Congress Focuses on Patent Reform

July 06, 2015

Patent reform continues to be on the minds of lawmakers on Capitol Hill as both the House and the Senate’s Judiciary Committees approved bills that are supposed to stop certain abuses in patent litigation and at the Patent Trial and Appeal Board – the PTAB -- in the U.S. Patent and Trademark Office.  The House’s proposed bill is called the Innovation Act and will require the PTAB to construe claims as understood by a person of “ordinary skill in the art,” the same standard used in federal district court.  It awards attorneys’ fees to prevailing parties unless the losing party has a specific excuse.  The Senate’s bill, called the PATENT Act, also addresses similar patent reform topics but attempts to advance a compromise position. 

The approvals come as debates about current patent law continue. Advocates of patent reform say the new provisions will help prevent predatory litigation from so-called “patent trolls,” while opponents think the reform is unnecessary and threatens to stifle innovation, the opposite of what patent law is supposed to do.

These so-called “patent trolls” are multi-dimensional and represent a broad cross-section of entities, including universities, individual inventors, failed start-ups, and other market intermediaries.  Many of these patent intermediaries -- often called patent assertion entities or PAEs -- serve an important market need by acting as intermediaries for patentees who otherwise may not have the resources to enforce their patents.  Universities and graduate students may not be involved in manufacturing products.  Nor should they be.  Their core competency is innovation.  Similarly, individual inventors may not have access to the capital necessary to bring products to market.  PAEs enable them to obtain a return on their investment by purchasing patents and accepting the enforcement risks and uncertainty.  In fact, based on a recent study conducted at Stanford, a primary reason why individual patent holders sell to PAEs is that they offer insurance and liquidity.

Furthermore, as an empirical matter, statements about an unfettered growth explosion in patent litigation are not supported by data.  The recent increase in the number of lawsuits is actually due to another law -- the 2011 America Invents Act joinder rule, which now requires patentees to file separate actions against multiple defendants.  There is also a lack of empirical support for the proposition that PAEs behave differently than operating companies in patent litigation in terms of how they resolve their disputes. 

All this does not mean that there is no bad behavior in the world of patent litigation.  There are numerous reports of cease and desist letters alleging patent infringement being sent to hundreds of companies.  These letters are hard to quantify because no one tracks them and they are not made public.  The Federal Trade Commission has been addressing this problem and they are likely to issue a report in the near future which will provide much needed data.

There are also repeated petitions being filed by defendants challenging the validity of patents at the Patent Trial and Appeals Board in the U.S. Patent and Trademark office even after multiple, previous petitions have not been successful.

Ultimately, innovation drives our economy.  Undue restrictions on innovation hamper our competiveness in the global marketplace, and our patent system should strive to protect genuine innovation.    

Hence, the focus should be on whether we can improve patent litigation by curbing litigation misconduct and efficiently determining whether or not a patent claim is both valid and infringed.  We should not deflect this central inquiry with a focus on the nature of the patentees or the litigants.

I’m Jay Kesan.