PublishedAugust 2, 2018

The Inventor Protection Act Would Actually Harm U.S. Innovation

Yesterday, I went through the serious defects in the findings Rep. Rohrabacher based his Inventor Protection Act on.  Today, I’ll discuss the problems with the legal changes the bill seeks to make.

Inventors Have Never Been Immune To Reexamination

The first thing that the Inventor Protection Act does is prevent the Patent Office from reexamination or review of a patent owned by the inventor.  This is actually unprecedented—inventor-owned patents have always been subject to reexamination since the very first day that reexamination became available.  

Rohrabacher’s bill creates a protection that has never existed, allowing inventors to get a low-quality patent through the Patent Office and then immunizing them from any challenge to the quality of that patent.

Back To Texas, Even If You Don’t Live There

The bill states that “inventors were stripped of the right to file suit in their own judicial district.”  That seems sympathetic—after all, it seems like an inventor might have a harder time litigating a case halfway across the country.

So why does the bill let the inventor file wherever they want?

If Rohrabacher was really concerned with allowing inventors to file suit in their own judicial district, his bill could have given inventors the explicit right to file in the district in which the inventor resides (presuming the defendant is subject to personal jurisdiction or has committed an act of infringement in that district.)  That becomes particularly clear when you look at the very next provision of the bill, which requires anyone challenging the inventor’s patent in court via a declaratory judgment action to file in the district in which the inventor is domiciled.

Allowing inventors to file anywhere is a return to the good old days of plaintiffs flocking to the Eastern District of Texas—but it certainly isn’t protecting the right of inventors to file suit in their own judicial district, which is what Rohrabacher claims to be doing.

Procedure Matters

The next provision places certain limits on procedures and timing for inventor-owned patent litigations.  Trials must occur within 12 months after service of the complaint. This likely poses a practical problem, given the amount of litigation on district court dockets, and will strain inventor budgets since they’ll need to pay more attorney’s fees in a shorter period of time, but isn’t inherently objectionable.

The next provision, though, is nonsensical.  It requires “a trial no more than 7 days in duration.”  But trial days vary widely between district courts. Some run a strict 9-5 trial day.  In other courtrooms, a trial day might be less than 5 hours of trial time. Given this, 7 days will produce vastly inconsistent results when applied to different judges in different courtrooms.  It also simply doesn’t allow any scope for a more complex technology which might require significantly more time to explain and address in court.

The third provision allows “a maximum of 10 discovery requests for each party.”  This is likely to backfire on inventors, as they typically require more discovery than defendants do.  But it also ignores the fact that federal judges have inherent discretion to limit excessive discovery and are willing to employ that discretion.  It’s simply unnecessary and aggrandizes to Congress one of the judiciary’s traditional areas of responsibility.

The fourth provision, like the second, sets a hard limit.  In this case, it’s “pleadings limited to 100,000 words per party.”  Again, this might work in some circumstances, but in complex technologies this will prove unworkable.

Inequitable Treatment

Rohrabacher next addresses the issue of injunctions.  This issue, as I noted in my previous post, is significantly overblown.  Individual inventors already can and do obtain injunctions.

But Rohrabacher again wants to take away the traditional equitable discretion afforded to judges, replacing it with a requirement that they assume irreparable harm to the inventor.  This would be the case even if the inventor only licenses their patent, meaning that the only harm they’ve suffered is the loss of licensing revenue, a harm that can be easily repaid without an injunction. The purpose of the irreparable harm requirement is to ensure that injunctions only issue in accordance with the principles of equity; issuing an injunction that doesn’t accord with those principles would, by definition, be inequitable.

Which means that Rohrabacher’s bill could literally require courts to engage in inequitable courses of action.

“Simplified” Damages

The next provision is by far the most concerning in the entire bill.  Normally there’s a bit of hyperbole involved when someone says “this bill would destroy the incentive to innovate.”  In the case of Rohrabacher’s bill, that’s not hyperbole—it’s simple math.

That’s because, if the Inventor Protection Act passes, inventors would be entitled to the greater of total profits or 25 percent of gross sales revenue attributable to the patent.

As a little history lesson, utility patents used to allow a total profits remedy.  Congress abolished that in 1946, after realizing that a total profits rule was unworkable with the complex technology of the time.  Technology has gotten more complicated since 1946, which makes it unclear why reviving the total profits rule is a good idea now.

But total profits isn’t the worst part of this provision.  The worst part is entitling inventors to “25 percent of sales.”  That means that, if a product infringed 4 patents, the manufacturer could be liable for every dollar they had ever received in sales.[4. The bill text is “sales attributable” to the infringing party’s use of the invention.  If Rohrabacher had intended apportionment of the value of the patented invention, he would have used the term apportionment; attribution is a different concept and likely refers to showing a nexus to sales, with the amount being the entire value of any sale with a nexus to the patent.  And if apportionment is the intent, you quickly run into the same problems total profits has, the problems that caused Congress to eliminate total profits as unworkable.]

To put that in perspective, Apple lost a patent lawsuit a few months ago.  They were ordered to pay $500 million dollars to VirnetX for their use of 4 patents, covering FaceTime, iMessage, and VPN on Demand.  That’s a big verdict.

But if the inventors had owned those patents at the time of suit, Apple might instead have had to pay over $200 billion dollars.  I don’t think anyone would call that the right outcome.

While the inventors had transferred their patents by that point, VirnetX could easily have sought out the inventors and sold them their patents back with the promise of a delayed payment back to VirnetX if the inventors won the lawsuit.  Similar tactics have been used before in what’s known as “privateering,” and VirnetX may itself be the result of a privateering arrangement.  In addition, VirnetX could have transferred the patents but funded the litigation, with the inventors agreeing to pay VirnetX back with interest or with a percentage of their winnings—another common arrangement called litigation finance.

Given the ease with which an NPE could take advantage of these benefits that were designed to accrue to inventors, there’s every reason to think they would do exactly that.

And when 4 patents can wipe out not just every bit of profit you made but actually eliminate every last bit of revenue?  There’s no reason to create anything new in the U.S. anymore. If you’re worried about competition from China, the last thing you want to do is create a rule that ensures that creating complex technology in the U.S. is almost guaranteed to be unprofitable.

Actually It Might Have Been $600 Billion

The other dangerous damages rule Rohrabacher’s bill would create?  Presuming that the party willfully infringed if they’re an expert in the field of the invention.  I think it’s reasonable to guess that Apple would be considered expert in the area of encrypted communications, the same area as the VirnetX patents.

Which means that willfulness would have been presumed, even if Apple could prove it didn’t know about VirnetX’s patents, or could prove they had a good faith belief (based on that exact same expertise) that they didn’t infringe those patents.

Which means treble damages.  So now Apple would owe $600 billion, or right around the entire GDP of Sweden in 2017.

For four patents.

That simply isn’t a good idea.

It’s a little frightening that STRONGER Patents (which I previously compared to a horror movie villain coming back from the dead) looks like the relatively reasonable member of this triplet—the Hannibal to Massie and Rohrabacher’s Freddie and Jason.

Sure, all three bills would hurt innovation in the U.S., but STRONGER would do it much more politely.


Josh Landau

Patent Counsel, CCIA

Joshua Landau is the Patent Counsel at the Computer & Communications Industry Association (CCIA), where he represents and advises the association regarding patent issues.  Mr. Landau joined CCIA from WilmerHale in 2017, where he represented clients in patent litigation, counseling, and prosecution, including trials in both district courts and before the PTAB.

Prior to his time at WilmerHale, Mr. Landau was a Legal Fellow on Senator Al Franken’s Judiciary staff, focusing on privacy and technology issues.  Mr. Landau received his J.D. from Georgetown University Law Center and his B.S.E.E. from the University of Michigan.  Before law school, he spent several years as an automotive engineer, during which time he co-invented technology leading to U.S. Patent No. 6,934,140.

Follow @PatentJosh on Twitter.

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