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Which Patent Reform Bill Doesn’t Destroy the American Patent System?

May 21, 2015
Post Grant Opposition procedures (PGOs) are being used to invalidate 76% of the patents at which they are directed. Now, there are three patent reform bills in consideration by the House and Senate that are all purporting to fix some of the problems.

In 2011, the Leahy–Smith America Invents Act (AIA) changed our patent system from a "first to invent" to a "first to file." It also created easier ways to invalidate patents, called Post Grant Opposition procedures (PGOs). These PGOs are now invalidating 76% of the patents at which they are directed. Now, there are three patent reform bills in consideration by the House and Senate that are all purporting to fix some of the problems generated by the AIA Act. They are:

  • The PATENT Act, S.1137, sponsored by Sen. Grassley, R-Iowa, was sent to the Judiciary Committee on April 29, 2015 and would "amend title 35, United States Code, and the Leahy-Smith America Invents Act to make improvements and technical corrections…"
  • The Innovation Act, H.R. 9, sponsored by Rep. Bob Goodlatte, R-Va., was sent to the House Judiciary Committee on February 5, 2015 and would also "amend title 35, United States Code, and the Leahy-Smith America Invents Act to make improvements and technical corrections..."
  • The Strong Patents Act of 2015, S. 632, sponsored by Senators Chris Coons, D-Del., Dick Durbin, D-Ill. and Mazie Hirono, D-Hawaii, to "Enact balanced reforms to reduce abuse while sustaining American leadership in innovation."

The first two bills are the result of the expenditure of hundreds of millions of dollars to lobby Congress by large corporations such as Google, Microsoft and Oracle over the last 8 years to produce a “patent troll” narrative and then fix the fictional problem of “patent trolls” with these bills.

Many consider the worst provision of both bills the "Loser-Pays with Joinder clause," which means that 1) a patent holder who tries to defend a patent and does not prevail is potentially liable for the infringer’s legal costs (easily $1,000,000 plus), and 2) interested parties are joined in the liability. This means that the inventor could be liable for millions of dollars if he is unsuccessful in defending his patent against infringement, and an investor could be personally liable as well. With the odds of losing so high, Loser-Pays makes it impossible for almost all inventors to enforce their patent rights against patent pirates or ever get outside investment.

Under The Innovation Act (H.R. 9), a university could be liable for millions of dollars if patents created and licensed through university research were unsuccessful in defending against infringement. The university could be held liable for the legal costs of the infringer if the patent holder did not prevail in the patent infringement case because of the Loser Pays with Joinder clause.

Today, inventors are losing more cases than at any time in the 224-year history of the U.S. patent system."

—Paul Morinville, founder, US Inventor

The PATENT Act (S. 1137) exempts universities and pharmaceutical companies from the Loser Pay with Joinder clause, but makes it worse for small inventors. There is now a requirement that a patent holder certify that he has the funds for the Loser Pays liability before he can sue for infringement (easily $1,000,000 plus). This will eliminate the ability of virtually every independent inventor to defend a patent. And, if an investor provides the funds, he will be personally liable for the Loser Pays (piercing the corporate veil and throwing away hundreds of years of corporate law).

Randy Landreneau, founder of Independent Inventors of America, states the following regarding the exemptions: “It is shameful that we have a political system where groups with political influence get favored while the rest of us suffer. Universities and drug companies will still have patent protection, but the independent inventor, the individual the American Patent System was created for, will be destroyed. This is an all-out attack on a most basic and important part of America. This is arguably the worst and most damaging legislation in American history.”

Both of these bills would do considerable damage to the patent system, specifically harming inventors and small patent-based businesses. If either of these bills becomes law, inventors and small businesses will not be able to enforce their patent rights against large corporations with deep pockets while corporations like Google, for example, would still be able to enforce their patents against small businesses with devastating consequences to those small businesses.

Paul Morinville, founder of US Inventor  stated, "For the last two years, inventors have lost the large majority of patent cases. Post grant opposition procedures (PGO) created in the America Invents Act (AIA) invalidate patents at rates above 75%. Article III courts invalidate patents at similar rates under the indefinable “abstract idea” category of subject matter ineligibility. Today, inventors are losing more cases than at any time in the 224-year history of the U.S. patent system."

He added: "Patent litigation is about risk and cost versus reward. If risk or cost is too high in relation to reward, an inventor or a small business cannot enforce a patent. This bill creates enormous risk and cost, and consequently it creates a patent system without inventors. An infringement suit can cost millions of dollars for each side. Prior to the American Invents Act (AIA), it was possible to protect small inventions from patent infringement. But, with the huge increase in inventor losses due to the AIA and the indefinable “abstract idea,” only inventions with exceptionally large damages can be enforced. It’s simple math, damages must exceed the cost of the case plus the cost of risk. Thus, the high damages bar would make the vast majority of patents unenforceable by inventors."

In an opinion article in The Hill, Robert Schmidt, co-chair of the Small Business Technology Council, wrote, "H.R. 9, purported to solve a patent troll problem, is instead the next step in crushing competition from new small firms, creating “Big Tech Patent Ogres” that can ignore smaller players and their patents. This new bill makes it almost impossible for small technology startups to enforce their patents... H.R. 9 will retard innovation and cost America jobs and wealth. H.R. 9 is contrary to the Founding Fathers’ Constitutional intent, contrary to the policies of 220 years of patent law, and contrary to stated intention of the President and Congress to stimulate innovation."

In contrast, The Strong Patents Act, S.632, would be good for all inventors ─ individuals, small businesses, universities, and large corporations. It "would effectively crack down on the abusive practices of so-called patent trolls without weakening the U.S. patent system," according to the Association of Public Land Grant Universities.

The Biotechnology Industry Organization (BIO) "supports the STRONG Patents Act of 2015 and will continue to advocate for passage of legislation to curbing abusive patent practices, while not undermining the ability of patent owners to defend their inventions and businesses against infringement."

Landreneau states, "The Strong Patent Act would rein in the Post Grant Opposition procedures so that they are more like federal court procedures used in invalidating property rights, rather than administrative procedures designed so that 76% of patents they are directed at are invalidated."

Another advantage of this bill is that it "eliminates fee diversion through the establishment of a new USPTO revolving fund in the U.S. Treasury." It also "empowers the Federal Trade Commission to crack down on abusive patent-related demand letters."

Sen. Coons' website makes the following convincing argument for the importance of preserving a strong patent system:

  • "IP-intensive industries comprise one-third of U.S. GDP ($5.5 trillion), generate 27 million jobs, and pay employees over 30% more than other industries.
  • 75% of venture capital investors consider the value of patents when making funding decisions in small businesses (97% in the biotech industry).
  • Patents inspire innovation in fields that require long-term investment in R&D: from life-saving therapies to new generations of wireless technologies.
  • Patents allow us to benefit from the genius of small inventors. With a strong patent right, individuals create inventions that disrupt dominant companies.
  • U.S. leadership in innovation is due in no small part to an unrivaled patent system. Strong patents today provide for game-changing inventions tomorrow."

There is no question in my mind that the Strong Patents Act is the only bill that truly protects American innovation. As a director of the newly incorporated San Diego Inventors Forum, I join our board president, Adrian Pelkus, in urging everyone to contact their Senators and Congressional representatives to urge them to oppose the House’s Innovation Act (H.R.9) and Senate's PATENT Act (S.1137) and vote "yes" on the Strong Patents Act of 2015 (S. 632).

Pelkus said: "We could lose everything if either of the two bad bills were passed by Congress. It could usher in the end of innovation as we know it and make it impossible for individual inventors to raise the money they need from investors to get their new products into the marketplace."

Now is the time to fight with us to keep innovation alive and well in America and not allow large corporations to squash individual inventors.

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