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If the Goodlatte Act becomes law NPEs and PAEs will have good reason to thank the US Congress

Not unexpectedly, the US House of Representatives gave its overwhelming approval to the Goodlatte Innovation Act last Thursday. So, what is a very flawed piece of legislation now heads to the Senate where it will be further debated and could end up being approved as early as the end of this year. Alternatively, and highly unlikely, senators could decide to reject it out of hand. Much more likely, though, is that it will be wrapped up with legislation proposed by Senate Judiciary Committee chairman, the Democrat Patrick Leahy, and Republican Mike Lee, that deals with similar issues, but is generally reckoned to be less punitive towards plaintiffs.

All those who really care about innovation in the US, and the role that patents play in fostering it, will surely be hoping that as legislation now seems inevitable it can be framed in a way that does the least possible harm. In the meantime, everyone who supports the Goodlatte act because they believe it will help to eliminate the alleged scourge of “patent trolls” – whatever these are – may want to give serious consideration to the very real possibility that far from eliminating NPEs and patent assertion entities, the legislation as it stands looks set to make them more powerful and more commonplace.

On its blog, IPNav – the US’s most litigious NPE and frequently referred to as a troll – has explained one of the unintended consequences of Congressman Goodlatte’s act:

As an example of a provision that might not work out the way it is planned, consider the “joinder” provision, which says that companies that provide financing for patent litigation (such as IPNav) can be joined as a party to a lawsuit and held liable to pay the other side’s legal fees in the event they lose. Do Goodlatte and the other members of Congress who voted for this provision really think this will make patent litigation go away?  That it will somehow dry up the source of funding for “patent trolls?”

It won’t. All it will do is force a change in business model, and it will be a change that will harm the little guys – the inventors, universities and small companies doing the actual creating.  Does a university professor who has a right to a percentage of the revenue generated by a patent have to be joined?  Can any inventor who has a right to revenue generated by a patent have to be joined?  

Inventors will find no one will want to finance litigation against a big company infringing their patent if they are going to be made a party to a lawsuit.  If you’re going to have the exposure to the lawsuit you may as well own the patent.  So inventors will still be able to sell patents – but they won’t get as much money for them, because risk will have been transferred from the person/entity that came up with the idea to the entity providing the financing.  There will be fewer, bigger companies buying up patents and enforcing them.  Inventors will get less of a reward for their efforts, and the big tech companies Goodlatte is trying to help will find themselves on the receiving end of just as many lawsuits for patent infringement.  Only the opposition will be even bigger, stronger, with larger patent portfolios and more money.  Is that really what they want?

Along similar lines, the Goodlatte act will also make privateering – the outsourcing of IP monetisation by an operating company to an NPE – ever more attractive. As we have chronicled on here over recent years, privateering has become an increasingly popular strategy, with any number of companies – most recently Alcatel-Lucent – doing deals with entities that are derided as patent trolls by their critics. Arrangements are made for many reasons, but one of the most common is that selling on and/or licensing a patent portfolio to third parties so that they can take responsibility for generating returns from it is a cheaper, more time efficient and lower risk option than doing it yourself; with money up front and the chance of sharing on-going royalties, what’s not to like? And as the Innovation Act will mean patents are even more expensive, risky and time consuming to assert that will make privateering a highly compelling option.

Bearing all this in mind, it is hard to avoid the conclusion that the Goodlatte act is almost certainly going to lead to NPEs/PAEs/trolls – or whatever you wish to call them – acquiring more IP and asserting it more frequently than they do currently. Thus, unless the Senate makes major changes to the Innovation Act, what legislators will have approved is a law that not only favours deep pocket, big business defendants over resource-light SME and lone inventor plaintiffs, but also leads to NPEs holding more high quality IP and engaging in much more litigation. And all of that on the back of a lot of anecdote and not much data – let alone anything conclusive. This may not be the outcome that lawmakers are currently hoping for. But it is the one that, unless they are very careful, they are going to get.

Joff Wild
IAM Magazine
08 December 2013

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IP management, Licensing, IP politics, IP litigation, Patents, IP business

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