MedImmune, Inc. v. Genentech, Inc. If a patent holder writes to an infringer asking them to pay royalties, they can be sued for a judgement that the patent is invalid, in a court of the infringer's choosing. So, as a patent holder, you have to file suit before you can negotiate. This is why "patent trolling" became necessary.

(2011) The "America Invents Act" The "America Invents Act" added "post-grant opposition" proceedings, so now infringers can harass patent owners and stall infringement claims in multiple forums. Note that one of the "features" of HR 3309 is to limit estoppel so that similar issues can be raised once in a post-grant opposition and then re-raised in an infringement case. This makes it clear it's all about raising the cost of enforcing a patent by wearing down the patent holder.)

The people who read this board probably know all that, but rarely does someone put all four of those items on one page. Because of those changes, enforcing a single patent is no longer financially feasible in most cases. A big patent portfolio is needed. You either have to be a big patent holder like IBM or Google, or you have to deal with a company that aggregates patents to monetize them. This created the "patent troll" industry.

One effect of all this anti-patent effort is a shortage of new ideas. The Silicon Valley venture capital community, which had been profitable since the 1970s, has been losing money as a group since 2001. Most "new ideas" presented to VCs today are rather banal. (I've heard a pitch for a social network for cats. It didn't get funded.) VCs complain about this. Everyone seems to want to do a "app". Without strong intellectual property laws, what matters is time to market and promotion, not innovation.

I'm in contact with a staffer at House Judiciary and am trying to get in some amendments to narrow this thing. More on that later. If you have a lobbyist in Washington, I'd like to hear from you.

John Nagle "[email protected]"