Innovation Alliance Letter to Senate Judiciary Leadership Warning They Will Oppose Legislation If “Appropriate Balance” Is Not Achieved On Key Patent Issues
The Honorable Patrick Leahy
Chairman
Committee on the Judiciary
United States Senate
Washington, DC 20510
The Honorable Chuck Grassley
Ranking Member
Committee on the Judiciary
United States Senate
Washington, DC 20510
Dear Chairman Leahy and Ranking Member Grassley:
The Innovation Alliance is a coalition of research and development-focused companies that believe in the critical importance of maintaining a strong patent system that supports job creation and innovative enterprises of all sizes. We thank you for the hard work you and your staff have undertaken to craft a bill to target abusive practices in patent litigation. We have serious concerns, however, that some of the measures under consideration far exceed what is necessary to accomplish that goal, and, as such, would harm American innovation, our competitive position in the world, and the patent system.
The Innovation Alliance commends the Chairman and Ranking Member’s counsel for convening stakeholder negotiations to discuss an appropriately balanced customer suit exception. The current draft language, however, has overly broad language with the potential to jeopardize patent rights. S. 1720 would permit stays for companies in any part of the stream of commerce, disrupting settled business expectations and driving upstream manufacturers offshore. In particular, the customer-suit exception would permit large companies that incorporate infringing technologies in their own operations to stay infringement actions, postponing judgment for years, and denying fair compensation for patent owners. To avoid such consequences, the “covered customer” definition should be narrowly tailored to retailers and end users accused of infringement for selling or using an end user product that is not materially modified by the retailer or end user, and the definition of “covered product” should likewise be narrowed in the same manner. Equally important is ensuring that in return for a stay, a covered customer agrees to be bound as to substantially identical issues that the covered customer has in common with the covered manufacturer.
Further, the demand letter provision is unnecessarily broad and will ultimately harm patent holders. Notice letters play an important role in the patent system. In some instances, federal patent laws require patent holders to send notice letters to accused infringers to preserve their patent enforcement rights and ability to collect damages. The current form of the demand letter provision has the potential to encompass such notice letters, and, as such, will make it more difficult for patent holders to communicate their rights. The language should be amended to draw a clear line between high volume form demand letters and legitimate licensing communications. This would include amending the provision to make it an unfair or deceptive act under Section 5 of the Federal Trade Commission Act to engage in mass mailings that allege infringement in bad faith by: falsely threatening to take legal action; making assertions that are objectively baseless; or materially misleading the recipients. A safe harbor should also be added to protect good faith communications notifying others of one’s patent rights.
The proposed fee-shifting and mandatory joinder provisions potentially take fee-shifting too far, and hurt small inventors. While federal courts should have appropriate discretion to award attorney’s fees to prevailing parties in patent cases, an award of attorney’s fees should not privilege one litigant over the other. The proposed fee shifting provisions require courts to shift fees to the prevailing party except in cases where the non-prevailing party’s positions were “substantially” or “reasonably justified.” A more preferable approach, which would give greater discretion to courts, would be to change the fee-shifting language to a regime that is similar to the legal standard that applies to copyright infringement. The joinder language is meant to address sham litigation scenarios, including shell companies backed by litigation funders, but instead would sweep in a potentially broad range of legitimate inventors and licensing businesses. Although the language purports to create certain exceptions for R&D-intensive entities, it nonetheless targets for special, discriminatory treatment potentially thousands of economically important innovators that do not manufacture a product. This language runs directly counter to what we understood as Congress’s decision to target abusive litigation practices not particular business models.
The provisions governing discovery sequencing and discovery cost shifting are unnecessarily restrictive and rigid. These provisions eliminate the traditional case management authority of judges, and leave little to no room for discretion. Such a “one-size-fits-all” approach will lead to inefficiencies and inequities for litigants, particularly small innovators. Instead, the existing language should be amended to give the Judicial Conference discretion to develop discovery limits. The Judicial Conference has a willingness to address growing discovery costs in patent litigation, and a robust rulemaking process. Their rulemaking process will ensure the adoption of rules that limit the cost and scope of discovery while not jeopardizing any parties’ ability to obtain critical discovery.
Similarly, the heightened pleading and transparency in ownership requirements, while commendable goals, are not supportable in their current form. The current language will place an extraordinary burden on patent holders while providing defendants far more information than needed to reveal the identity of the entity accusing them of infringement and the actions that constitute the infringement of which they are accused. Some degree of additional disclosure is clearly desirable, but these provisions go too far by burdening patent holders to provide information that may not be available to them prior to discovery. The transparency requirement, in particular, imposes burdensome penalties, despite the fact that courts already have authority to impose sanctions for noncompliance with disclosure obligations. Additional penalties are unwarranted unless limited to willful noncompliance.
While we understand and support the intent of the proposals, amendments are needed to preserve the ability of patent owners to legitimately enforce their patent rights. The Innovation Alliance remains willing to work toward achieving a balance between combating abusive patent litigation and maintaining strong patent rights. We look forward to continuing to work with you to accomplish that goal. If, however, the provisions on discovery, customer stay, fee shifting and any associated measures, pleadings, and demand letter enforcement by the Federal Trade Commission do not achieve the appropriate balance, we will oppose the legislation.
Sincerely,
Brian Pomper
Executive Director
Innovation Alliance
Cc: The Honorable Diane Feinstein
United States Senate
Washington, DC 20510
The Honorable Charles Schumer
United States Senate
Washington, DC 20510
The Honorable Dick Durbin
United States Senate
Washington, DC 20510
The Honorable Sheldon Whitehouse
United States Senate
Washington, DC 20510
The Honorable Amy Klobuchar
United States Senate
Washington, DC 20510
The Honorable Al Franken
United States Senate
Washington, DC 20510
The Honorable Christopher A. Coons
United States Senate
Washington, DC 20510
The Honorable Richard Blumenthal
United States Senate
Washington, DC 20510
The Honorable Mazie Hirono
United States Senate
Washington, DC 20510
The Honorable Orrin G. Hatch
United States Senate
Washington, DC 20510
The Honorable Jeff Sessions
United States Senate
Washington, DC 20510
The Honorable Lindsey Graham
United States Senate
Washington, DC 20510
The Honorable John Cornyn
United States Senate
Washington, DC 20510
The Honorable Michael S. Lee
United States Senate
Washington, DC 20510
The Honorable Ted Cruz
United States Senate
Washington, DC 20510
The Honorable Jeff Flake
United States Senate
Washington, DC 20510