Patent News

May. 22, 2014

Intellectual Asset Management: Patent reform delayed, not dead; pause could mean better legislation, says market, by Richard Lloyd

This post originally appeared in Intellectual Asset Management on May 22, 2014.

Efforts to introduce wide-ranging reforms to the US patent litigation system came to an end in Congress yesterday, but it is unlikely that this is the end of the story. The forces lined up in favour of change, including the vast majority of the tech community, are too well resourced and too committed to seeing reforms enacted for this to fizzle out now. In fact, when you consider that reform had broad backing from the White House and sailed through the House of Representatives on a largely bipartisan basis, it seems remarkable that the legislation has foundered so quickly.

That it has seems to have been thanks to a coalition of inventors, universities, trial lawyers and parts of the biotech and pharma community that preached caution and clearly did enough for Senator Leahy to announce the delay yesterday. However, if the history of the AIA’s passage tells us anything, it is that reaching a consensus over patent reform can take several years.

It is also worth bearing in mind that this is by no means the end for several elements of the proposed reform package in this Congress. Today, for instance, a subcommittee of the House Committee on Trade and Commerce is due to hold a hearing on a proposed bill to combat frivolous patent demand letters. Plus there’s the ongoing input from the courts to consider, particularly the US Supreme Court’s decisions in the Octane and Highmark cases that have lowered the bar on fee shifting in patent cases.

There’s still a lot to play so for the pro-reform camp, so this looks like a case of losing the battle but not yet the war.

As we continue to take stock of Senator Leahy’s announcement, here’s some reaction from the patent community:

“I think, and hope, the discussions will continue, and that through further compromise — some of which has already taken place — we will see legislation completed that addresses patent litigation abuse while preserving the strength of the US patent system.”

David Kappos, Cravath Swaine & Moore

“I am not surprised to learn of the delay to patent reform. It was akin to throwing the baby out with the bathwater. It was an emotional, overreaction rather than a thoughtful response.

“I do think though that there will be more targeted NPE reform in the next 12 months and we’re actually okay with some of the measures, even loser-pays, because it will unclog the courts of frivolous law suits and allow those with quality offerings and legitimate cases to be better heard through the bi-partisan noise. I advocate a light touch, however, as NPEs are in themselves self-reforming in response to the ‘higher bar” in proving infringement and validity in the court system and, when upheld, the ever reducing settlement amounts for NPE-led cases – let the market forces play out rather than impose the heavy hand of legislation. Indeed, I see tremendous consolidation already underway within the NPE community.”

Peter Holden, IPValue

“The proposed legislation would have had severe unintended consequences on legitimate patent holders. We hope that the Senate and the House can bring forward targeted legislation that stops the spread of abusive patent demand letters and discourages frivolous lawsuits against small businesses – without unnecessarily harming all patent holders — and provides full funding for the USPTO.”

Russ Merbeth, Intellectual Ventures Chief Policy Counsel

“The Coalition for 21st Century Patent Reform (21C) appreciates the hard work performed by the members and staff of the Senate Judiciary Committee over the past several months to address the problem of abusive behavior in our patent system. We also applaud their patience and willingness to listen to the views of all participants in the debate. Although the various stakeholders worked diligently, and in good faith, unfortunately they have been unable to reach an agreement that would have allowed the legislation to move forward.

“The 21C continues to stand ready to work with all stakeholders, and with members and staff of the Senate, and of the House, to achieve balanced, measured and targeted legislative reforms to curb abusive behavior in the patent system in a manner that will not impair the legitimate enforcement of patent rights that are so crucial to our economy and the creation of American jobs. We reiterate that pledge today.”

Statement from the Coalition for 21st Century Patent Reform

“I’m in favour of a very strong patent system but we’re talking about a system that’s more than 200 years old and one where the ink is barely dry on the last major piece of reform. There are litigation abuses but a distinction needs to be made to better characterize how different patent owners act. I’d now like to think that there is an opportunity where we as an industry can take the opportunity and accept responsibility in terms of self-regulation and establish best practices in licensing. That would help us differentiate ourselves from those engaged in frivolous litigation arbitrage.”

Phil Hartstein, Finjan

“While IPO supported key parts of Leahy’s bill, compromises that were being proposed by various Senators were inconsistent with IPO positions. Senator Leahy’s announcement will give us more time to work with Congress this year or next year to obtain the best legislation to address the abusive litigation problem.”

Herb Wamsley, Intellectual Property Owners Association

“This shows pretty clearly that addressing these issues is more complicated than many may have thought. The key has always been to find the right balance: deal with truly abusive behavior, while making sure that real innovators can enforce their rights. This is especially true for smaller inventors and entrepreneurs who may have been at greater risk in this process.

Just as with the Leahy-Smith America Invents Act, more time and broader constituent input may make for even better legislation, and we appreciate all the incredibly hard work that the Chairman, the Committee members and their staff put in on this bill to find balanced solutions to challenging concerns.”

Todd Dickinson, American Intellectual Property Law Association

“This legislation attempted to hunt for trolls, but ended up shooting at American inventors and job creators. The legislative proposals being discussed either missed the abusive practices altogether or cast a far broader net than intended. We applaud the work of Chairman Leahy and the Committee and their wise decision to throw out the current proposals, slow down and reconsider how to thoughtfully deal with this important issue.”

Eb Bright, Alliance of U.S. Startups and Inventors for Jobs (USIJ)

“For the rest of this year, I don’t think it goes anywhere. I think Senator Leahy’s comments make it clear that they are done for the year. Whether it gets taken up next year in Congress, I think will depend a lot on what happens with several of the recent Supreme Court decisions and the cases yet to be decided. The two recent decisions on fee shifting may have been the Supreme Court telling Congress to back off and let them deal with it. But, if the Supreme Court issues some decisive guidelines in Alice v CLS, I think that might be enough to strike a fair middle ground and the calls for reform subside.

Anthony Hayes, Spherix

“Encouraging innovation while preventing abusive behaviour is difficult to achieve when even a consensus on the definitions used to characterise abusive behaviour cannot be attained. We need some type of legislation and while it may not be as robust as some originally envisioned, the courts already have the power to play a more active role and assist with this effort. Many constituencies have voiced their concerns on the issue of abusive patent practices and that is exactly how the system should work. While a consensus has not yet been achieved, those voices are playing a valuable role making sure that innovation, jobs and the economy remain the focus.”

Terry Rea, Crowell & Moring

“Congress passed major patent reform less than 2 years ago. The patent office and the courts are still adjusting to the new laws and it is way too early to understand what additional changes to the system are necessary if any. The central conflict Leahy refers to arose because the proposals the pro-reform advocates made were not narrowly targeted to abusive practices, but rather were targeted broadly at limiting patent owners’ access to the courts. My expectation is that this battle will continue. It’s simple economics. If a company like Google can spend $100 million changing the law making it harder for patent owners get access to the expertise and capital it takes to get access to the courts, they stand to save over $1 billion. This kind of thinking works for tax policy, and now it’s creeping into IP policy.”

Ron Epstein, Epicenter IP Group