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Wide-ranging draft patent abuse legislation could have decent chance of becoming US law

Another day, another draft bill presented to the US Congress designed to, in the words of its author, “modernize our patent litigation system and protect innovators unfairly targeted by trolls”. The Patent Abuse Reduction Act, introduced onto the floor of the Senate yesterday by Senator John Cornyn of Texas will, says the press release accompanying it, “require plaintiffs to disclose the substance of their claim and reveal their identities when they file their lawsuit; allow defendants to hale into court interested parties; bring fairness to the discovery process; and shift responsibility for the cost of litigation to the losing party”.

Although Cornyn talks about trolls in the release, in fact several of the proposed legislation’s provisions would have an impact on all patent owners that may find themselves in litigation. I have not read the act in great detail, but the provisions on transparency and loser pays, for instance, seem to be much more all-encompassing than those found in the SHIELD Act, introduced into the House of Representatives in February, and the End Anonymous Patents Act (EAPA) tabled in the House earlier this week.

With regards to loser pays, there is a much wider provision than that set out in the SHIELD Act, which specifically targets NPEs. By contrast, the Cornyn legislation states:

IN GENERAL.—The court shall award to the prevailing party reasonable costs and expenses, including attorney’s fees, unless—(1) the position and conduct of the non-prevailing party were objectively reasonable and substantially justified; or (2) exceptional circumstances make such an award unjust.

Thus, not just NPEs, but also all kinds of operating companies would be snared by this, as would losing defendants. You can envisage that, initially at least, lawyers would have a great deal of billable fun arguing what is and is not “objectively reasonable and substantially justified”, but despite this it may also be the case that such a rule – which is similar to ones we have in Europe – would be quite an effective way of persuading infringers that “see you in court” might not be the best response to a complaint or an invitation to begin licensing discussions; while stringing a case out in the hope of forcing a smaller defendant to incur as much cost as possible may turn out to be counter-productive. In the real world, of course, deliberate infringement by some of the bigger players is as much, if not more, of a problem than bottom-feeding troll suits – especially for technology-based SMEs.

Turning to transparency, the act has quite detailed provisions which seem to boil down to the idea that if you want to sue someone for patent infringement you have to make it clear who stands to gain financially if you are successful. In terms of ensuring that bottom-feeding trolls are obliged to reveal who they are (or for whom they are acting), this looks like a step forward from the provisions of the EAPA, which state that damages will only be awarded from the time the time a patent’s true owner is known. Given that most bottom-feeders are essentially looking for a pay-off to go away before litigation begins properly, transparency for damages sake will not be a big issue for them. Under EAPA they can still play the numbers game just as they do now; under the Cornyn legislation that would be a lot trickier. It may also be the case that further up the scale, the provisions in the Cornyn act will cover at least some types of privateer.

Interestingly, Cornyn’s press release ends like this: “I want to extend my appreciation to Chairman Leahy for his coordination with me on this matter. I look forward to his continued support for patent reform.” This may indicate that the Patent Abuse Reduction Act will get some significant debate and scrutiny time allocated to it – Patrick Leahy, of course, being the chair of the Senate Judiciary Committee, which Cornyn himself also sits on. Should that be the case, it may have a serious shot of making it onto the statute books. My guess is that it would attract a lot more support inside the wider IP world than, say, the SHIELD Act.

Senator Cornyn introduced his proposed legislation a day after Jeffrey Lewis, the President of the American Intellectual Property Law Association, wrote to the Director of the office of Budget Management, with both legislators and US government officials copied in, about a potential sequestration of funds from the US Patent and Trademark Office as part of wider government budget cuts. Under the original drafts of the America Invents Act there were specific provisions which stated that the USPTO would retain all the revenue it raised through fees and renewals. This was designed to allow for long-term planning in areas such as training, examiner recruitment and retention, IT investment, and so on. Shamefully, in the act that was passed an end to diversion was not included. And – surprise, surprise – despite previously made commitments to the contrary, it looks like the office is now going to suffer cuts.

When looking at all the initiatives designed at tackling trolls and reforming the US patent litigation system being put forward in the 113th Congress, it is always worth remembering that just a couple of years ago legislators had the chance to ensure that the USPTO would be fully funded on a permanent basis, so putting its leadership in a much stronger position to ensure that the quality of patents being granted was as high as possible by bringing in more examiners, and giving them the best possible training and tools to do the job. They decided they did not want to do that. What’s more, in April 2011 they also decided that the office should suffer its most recent round of diversion, when they approved a federal budget which reallocated $100 million it had generated to other parts of the government. Among those voting in favour of this were Senator John Cornyn and Senator Chuck Schumer, author of another piece of proposed anti-troll legislation introduced this year - the Patent Quality Improvement Act.

Poor quality patents are often cited as one of the staples of bottom-feeding trolls looking to force companies into settlement in order to make threatened litigation go away. In a very real sense, therefore, Cornyn, Schumer and their fellow senators, as well as congressmen sitting in the House of Representatives, are now proposing solutions to problems that they have directly helped to create and then perpetuate. Not that they realise it, of course.


Joff Wild
IAM Magazine
23 May 2013

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IP politics, IP litigation, Patents, IP business

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