Posts in Capitol Hill

In recent weeks news has come out that Phil Johnson’s nomination as Director of the United States Patent and Trademark Office is dead. It seems to be dead due to the protest of at least one Senator on the Senate Judiciary Committee, not because the onerous vetting process produced any red flags or because the White House has lost interest. The Senator allegedly unhappy is Senator Chuck Schumer (D-NY)… [N]ominees [are put] through an extraordinary vetting process that reportedly can take between 5 to 9 months to complete even in the best case scenario. Let’s say that the White House has decided to move past Johnson and will not look back. They must first identify a willing candidate; someone who can pass through the gauntlet that is the vetting process, has the requisite experience and who is willing to take a substantial pay cut. Such an individually would likely having to unwind investments and holdings, or at least put them into some blind trust. Even if the White House can this week identify that person who accepts the invitation to take the position and who is willing to subject themselves to scrutiny that would make an IRS inquiry look like a day in the park, that means we are looking at at least January 2015 before confirmation.

News of the death of Johnson’s nomination is both a shocking surprise and yet all too predictable in a town that increasingly makes little logical sense . . . From what my sources are telling me, Johnson’s nomination is dead at the moment, but there have been no bridges burned. However, absent the White House reconsidering and moving forward with a Johnson nomination he will not be the next Director of the USPTO. From what I have pieced together so far all of this seems to translate as follows: Johnson has opposition on the Senate Judiciary Committee not inside the White House. Given that Johnson, like the overwhelming majority of the industry, was against expanding covered business method (CBM) review it is easy to speculate where that opposition is coming from, but more on that in the coming days and weeks.

Lee will tell Congress that the USPTO is on pace during FY 2014 to receive nearly 600,000 patent applications, which represents an increase of more than 5% as compared to FY 2013. The PTO backlog of unexamined patent applications is less than 620,000 which is down from more than 750,000 in 2009 (a 17.3 percent decrease)… On a cynical note, I will observe that reducing the backlog will become much easier for the USPTO, as will meeting pendency goals, based upon the United States Supreme Court’s breathtaking decision in Alice v. CLS Bank. While not a subject of this hearing, as more and more becomes per se unpatentable as the result of 35 U.S.C. 101, the USPTO should easily be able to meet these goals, particularly in light of the reality that over 50% of patents issued by the USPTO related to software innovations.

Congress is moving forward with at least some patent reform efforts this year, taking up the Targeting Rogue and Opaque Letters Act of 2014, which is scheduled to be marked up in the House Commerce, Manufacturing, and Trade Subcommittee on July 10, 2014… This draft legislation — creatively dubbed the TROL Act — addresses the sending of abusive and bad faith patent demand letters by clarifying that such activity may violate the Federal Trade Commission Act and authorizing that agency and state attorneys general to bring actions to stop the abusive behavior, among other things.

While Senator Leahy said that he hopes to be able to return to patent reform this year, the legislative calendar does not look good. Now removed from the Committee calendar patent reform seems to dead for this Congress. No vote will be taken on the Senate version of patent reform until the next draft is released and voted on by the Judiciary Committee, which doesn’t seem likely to happen anytime soon. Then if the Senate does pass patent reform it is guaranteed to be different than the version passed by the House of Representatives. Ordinarily one might suspect that would lead to a Conference between the House and Senate, but Judiciary bills are rarely, if ever, sent to Conference. That means even if the Senate passes patent reform the bill would bounce back to the House, and we could see an ensuing game of ping-pong, with greatly intensified lobbying by both sides. All the while legislative days are dwindling, and useful legislative days in advance of the November election are even more limited. Indeed, with this announcement today it seems that patent reform is now dead for 2014. The only hope proponents have is that patent reform will sneak back in a lame duck session of Congress, but I believe that hope to be somewhat far-fetched.

I think that the Supreme Court decision will be enough to prevent the so-called “patent reform” from gaining any traction in the Senate. The cynical view is that there is so much lobbying money flowing why would Congress want to turn that spigot off when it could easily flow into the next Congressional term? Further, there has been a growing and steady effort by those opposed to the pending patent legislation. Opponents were already making their case heard as the Senate continued to time after time postpone dissemination of the Manager’s Amendment, signaling the consensus that some Senators desperately wanted to reach was illusive, if not impossible. Now with the Supreme Court decisions in these two cases those on the Hill who were already skeptical have more than enough ammunition to slam on the brakes, at least for now, to see what the ultimate ramifications of the decisions will be on the reality of patent litigation.

The purpose of the U.S. patent system has been to promote innovation. The various ”Patent Reform” bills will in fact retard innovation and cost America jobs. They are contrary to the Founding Fathers’ intent in Article 1, Section 8, Clause 8 of the Constitution, contrary to the policies of over 220 years of patent law, contrary to the advice of the Office of Advocacy of the Small Business Administration, and contrary to prior statements of President Obama.

In this Part IV, we will discuss the proposal that all interested parties by plaintiffs, the enhanced pleading requirements, limitations on discover and customer stays. While some of these provisions may seem to make sense on their surface, and tailored to provide greater transparency, the reality is that the provisions are extraordinarily burdensome. For example, as written one proposal would require a corporation bringing a patent infringement lawsuit to disclose every stockholder no matter how few shares are owned. Furthermore, by micromanaging patent litigation discretion will be taken away from district court judges while at the same time onerous obligations are placed on small businesses before they can even begin to assert patent infringement, which is problematic because so many entities already knowingly choose to infringe rather than negotiate licenses or engineer around patent rights.

In this Part III, we will discuss the Covered Business Methods (CBM) expansion and the proposed elimination of post grant review estoppel. If these provisions are enacted it will provide greater incentive to challenge granted patents, making serial challenges the new norm. This will substantially and negatively impact small business innovators who will be forced to continually fight to keep the patents they have obtained after having already spent many years during patent prosecution to obtain the rights. This means patent rights will never be more than an expectation and not a true property right. Therefore, if these provisions are enacted it will mean no patent is every truly safe, no title is every quieted, and this will substantially, and negatively, impact investment opportunity and ultimately the commercialization of innovations.

The US House passed the Innovation Act (HR3309) in December 2013. The Senate is now well on its way to incorporating this legislation which will make Americans poorer. The bills have many problems that will inhibit small inventors, but the most insidious are “Loser Pays” and “Pay to Play”. It changes the law, singling out inventors as a class so onerous that only they must pay the other side’s legal fees if they don’t win every claim. Pay to Play makes inventors guarantee payment up-front. Some proposed Senate bills (e.g.: S.1013 & S.1612) make sure that almost all Americans and most small companies will never be able to afford to enforce their patents on their inventions.

For small business, patents will become mostly unenforceable due to the proposed much higher upfront cost of litigation, thus making small business patents significantly less valuable. Loss of patent value constricts new company formation, chilling new investments, and choking job formation. Legislating disincentives for capital investments will result in the loss of many hundreds of billions of dollars of wealth in America and dry up the major source of new jobs, small inventing businesses… Patents are the number one indicator of regional wealth according to the Federal Reserve Bank… If these “Patent Reform” bills are signed into law, they will discourage small business patents, and the contrapositive indicates that we will be a poorer nation.

Sen. McCaskill introduced S. 2049 in February 2014 which would require the FTC to promulgate rules to prohibit unfair and deceptive acts and practice in the sending of patent demand letters, including requiring each such letter to identify the patent number, the claims, a description of the manufacturer and model number of each accused product or service, notice that the recipient may have the right to have the manufacturer defend against the infringement, the identity of the person with the right to enforce (including each owner, co-owner, assignee, exclusive licensee, and entity with the authority to enforce the patent, and the ultimate parent entity), any FRAND licensing commitments, any basis for a specific license amount, and each PTO proceeding or litigation involving the patent. Bad faith assertion would be enforceable by the FTC or attorney general of a State in federal court.

U.S. patent litigation has followed the centuries-old “American Rule” under which each party to a litigation pays its own legal fees and costs, regardless whether it wins or loses the litigation. A narrow exception exists in patent cases, but only in “exceptional cases” under 35 U.S.C. § 285, such as where the losing party engaged in litigation misconduct, or if the patent was fraudulently procured, or if the losing party raised arguments that were both objectively baseless and made in bad faith. Despite the long tradition of litigants paying their own legal fees and costs, Congress has shown interest in changing the playing field and deviating from the American Rule in patent cases. This comes at a time when the U.S. Supreme Court is already considering two cases that relate to the definition of “exceptional cases” in § 285 that may well alter how this existing exception to the American Rule is applied in practice.