Patent News

Feb. 24, 2015

IP Watchdog: The Innovation Act Will Harm Income, Employment, and Economic Growth, by Daniel Spulber

This post originally appeared in IP Watchdog on February 24, 2015.

Legislation such as H.R. 9 – “INNOVATION ACT”, first introduced as H.R. 3309 in the prior session of Congress, would involve fundamental changes to the U.S. legal system. In the name of reducing litigation costs and frivolous suits, these so-called reforms potentially affect practically any patents currently in force and the future of the U.S. patent system itself. If enacted, by weakening patents’ enforceability, the proposed legislation will harm income, employment, and economic growth.

Of course, there may be some frivolous suits related to patents. Such problems have already been addressed in a variety of ways by the USPTO, the America Invents Act, Supreme Court decisions, and changes to Federal Rules of Civil Procedure, see the discussion by Paul Gugliuzza. The full effects of these substantive changes have yet to be observed. There may not be a need for additional legislation.

The Innovation Act and similar proposed legislation “tilt the scales of justice” in an unprecedented manner. The Innovation Act creates new rules for mandatory stays, pleading, discovery, disclosure of “Interested Parties,” and fee shifting, while taking discretion away from the judiciary. The proposed changes to the legal system tend to favor infringers over inventors and big incumbent firms over entrepreneurs and startups.

An important change proposed by the Innovation Act is a switch to what is effectively the English fee shifting rule. Under this rule, the loser pays, ostensibly penalizing those who bring abusive suits and lose. However, given that large firms are able to incur higher legal costs and fees and may choose to do so, this provision poses great risks for small inventors and entrepreneurs seeking to enforce their intellectual property (IP) to prevent infringement. It similarly poses great risks to small businesses frivolously accused of patent infringement, who seek declaratory judgments in their defense. The result will be to deny access to the courts to disputants with limited financial means that nonetheless have meritorious claims. Such a legal provision would induce inventors and entrepreneurs to sell their patents to large firms who are better capitalized and prepared to enforce the patents, and similarly will force small businesses to settle patent assertions of questionable merit.