Innovation Act Aims to Curb Patent Trolling

On December 5, the House passed H.R. 3309, also known as the Innovation Act, by a wide margin of 325-91. The bill now moves to the Senate, where it’s expected to receive limited opposition and could be signed into law by the end of the year.

Proponents of the bill included industry giants such as Google and Microsoft, but it also saw broad support from brick and mortar businesses that have felt the sting of patent trolling practices, which we’ll describe below.

On balance, we see the Innovation Act as an important step in patent reform that should effectively weed out a significant number of frivolous lawsuits, while also providing businesses an extra layer of economic protection against patent trolls.

 

What are Patent Trolls and How Does the Innovation Act Address Them?

“Patent Trolls,” also known as “non-practicing entities” or “patent assertion entities,” are companies set up for the sole purpose of buying patents and asserting them. They can be a positive force when they help protect small inventors by asserting their patents against larger infringing companies.

In recent years, however, patent trolling practices have grown increasingly abusive. Patent trolls will send demand letters to businesses which they accuse of violating a patent, often forcing that business to do one of two things: engage in an expensive and often lengthy round of patent litigation, or pay a licensing settlement — often times simply to avoid legal fees. In many cases, though, the business hasn’t even violated patent law.

The Innovation Act is designed to curb these abusive patent trolling practices by making it more difficult procedurally to bring a case forward. The act has many provisions, but here are the key ones we think will have the biggest impact in discouraging abusive tactics:

  • Require more upfront specificity in patent lawsuits. Requires a claimant to identify the patents and claims that are being infringed, and explain how they are being infringed. This provision largely addresses the problem Thomas Yeh wrote about in a 2012 George Washington Law Review article, when he asserted that Section 337 of the Tariff Act of 1930 should be amended “to require licensing complainants to demonstrate an injury to their domestic industry before obtaining an exclusion order.”
  • Transparency of patent ownership. Requires the plaintiff to name all parties with ownership and financial interest in the patent, and anyone with a right to sublicense or enforce it.
  • Assigning legal fees. Requires the losing party to pay fees and expenses associated with the suit if the claims made were not reasonably justified under the law.
  • Limit and/or delay discovery. In some cases, the court may determine that it must first rule on the construction of terms in a patent claim before considering the alleged infringement. The act allows the court in these cases to limit the amount of information needed in discovery, which can save the defendant quite a bit of time and money needed to put that information together.
  • Customer suit exception. If a patent troll targets an end user of a certain technology, such as a small business, the manufacturer of that technology (bigger business) can intervene on their behalf. This provision would be a sigh of relief for many small businesses that simply can’t afford to address a patent infringement claim.

 

Assessing the Impact of the Innovation Act

A Boston University study estimates that patent trolls have cost defendants $500 billion in lost revenues between 1990 and 2010, but it also seems fair to consider the sizable opportunity cost that’s incurred when businesses forgo research and development out of fear of patent trolling.

Should the Innovation Act effectively serve its purpose of creating headwinds for unfair and frivolous patent litigation cases, the businesses that avoid lawsuits as a result can operate more freely and fairly, contributing to output and innovation where they otherwise might not have.

Ed Flores

Ed is a professional writer living in San Francisco, CA. He is the founder of In Writing, LLC, a company that specializes in creating custom content for Asset Managers and other financial firms.