The Winners and Losers of Patent Reform

Currently there are two competing patent reform bills making the rounds in Congress: Representative Goodlatte’s Innovation Act of 2015 and the Strong Patent Act of 2015 proposed by Senator Coons. These two bills have been drawing heated debate in congress, the media, and affected industries, with no signs of consensus on the horizon. However, if either bill passes there will be a notable impact on businesses, so let’s take a look at some of the pros and cons being raised by business leaders in relation to these reforms.

Pro-reform:

There has been a strong pro-reform push from a number of sources. Some of the strongest support has come from computer, software, and other tech companies who have borne the brunt of high litigation rates over recent years. Anti “patent troll” rhetoric has also been a major driving force in swinging popular opinion in favor of patent reform. Political commentators have also brought up that patent reform is one of the few bi-partisan issues that a divided Congress can agree to work on, making it a popular target for action on the hill.

The House just heard business testimony on Wednesday regarding the Innovation act. One particularly strong proponent was Mark Griffin, General Counsel for Overstock.com. He stated that under the current system overstock spends millions fighting “patent trolls” and other infringement litigation. Griffin continued saying that for smaller companies or startups, that kind of expenditure is beyond their means. He claimed that the current system with NPE litigation essentially creates “a tax on innocent operating companies.”

Anti-Reform:

One of the major arguments against a 2015 reform effort is that it is too soon after the AIA and it would be better to wait and see the full impact of the last reform and recent judicial decisions prior to making more radical changes. When it was announced that reform would be proposed a large coalition formed and wrote a letter to Congress opposing the new reform effort. On portion of the coalition was made up of major pharmaceutical companies including Amgen, AstraZeneca, and Merck. Other major corporations included DuPont, Genzyme, and Qualcomm. These were joined by a number of universities and industry organizations including the Association of American Universities, the Association of Public Land Grant Universities, and IEEE. The coalition was rounded out by a variety of small business organizations.

Another area of industry concern deals with the section of the Innovation Act which would restrict the entities that could be pursued for infringement. So, for example, under current rules a patent owner can sue not only manufacturers infringing on their products, but also entities selling infringing products. The Innovation Act would shield sellers and end-users from an infringement suit, a measure meant to serve as protection from frivolous NPE litigation. However, this particular aspect has drawn concerns from a number of CEOs testifying before Congress. One business leader brought up the issue that counterfeit versions of his company’s product are already produced in China, and he wanted to be able to pursue sellers of infringing products in the US.

Other business leaders have raised concerns that the proposed reforms would help large firms, especially in tech, to the detriment of small patent owners who already have trouble either asserting their patent rights or defending themselves. Weakening patent protections could do more harm than good, especially for these relatively weak actors

Pharma companies have also expressed concerns about the influence of reform on an industry where profits from a single or small group of patents fund R&D for massive amounts of ongoing research into new products. Single patent invalidations can prove a crippling blow to even major pharmaceutical developers, and a weak patent system would undermine the entire industry as it functions today.

To get into a bit more detail, here is a brief breakdown of some of the key provisions of each proposal:

Innovation Act:

Heightened pleading requirements - patent holders would be required to demonstrate specifically how products infringe if they file an infringement suit
Change in law regarding attorney fees to presume that expenses would be awarded to the prevailing party except in special circumstances
Claim construction before the PTAB according to the “ordinary and customary meaning” used in District Court
Discovery would be limited until after a claim construction ruling
Damages can be trebled in cases where infringement is found to be “willful”
Provisions covering foreign bankruptcy

Strong Patent Act:

If the court finds that a patent infringement suit was brought in bad faith it is allowed to treble damages at the discretion of the court
Universities would be allowed to claim micro-entity status
Classifies some demand letters sent in bad-faith as unlawful and subject to monetary penalties of up to $5 million
Post Issuance Review
Claim construction before the PTAB according to the “ordinary and customary meaning” used in District Court
Patents being challenged at the PTAB will have a presumption of validity
In post-grant review proceedings before the PTAB amendments to claims will be allowed if “reasonable”
Filing requests for ex part reexamination based on alleged infringement will be subject to a one year deadline