Business

House overwhelmingly passes landmark patent reform bill — but not without dissent

‘Common-sense snooze alarm’

David Balto spent over 15 years serving as a trial attorney in the antitrust division of the Department of Justice and held several senior level positions at the Federal Trade Commission. He said in an interview that this legislation is a “game-changer” and a crucial step toward addressing weaknesses in our patent system.

“Any association that came out in opposition to this legislation has hit their common-sense snooze alarm,” Balto said. “I find it difficult to fathom. Small businesses are the engine of our economy, and there are dozens of stories of small, innovative, upstart firms that find out one of their first investments isn’t on a marketing person or a software developer, but on a patent lawyer to fight patent trolls.”

Balto said the U.S. patent-approval system approves far too much on a weak basis, especially when it comes to software, and that the U.S. legal system doesn’t have the tools to effectively punish predatory litigation. In his opinion, the Innovation Act addresses both these problems.

“How many ways are there to say stopping the exploitation is good,” he said. “If you listen to the congressional debates, you realize how tragically flawed the arguments against the legislation are. They are piecemeal attempts to raise some concerns.”

An uphill battle

Patent reform has been an uphill battle that has dragged out over the course of many years, with plenty of rejected bills along the way.

At last, the Innovation Act seemed to garner sufficient support to go through from the tech industry, both political parties, and the White House, which called for quick action to get it through. The bill should hit the Senate within the next couple months.

Ann Fort is a partner with Sutherland Asbill & Brennan’s Intellectual Property Group and a consultant on patent trolling for the White House Office of Science and Technology Policy.

She said while the bill has widespread support and is getting fast-tracked, it will likely see more changes once it reaches the Senate.

“Public attention has created a common enemy for both Democrats and Republicans in the form of the patent troll,” she said in an interview. “Because there are so few other things that our lawmakers seems to be able to agree on, this is where their attention ended up getting focused. No-one sees any downside politically to being against this bill. Dissent is in the details.”

Patent trolls, formally known as “patent assertion entities,” are organizations that buy up patents — not to use them in business, but to file lawsuits against other companies that allegedly infringe upon them. The patents are often extremely vague, and the suits are frequently frivolous, but defending a lawsuit in court is so expensive that companies will write settlement checks, regardless of the validity of the claims.

Patent reform is a hotly debated issue because it is a fine line between protecting intellectual property and curbing innovation.

The U.S. patent office is known for issuing some pretty ridiculous patents and over the past couple years patent trolling has reached “epidemic proportions,” according to O’Connor, who recently won a battle against a patent troll in court.

No matter where you fall on the issue of patent reform, trolling is something that clearly needs to stop. It is figuring out how to stop it that is the challenge.

The Innovation Act

The Innovation Act requires patent holders to provide specific details when they file a suit, and dictates that the loser in a patent case is required to pay the winning side’s costs and fees. This is a big deal, since in an estimated 90 percent of cases, the defendants settle before going to trial, but software-patent holders win just 13 percent of their court cases.

The Innovation Act also requires patent trolls to reveal the parties that would actually benefit from the litigation, to prevent trolling for trolling’s sake.

Another provision lets manufacturers protect their customers from getting sued for patent infringement for using their technology. The bill also shuts down the “expensive and often harassing” discovery process until the court has interpreted the patent.

CBM or no CBM, the Innovation Act is a sign that the government is committed to addressing this issue, and fast. The FTC announced in September that it is investigating PAEs in an effort to “expand the empirical picture of the costs and benefits of PAE activity.”

This will help the FTC get permission to order approximately 25 patent trolls to answer questions about how they organize their corporate legal structure, what types of patents they hold, how they acquire patents and compensate prior owners, how they engage in assertion activity, and how they earn money.

This is a battle being fought on many fronts, and there is still a long way to go.

Fort said that in the mean time, patent trolls will probably get even more active before the crackdown really begins.

“I think there will be a spike in demand-letter activity while everybody is waiting to see what restrictions are going to go into effect,” she said. “This is always what happens. Congress announces that certain actions are going to be taken in the future, and [patent trolls] try to get their last licks.”

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