Friday, June 19, 2015

Patent Trolls: A Legislative Update

In 2014 Congress tried to pass a bill targeted at restricting abusive patent litigation by non-practicing entities or “patent trolls”. The bill died in the Senate before a vote, even though it had momentum and the support of President Obama. Fast forward to 2015 and patent reform bills have a pulse again – in the House and Senate.

The House Bill (HR 9 “The Innovation Act”) was introduced in April by Judiciary Committee Chairman Bob Goodlatte and the bill passed the Committee overwhelmingly last week 24-8. The Senate Bill (S1137 “Patent Act”) was introduced in May and also passed the Senate Judiciary Committee last week. Chairman Goodlatte said  “The Innovation Act is supported by a wide range of groups that include stakeholders from all areas of our economy representing businesses of all kinds from every corner of our country including independent inventors and innovators.” The Bill could make its way to the House floor next month and a bill become law by the end of the year.

The House Bill and the Senate Bill have parallel provisions to eliminate abuses of our patent system, discourage frivolous litigation and target specific abusive patent litigation behavior, not specific entities. However, the bills also have areas of difference – 3 that I feel are significant.

Demand Letters
Senate and House provisions deal with the abuse of demand letters – evasive letters sent by patent trolls to alert of an infringement and demand quick settlements without providing details of the actual patent in question. Many are concerned that the House Bill does not do enough to address the serious harm that come from the vague but intimidating demand letters. The Senate bill outlines specifics of what must be included in a demand letter. The SB establishes civil penalties for those who practice sending ambiguous demand letters.

Fee Shifting
This provision is probably the most controversial but shouldn’t be if demand letters are addressed properly. Under this provision, a Patent Troll will have to pay court costs and legal fees if they lose the case. Fee shifting will have a better chance in the House vs. Senate. Opponents are concerned that fee shifting will prevent legitimate suits against patent infringement and will not prevent the targeting by trolls.

Fee Recovery
Again, both bills have this provision and prevent patent trolls from using “masked” shell companies. Both pieces of legislation have processes in place to recover fees where the patent troll is hiding behind a shell company – the biggest difference is timing. The Senate Bill wants inability to pay disclosed early in the litigation process  and the House bill does not require disclosure until the end of the trial. 

As with any piece of legislation, there will be mutual concessions and hopefully after some “agreeing to disagree” Congress can get one of the bills into law this year. “Fee Shifting” is most controversial but also makes the most sense to scratch. Fee shifting will not deter patent trolls. In order for fee shifting to happen there must be a prevailing party and that requires defendants (a lot of times small startups) to fight the case to the end and win against experienced trolls with legal advisers. The focus needs to be on Demand Letters -- provisions regarding Demand Letters present a real opportunity to identify and penalize NPE’s in the initial abusive patent litigation process.  

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