Patent Fixes Pick up Steam in Congress

(Cross post on DisCo)

What a difference a year makes in Congress.  Last year, Reps. DeFazio (D-OR) and Chaffetz (R-UT) introduced the Saving High-tech Innovators from Egregious Legal Disputes (SHIELD) Act.  The bill generated some attention in the press, but never made it onto the campaign year legislative agenda.

Then we hit a tipping point of sorts.  It has been widely known that troll litigation is unsavory and inefficient, but many ardent defenders of the current patent system argued that patent trolls were a sideshow.  In 2005, trolls accounted for 23% of patent litigation.  Then, in December of last year, Santa Clara Law’s Prof. Colleen Chien released the results of her study showing that trolls accounted for 61% of patent lawsuits in 2012, which marked the first year that trolls accounted for more than half of all patent litigation.  The rhetorical rubicon had been crossed, which helped put the gears of Washington, DC in motion.

In December, the FTC and DOJ held a joint workshop on patent trolls, which marked the first time that our nation’s antitrust regulators took serious steps to examine the competition problem posed by patent assertion entities.  (Last April, I asked the former Assistant Attorney General for Antitrust, Sharis Pozen, about the DOJ’s stance on patent trolls and she said the agency was still internally thinking about how to handle trolls and had no comment beyond that [@ 39:10]).

Then this February the SHIELD Act was amended and reintroduced.  As some commenters have pointed out, the SHIELD Act is a small, but important tweak to get at some of the problems with trolls, but it does not go far enough on its own.  And, at the time of its introduction, it seemed like the SHIELD Act was as far as Congress was willing to go to help update our misfiring patent system, after having failed to agree on comprehensive reform in the America Invents Act.

However, the patent troll problem escalated to the Presidential level, with the President giving a well thought out response to a question on patent trolls in a Google Hangout he held in mid-February where he condemned the practice of trolling and discussed the need for more patent “balance” generally.

Then yesterday (as Matt discussed in another blog post) Senator Schumer announced he is introducing a bill next week to extend the Covered Business Methods program, which forestalls litigation on financial product patents while the PTO reviews their validity, to all patents.  Given that trolls, particularly trolls that target startups, often use low quality patents, this would help limit outright extortion conditioned on the high cost of conducting successful patent defenses.  For example, RIM was forced to settle with a patent troll in 2005 — to the tune of $612 million — even though all of the plaintiff’s patents had been preliminarily rejected by the PTO because the court case was preceding independent of the PTO reexamination.  (A 2006 Supreme Court case, eBay v. MercExchange, also helped undercut this extortion scheme because it allowed courts discretion in issuing preliminary injunctions depending on how important the underlying patent was in relation to the whole product and the effect of infringement on the marketplace.  In the case of trolls, who make no products, the damage of letting the court case proceed without issuing a preliminary injunction is negligible because the plaintiff is not losing any sales.)

Still, more legislation is apparently in the works.  Senator Leahy, who heads the powerful Senate Judiciary Committee and served as the main architect of the last major attempt at patent reform, told a reporter that he was considering major legislation to fix other malfunctioning parts of our nation’s patent system:

But on Thursday, Leahy’s office told Pro’s Michelle Quinn that he was considering fixes to problems with the system that come after patents are awarded, such as who owns and controls a patent and who can be targeted in a patent claim. Leahy said in a statement that he was working on legislation that “will ensure the real party in interest of a patent is disclosed” and “explore other means to make trolling activity unprofitable.” He was also looking at proposals to “protect unknowing and innocent purchasers of allegedly infringing products from unwarranted suits” and ensure that a manufacturer is ultimately the party defending the patent-infringement claim.

These all would be incredibly important fixes to our nation’s patent system–particularly as it interfaces with technology markets and startups.  Entrenched incumbents and savvy lawyers have been able to exploit the flaws in the patent system — such as the imprecision of software patents, the high-cost of defense and the uncertainty promulgated by the large number of patents that pertain to high-tech markets — to make the life of tech innovators difficult.  Taken as a whole, if all the proposed legislative fixes pass — and there is a long fight left ahead for patent reform advocates — this latest bout of patent reform would prove far more significant for technology companies and startups than the America Invents Act, which became law in September 2011.