Reintroduced Innovation Act Goes Too Far – By a Mile

As has been expected for some time, the patent reform bill, called the Innovation Act, has been reintroduced this week. The bill’s expressed aim is to curb the much publicized patent troll problem. Most people involved in the world of intellectual property either as inventors, professionals, or users agree that there is need for improvement in the current law as it relates to patent assertions, as well as the USPTO rules and regulations, to bring our patent system more in line with the faster pace of innovation and changing nature of inventions. An unfortunate development lately is that the debate took the form of a religious war between extreme views, trumping reasonable proposals to solve the problem at hand. On the one extreme are the irresponsible entities that bring abusive patent enforcement cases to extract nuisance fees from defendants, and therefore all too happy to see the current regime continue, and on the other extreme are the entities that want to turn the uproar over patent trolls into a full blown lynching of small inventors and innovative entrepreneurs so they can continue to cement their dominant positions at the expense of innovation.

This bill has elements that can be part of an ultimate solution, however it cannot escape being a rubber stamp for a viewpoint that sees intellectual property rights as nuisance rather than a principal cog in the American invention machine. Unfortunately, if the Congress moves forward and ratifies this bill in the form proposed, it will create more problems than the one it is solving.

The re-introduced Innovation Act has a number of proposals that should be welcomed by most people, no matter which side of the debate one falls. One such proposal relates to Post-Grant and Inter Partes Review proceedings and requires the USPTO to construe claims “in accordance with the ordinary and customary meaning of such claim as understood by one of ordinary skill in the art and the prosecution history pertaining to the patent“, which is in line with the principles applied in patent prosecution in the first place. Common sense.

Another proposal that makes very good sense is requiring more transparency of ownership for patents asserted. The bill requires that the entity asserting the patent will have to identify the assignee of the patents, any entity with a right to sublicense or enforce the patents, any parties that have financial interest in the patents at issue, and the “ultimate parent entity of any assignee“. This should discourage seemingly reputable entities funding questionable patent enforcement cases behind a veil.

In handling willful infringement, the bill proposes that a demand letter sent before the suit cannot be used to prove willful infringement unless it identifies the patent and the infringed claims, as well as the true owner of the patents at issue. The letter must also identify the accused products and explain in what manner the accused products infringe the claims. This also is a sensible requirement. It should discourage filing of vague cases and fishing expeditions.

The bill also proposes a somewhat modified rule for handling double-patenting where if one or more inventors of two patents are the same, and one patent would constitute prior art to the second patent, then filing of a disclaimer is required that prevents enforcing of the “second patent independently from, and beyond the statutory term, of the first patent.” Again, this is a common sense requirement, and not so much different than the terminal disclaimer required in the current law.

Reasonable and useful proposals within the bill end there. Many of the other proposals in the bill go too far, by a mile.

One of the extreme proposals in the bill is the automatic award “to a prevailing party, reasonable fees and other expenses incurred by that party… unless the court finds that the position and conduct of the nonprevailing party or parties were reasonably justified…“. This flips the current regime where attorney fees are awarded in exceptional cases, into a regime where the plaintiff must pay unless it can show it was justified in bringing the case. Moreover, “if a nonprevailing party is unable to pay an award that is made against it … the court may make a party that has been joined … with respect to such party liable for the unsatisfied portion of the award“. This includes the plaintiff’s attorneys, other business that he/she is borrowing from to pay expenses of an enforcement action, or family members who may lend the inventor money to hire attorneys expecting to get paid back once the case is resolved, and of course any other entities that finance the plaintiff’s case. It is the equivalent of a Russian roulette for the small inventors. Unless you are prepared to lose your business and everything you own, you cannot bring a patent enforcement case against an infringer. Absurdity of the proposal becomes clear if you contemplate the implications of applying the same rule to every other civil action. Should we require employees suing for discrimination to put up attorney fees for the other side? How about requiring battered women to put up attorney fees for their abusers when they file for a divorce? The fact is, this specific proposal will decimate all small inventors and entrepreneurs, and kill innovation. In the current regime, judges already have the ability to award attorney fees in cases where it is justified. There is no need for a lynching party.

Another part of the bill that also goes too far is the requirement for a plaintiff to provide full claim charts before discovery even takes place. It used to be that the federal rule provided sample forms to be used in civil litigation, including Form 18, which is a sample complaint for patent infringement. Form 18, which has been used by many plaintiffs to file vague infringement cases, basically required a plaintiff to state only the infringed patent and infringing products. It severely lacked specifics. Finally a District Court ruled on March 10, 2014 that the Form 18 is insufficient to plead patent infringement, and stated that the plaintiff must (1) identify the claims that are alleged to be infringed, (2) explain how the claims are infringed, (3) distinguish between literal infringement and infringement under doctrine of equivalents. Subsequently on September 16, 2014 Judicial Congress of the U.S. has eliminated Form 18, along with other sample forms, effective December 1, 2015. One would think that these changes amply address the problem of vague patent assertions. However the bill that’s now reintroduced goes much further and requires the plaintiff to clearly identify “where each element of each claim… is found within the accused instrumentality” and “with detailed specificity, how each limitation of each claim identified… is met by the accused instrumentality“. Requiring in effect a full claim chart before any discovery is done is preposterous. This proposal lacks very basic understanding of how today’s technologies are implemented and embodied in products. A plaintiff of course has to have a good reason to argue infringement, but knowing exactly what is inside an infringing integrated chip or in an object code is impossible until discovery is completed. This particular proposal is at best uninformed. Following the earlier District Court ruling mentioned above, a plaintiff is required to identify the infringed claims and identify how the claims are infringed, as well as provide a list of infringing products. That ruling is well crafted and will end vague infringement claims. Therefore the unrealistic new requirements tagged on by the new bill are unnecessary and will deter legitimate infringement cases. We don’t need to discourage small inventors and entrepreneurs from pursuing legitimate infringement claims.

Another proposal in the bill is related to the discovery process and the question of who bears the associated cost. It attempts to cut the baby in half and ends up with a process that can discourage some abuses but at the same time makes it more costly for a plaintiff to request discovery. Proposal brings severe limits to discovery. Initial discovery is strictly limited to the core material related to claim construction. Only later in the process that the court may allow further discovery, presumably after the summary judgment phase. If a plaintiff wants to ask for additional discovery, he/she has to pay for the defendant’s costs and related attorney fees. As a matter of fact, a request for additional discovery may not be made unless a bond for the expenses is posted. On the face of it this seems well intended, as one of the tactics that patent trolls used in the past was to raise the expenses for the defendant by requesting extensive document and electronic discovery. The new proposal will surely discourage that. But at the same time it will make it impossible for small inventors and entrepreneurs to get needed discovery unless they want to take a second mortgage on their house. It looks to be a case of throwing out the baby with the bath water.

It appears that the AIA changes and last year’s Alice decision by the Supreme Court already reduced the number of patent filed dramatically. According to a recent study by the legal analytics platform Lex Machina, the number of patent cases being filed are down to the levels seen in 2007, once normalized for AIA’s anti-joinder rules. See the study here. While there has been so much progress, what’s the benefit of swinging a sledgehammer to the patent law, other than help congressmen earn brownie points from large corporations.

A solution to the patent troll problem is complicated. All those who believe simple changes equivalent of sledgehammers can solve the problem are mistaken. This bill, as proposed, is more like a sledgehammer than a tool appropriate for solving a complicated problem. Simple fact, perhaps uncontroversial, is that every single provision in this bill benefits large companies with dominant market positions – and with ample resources to fund an effective lobby. It will benefit companies that are targeted by unscrupulous entities, which is great, but it will also benefit companies that routinely violate others’ intellectual property rights and refuse to license technology that belongs to others. Why do we want to reward that? Are we not creating another problem by demolishing patent rights and diminishing incentive to innovate?

Perhaps we will be creative enough to solve the patent troll problem with the appropriate tool, instead of taking a sledgehammer to it. We can afford to let the reforms already in place to continue working and take careful next steps so we don’t end up removing that important cog, intellectual property rights, out of the American invention machine.


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3 comments so far.

  • [Avatar for Mr. R]
    Mr. R
    February 10, 2015 11:11 am

    Requiring an initial, detailed, claim chart is required in the ITC and plaintiffs seem to have little trouble complying. If the plaintiff has done their Rule 11 homework, they should be able to do so in most cases. For a particular element where discovery would be required to PROVE infringement, it is not unreasonable to require a plaintiff to at least detail WHY they believe such an element (as claimed) is present. That would go a long way towards curbing the abusive and meaningless initial disclosures/interrogatory answers where, if the claim calls for “a widget coupled to a whozzit”, the response is merely a parroting of the claim is something like “accused product X has a widget coupled to a whozzit” or “accused product X has a widget and a whozzit with the widget coupled to the whozzit.” without ever pointing out WHAT in product X corresponds to the widget or the whozzit – particularly when there is little resemblance between the embodiments described in the patent and accused product, for example, a patent for a device that cuts off power to the burner of an electric stove if a coded plug is not connected that asserted against a combined ignition key and deadman’s switch lanyard for a snowmobile.

    Nobody complains about the ITC approach, implement it in the district courts.

  • [Avatar for Fatih Ozluturk]
    Fatih Ozluturk
    February 10, 2015 09:59 am

    Thank you for the thoughtful comment. I believe that it is reasonable to hold a party responsible for the financial burden on the system – and the defendant – if that party behaves irresponsibly and abuses the system. That’s already part of the current regime and judges can and do award attorney fees in those cases. My personal belief is that it is a necessary part of the system to discourage abuses.

    The point I attempted to make is that the specific proposal in the bill appears to imply a “guilty until proven innocent” approach, and it prescribes fee shifting when a plaintiff loses “unless” the court determines that the party behaved reasonably. In other words, it takes a determination of the court for a losing plaintiff to not have to pay attorney fees, otherwise fee shifting applies by default. It is that assumption of guilt that I find objectionable and feel goes too far.

  • [Avatar for Benny]
    February 10, 2015 07:35 am

    …”unless the court finds that the position and conduct of the nonprevailing party or parties were reasonably justified…”

    Why does the author believe this to be unreasonable? Should a party not be held financially liable for irresponsible behavior?