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Patent Reform Stalls In Congress

Key senator scraps legislation targeting ‘patent trolls’

by Glenn Hess
June 16, 2014 | A version of this story appeared in Volume 92, Issue 24

Credit: Newscom
Grassley (left) and Leahy confer at a Senate Judiciary Committee meeting.
Grassley (left) and Leahy confer at a recent Senate Judiciary Committee meeting.
Credit: Newscom
Grassley (left) and Leahy confer at a Senate Judiciary Committee meeting.

Pharmaceutical companies and universities are breathing easier now that a Senate panel has shelved controversial legislation aimed at combating patent assertion entities, or “patent trolls.”

That’s the derisive term applied to companies that buy patents not to commercialize a product but to reap revenue from infringement lawsuits and licensing deals.

Drug and biotech companies and universities have been concerned that the legislative fix Congress has been considering would also make it more difficult for all patent owners to protect their intellectual property from those who would steal it. But Sen. Patrick J. Leahy (D-Vt.), chairman of the Senate Judiciary Committee, announced late last month that after nearly a year of negotiations, he was pulling a patent reform measure (S. 1720) from the panel’s agenda. He cited lingering disputes between key stakeholders as the reason.

For several years, Congress has sought to stifle entities whose sole purpose is to buy ambiguously worded patents and extract money by suing or demanding licensing fees from companies whose product or technology allegedly infringes on the claims of the broadly defined patent. With the average patent trial defense costing $2.5 million, most targeted businesses would rather settle out of court or pay the licensing fees.

The prime targets—Silicon Valley and Main Street retailers—have been pressing lawmakers to rein in the patent trolls. “Thousands of businesses in the crosshairs of patent trolls were relying on the Senate to provide them with the relief they urgently need,” says Matthew Tanielian, executive director of the Coalition for Patent Fairness, which represents tech giants such as Google, Oracle, and Cisco Systems. “How all of these industries, companies, and small-business owners could be left without any answers is astounding,” Tanielian remarks.

Drugmakers have not been nearly as vulnerable to allegations of infringement as businesses that rely on broad software-related patents. That’s because patents granted in the biotech and pharma fields tend to convey ownership of tangible creations such as drug formulas, not vague concepts such as algorithms and business methods.

But pharma officials worry that the legislative proposals would make it more difficult for their industry to attract investment and protect inventions.

Reform proponents vow to keep up the pressure. “This fight certainly isn’t over, because businesses all over the country are continuing to hand over billions of dollars a week to patent trolls,” says Matt Levy, patent counsel for the Computer & Communications Industry Association. That trade group represents companies such as Facebook, Microsoft, and Yahoo.

The House of Representatives easily passed a bill similar to the Senate legislation with strong bipartisan support last December. That legislation (H.R. 3309) seeks to discourage patent holders from filing frivolous infringement lawsuits by forcing the loser to pay the winner’s legal fees in some cases that judges determine to be meritless.

It would also require plaintiffs to provide detailed documentation in their complaints about how a defendant supposedly infringed a patent. And it would limit the legal discovery process, which can impose expensive legal costs on defendants accused of infringement.

Leahy, however, said his committee has heard “repeated concerns” that provisions in the House-approved measure went “beyond the scope of addressing patent trolls and would have severe unintended consequences” on legitimate patent holders. “There has been no agreement on how to combat the scourge of patent trolls without burdening the companies and universities who rely on the patent system to protect their inventions,” he says.

Sen. Charles E. Grassley of Iowa, the committee’s top Republican, said he was “surprised and disappointed” by Leahy’s decision to drop the bill. “We put in a good-faith effort to get to this point, and it’s too bad that the bill is being pulled from the agenda,” Grassley said.

Leahy suggested that the judiciary panel could return to the matter later this year. But that seems unlikely as lawmakers will soon focus their attention on campaigning for the midterm elections in November.

The lack of consensus underscores the difficulty of crafting legislation that targets patent lawsuit abuse, notes Q. Todd Dickinson, executive director of the American Intellectual Property Law Association, a national bar association for patent lawyers.

“This shows pretty clearly that addressing these issues is more complicated than many may have thought,” says Dickinson, who directed the U.S. Patent & Trademark Office during the Clinton Administration. “The key has always been to find the right balance: Deal with truly abusive behavior, while making sure that real innovators can enforce their rights.”

Universities and drug companies say the legislation proposed to date would erect numerous legal barriers that would make it more difficult and financially risky for them to defend their intellectual property by pursuing patent infringement lawsuits.

For instance, the possibility of getting stuck with both sides’ legal expenses could discourage legitimate patent holders from filing lawsuits to protect their patents against actual infringers. Universities in particular don’t have big litigation budgets, and neither independent inventors nor small start-up firms could afford all the legal fees.

“The first rule of patent legislation should be to do no harm,” says John C. Vaughn, executive vice president of the Association of American Universities (AAU), which represents 62 top research universities. In addressing abusive behavior, he stresses that Congress must be careful not to “undermine the system that all patent holders rely upon” to enforce their rights.

AAU and other academic organizations contend that some of the measures Congress has been considering go far beyond what is necessary to curtail abusive patent suits.

A loser-pays provision may deter patent trolls from filing frivolous lawsuits, says Carol Mimura, assistant vice chancellor for intellectual property and industry research alliances at the University of California, Berkeley. But the possibility of incurring additional fees means that universities “would be less willing or able to enforce our legitimate rights against assertion entities with deep pockets.” The House and Senate bills would also affect individual inventors. Although the University of California protects its employee-inventors from liability, Mimura notes that some coinventors are students. “They would have a disincentive to participate in the patent system if the fear of paying damages personally, especially the specter of enhanced sums for fees, becomes part of the equation,” she tells C&EN.

“We continue to support targeted efforts to curb abusive patent litigation rather than a broad, one-size-fits-all approach which would undermine the ability of patent holders to enforce their rights by filing and litigating a patent suit,” says Mit Spears. He is executive vice president and general counsel of the Pharmaceutical Research & Manufacturers of America, the brand-name drug industry’s main trade group.

Provisions in the House and Senate bills, Spears argues, could impose “substantial burdens on the ability to enforce legitimate patents, potentially decreasing the value of patents and weakening incentives for biomedical innovation.” Kendrew H. Colton, a patent attorney and partner at Fitch, Even, Tabin & Flannery, says the judicial system has the ability to handle abusive patent assertions. “But historically, the courts have been seemingly chary about appearing to be too heavy-handed in managing litigant behaviors,” he says.

There is a lot at stake, so the issue “won’t go away until there is some redress, either legislatively or judicially,” says Colton, who is a past chair of the American Chemical Society’s Division of Chemistry & the Law.

“Don’t be surprised if the various stakeholders press their concerns and try to come to some understandings in their conversations with Congress,” he says. “Perhaps we may see some revised legislation before the next presidential election cycle begins in earnest.”  


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