Business

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

Above: A troll, going back into the shadows.

Image Credit: Doug Wildman
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The House passed the Innovation Act today in an effort to thwart patent trolls.

The bill went through in an overwhelming 325-91 vote. Republicans voted 195-27 for the bill, and Democrats supported it 130-64.

The Innovation Act is a comprehensive bill aimed at neutralizing patent trolls. The initial bill had six key parts, as outlined by the EFF, which called it the “best patent troll-killing bill yet.” Provisions include requiring the loser in a patent case to pay the winning side’s costs and fees, and heightening requirements for filing suits in the first place.

Getting the bill through the House is generally seen as a victory for the tech industry, which patent trolls have plagued for years.

“The tens of billions of dollars spent on settlements and litigation expenses associated with abusive patent suits represent truly wasted capital,” Rep. Bob Goodlatte (R-Va.), the bill’s sponsor, told The Hill. “The patent system was never intended to be a playground for litigation extortion and frivolous claims.”

It also something of a legislative miracle, considering this House is ignominiously known as the most unproductive and least effective ever.

However, many advocates for patent reform are saying it still falls short. A few organizations are also raising concerns that the Innovation Act unfairly burdens small businesses and is getting rushed through Congress without careful consideration of the consequences.

“The Innovation Act isn’t perfect. It doesn’t go nearly far enough to reform the demand letter problem. Its provisions protecting consumers and end-users, while present, aren’t as robust as we would hope,” said Electronic Frontier Foundation senior staff attorney Julie Samuels. “But the Innovation Act is nonetheless a huge step in the right direction.”

A watered-down bill

The most controversial portion of the bill regarded the “Covered Business Method” (CBM) program.

Supporters of the CBM program argued that it gives smaller companies greater opportunities to protect themselves from patent trolls.

However, corporations with large patent portfolios — such as Adobe, IBM, Microsoft, Qualcomm, and members of the Business Software Alliance —  lobbied hard and succeeded in blocking the CBM program.

“This would have far-reaching implications, because data processing is integral to everything from cutting-edge cancer therapies to safety systems that allow cars to respond to road conditions in real time to prevent crashes,” CBM opponents said in a letter to Congress. “Subjecting data processing patents to the CBM program would thus create uncertainty and risk that discourage investment in any number of fields where we should be trying to spur continued innovation.”

The EFF and other patent reform advocates said this significantly weakened the bill.

“The passing of the Innovation Act is a great step in dramatically reducing the most egregious patent trolls, but the fact of the matter is that there is still a lot that must be done,” FindTheBest CEO Kevin O’Connor told VentureBeat. “Removing the CBM expansion provision was a huge mistake. I fully support the Innovation Act, but the root problem still exists and will continue to exist until something is done to address the USPTO and the fact that it issues 500,000 low quality patents that are wreaking havoc on innovation and small businesses across America each year.”

The inevitable dissent

And, of course, some organizations and individuals are expressing concern and dissent over the bill as a whole.

The Hill reported that Rep. John Conyers (D-Mich.) and Rep. Mel Watt (D-N.C.) said the bill would hurt small patent holders. The National Small Business Association urged lawmakers to oppose the Innovation Act, which it said would create an undue or unfair burden on small, innovative firms.

“NSBA supports reasonable efforts to protect small businesses from unnecessary and unwarranted patent infringement actions,” said NSBA president and CEO Todd McCracken. “Unfortunately, this bill goes far beyond what we believe is reasonable and will ultimately do more harm to small inventors than it does to reduce the number of frivolous lawsuits faced by small firms.”

Intellectual Asset Magazine published an article outlining why Congress should delay or reject the Innovation Act. Reasons include that there is no widely-agreed upon definition for patent troll, and that it will make it more expensive, complicated, and time-consuming for patent owners across all sectors to assert their patents.

“The Goodlatte Innovation Act is not a small step,” IAM said. “It would represent a fundamental change in the way that patents are litigated in the U.S., one that tips the balance in favor of deep pocket defendants — infringers — and against cash-tight plaintiffs — innovators and inventors.”

‘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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