The Innovation Act Survives the House Judiciary Committee 33-5
On Wednesday, November 20th, the highly anticipated Innovation Act was sent to the floor after passing 33-5 in the House Judiciary Committee.
The Innovation Act, sponsored by House Judiciary Committee Chair Bob Goodlatte (R-VA), is targeted primarily at curbing non-practicing entity’s (NPEs), or “patent troll’s” abuse of the system, a consistently hot topic receiving renewed focus after recent instances of patent assertion entities targeting individual consumers who use scanners to obtain licensing fees and the response of several state Attorney Generals to meet the demands of these NPEs with application of consumer protection laws.
Two of the more dramatic reform features of the Innovation Act involve heightened pleading standards and the possibility of fee shifting.
Currently, patent suits are held to the same basic notice-pleading standards as the majority of cases filed. Often left with little idea as to what their alleged infringement entails, accused-infringers (particularly those with more limited resources) settle rather than go through an expensive discovery period to ascertain the exact parameters or legitimacy of the claims against them. This is a key litigation strategy of “patent trolls,” who often depend on a large number of targets to pay comparatively small “nuisance settlements” rather than go through costly litigation. In many ways, it is the 2013 equivalent of the “Nigerian Prince” scam. In this scheme, fraudsters solicit a large number of people for large amounts of money with the promise that this money would be used to gain access to an even larger cache of assets. The vast majority of potential victims send the email to spam and never respond, but even if one person falls prey the con-artist succeeds in maximizing her returns with the most minimal possible effort. Patent trolls have a similar approach, but focus building a volume of relatively small fees.
The Innovation Act would require plaintiffs alleging infringement to provide the details of the claim in the initial pleading. This heightened pleading requirement would have to include an: identification of each patent alleged to be infringed, an identification of each claim alleged to be infringed, details on the infringing product, and a description of the direct infringement with “detailed specificity” regarding how the claims identified as infringed “correspond to the functionality of the accused instrumentality.”
The new bill would also allow attorney fees to be awarded to the winning party unless the court finds that the losing party’s position had been “substantially justified, or that special circumstances makes an award unjust.” Though intended to be neutral, this is seen as a step against patent trolls in encouraging smaller alleged-infringers to fight baseless allegations rather than settle.
Other notable aspects of the Innovation Act include abusive discovery reform, reforms for customer suits, and the removal of the civil action option for patent application appeals.
Several sources have claimed that the Act’s survival of committee is not the victory for patent reform it could have been, as special interests have largely gutted the Act’s relevance to software patents, an area seen as among those needing the most reform. The original Act had expanded the “covered business method” (CBM) program, an initiative that accelerated the timeline for the USPTO’s invalidation of “low-quality” software patents, a major tool for patent trolls. Companies such as Microsoft and IBM objected to the mechanism by which the PTO would have to find a software patent viable before the patent-holder could be sued for infringement, and pressure over the issue preceded an amendment in the advancing bill that directed the Government Accountability Office to study CBM patents before moving forward.
