Innovation Act

Return to Patent Reform.

The H.R.9:Innovation Act was reintroduced on February 5, 2015, by Representative Bob Goodlatte (R-VA). The bill was referred to the House Committee on the Judiciary and Subcommittee on the Courts, Intellectual Property, and the Internet, and was placed on the Union Calendar on July 29, 2015. Currently the bill has 27 cosponsors, 15 Republicans and 12 Democrats.

The full title of the act is "To amend title 35, United States Code, and the Leahy-Smith America Invents Act to make improvements and technical corrections, and for other purposes." GovTrack predicts that the Innovation Act has a 36% chance of being enacted. Representative Bob Goodlatte intends for the bill to cut down on abusive patent litigation and strengthen a patent holder's rights.

The bill will target the following areas :

• Abusive Patent Litigation.
• Increasing Transparency and reducing Weak Patent Infringement Claims.
• Clarifying patent litigation procedures and practices.
• Bolstering small businesses built upon IP.
• Reducing referrals to random courts for the review of patent cases.
• Weakening power of Patent Trolls.

Provisions

The provisions of the Innovation Act encompass all of the areas of reform currently in consideration by Congress.

Pleading Requirements

In efforts to diminish the Patent Troll threat by the bill sponsors, the Innovation Act has heightened pleading requirements for parties filing for patent infringement. As of December 2015, Form 18, the form previously used to submit generalized patent infringement claims , was eliminated in order to reduce patent litigation, especially litigation involving Patent Trolls or Non-Practicing Entities. The act would go further in reducing generalized complaints and eliminating loopholes by requiring (with exceptions) the plaintiff to submit infringement charts with the initial complaint. The purpose of the charts would be to force the plaintiff to explain the specifics of a claim, how a product or subsidiary company violates each infringed component of a patent and the scope of each component's infringement.

Fees and Other Expenses

In order to avoid frivolous lawsuits and adequately sanction patent trolls for pointless or unfounded claims, the Innovation Act proposes the "English Rule" become the new standard in patent litigation in America. As defined by the NYU School of Law, the "English Rule" requires the losing party in a trial compensate the prevailing party for its attorney fees.

The act requires courts to have losing parties provide for "reasonable fees and other expenses." The award may be waived only if the losing party is found to have just legal and factual cause to be part of the litigation. If the losing party is unable to pay due to extraordinary circumstances, the court may ask a joined or interested party to cover the award.

Joinder of Interested Parties

• If the prevailing party is the side defending against an allegation of infringement, and the nonprevailing party can’t pay the award of fees and expenses, then the prevailing party can signal a motion to have a joinder of interested parties, if they show that the nonprevailing party has no substantial interest in the subject matter
  • Substantial interest is defined as interest if the party invented the subject matter or commercially practices, made substantial preparations directed particularly to commercially practicing, or is engaged in R&D in the subject matter

Included in order to prevent Patent Trolls from claiming the inability to pay fees by shuffling accounts between all of their companies.

Discovery Stay

"Establishes procedures to stay discovery pending a preliminary motion, subject to exceptions for: (1) motions to sever, drop a party, dismiss, or transfer; (2) actions in which a patentee is granted a preliminary injunction to prevent competitive harm; (3) consent of the parties; or (4) certain drug and biological product applications."[1]

Demand Letters

“The bill precludes a plaintiff from relying on pre-suit demand letters to establish willful infringement if the letters do not specify the asserted patent, the accused product, the plaintiff’s ultimate parent entity, and the grounds for the alleged infringement” [2]

Venue

Amends the federal judicial code to restrict the venues where patent actions may be brought to judicial districts where: the defendant has its principal place of business or is incorporated, has committed an act of infringement and has a regular and established physical facility that gives rise to the act of infringement, or has agreed or consented to be sued in the instant action; an inventor named on the patent conducted research or development; or a party has a regular and established physical facility and has managed significant research and development for the invention claimed in the patent, has manufactured a tangible product alleged to embody that invention, or has implemented a manufacturing process for a tangible good in which the process is alleged to embody the invention.[3]

Why it Hasn't been passed

The House Innovation Act and Senate Patent Act are very similar; both acts address abusive litigation through “increased transparency, more limited discovery, heightened pleading standards, and ‘loser pays’ fee shifting”. However, there has been a delay in the passing of the bills because of controversy surrounding the shifting of attorney fees. Fee shifting was originally suggested as a way to incentivize small firms and businesses that were being unfairly accused of patent infringement to bring the case to court, so that they would not have to pay their attorney fees. However, there have been arguments stating that fee shifting would actually increase the settlement rate of small businesses being accused of patent infringement, because they don’t want to take the risk of losing and paying for the winner’s attorneys’ fees, in addition to their own. (Bloomberg BNA)

Summary

Heightened pleading requirements

The Innovation Act requires patent owners to show how each limitation of each asserted claim in each asserted patent is found within each alleged infringement.

Presumption of attorney fees

The act encourages judges to make a party pay attorney fees if the lawsuit or claim is deemed frivolous.

Transparency of ownership

The Innovation Act requires plaintiffs to disclose the owner of the patent in question so the identity of the real parties behind the litigation is clear. This will ensure that patent trolls cannot hide behind a web of shell companies to avoid accountability for bringing frivolous litigation.

Discovery limits

The act would limit discovery in litigation until after a claim construction ruling. This provision is aimed at reducing the costs of litigation.

Analysis Notes (not organized yet)

Before: The court may conclude that the patent claim is not valid if it is shown that the claimed invention was disclosed in a prior patent or patents, a book, a magazine, a newspaper, a television show or movie, a webpage or other published work before the date of the claimed invention.

After: Innovation Act removes a provision that prohibits a patent from being deemed invalid based on novelty, prior art, or nonobvious subject matter solely because a defense is raised or established based on prior commercial use.

Findings from Katznelson Study [4] Historically, as a fraction of issued patents, reported litigation rates in the first part of the 19th century exceeded that of the last two decades by about a factor of five. Patent litigation intensities in recent years had not exceeded those experienced during the 20th century. Rather , patent litigation surges are consistent with major shifts in technological developments, which introduce novel terms and uncertainty in patent claims and require infrimgement analysis of novel and less understood products.

NPEs vs PAEs [5] We need to make a distinction between NPEs and PAEs (otherwise known as patent trolls). These terms are often used interchangeably but universities and startups are included under the definition of a non-practicing entity. If you define a Practicing Assertion Entity (PAE) as a company that asserts patents on existing products as a business model, then you separate universities and startups from PAEs, inventor monetizers, and special purpose patent monetizers.

Issues/cricism of the innovation act [6]:

• Apparent automatic fee-shifting in lawsuits
• Heightened pleading standard
• Discovery stay
• Broad ‘customer stay’ provision could shield retailers/importers from infringement claims
• Pierce corporate veil with “ownership transparency”

Indirect infringement:

• Someone who has contributed to the infringement of a patent is liable
• Can only arise when the indirect infringer has some knowledge and intent regarding the patent and infringement
• ex. someone who actively induces infringement of patent by encouraging, aiding, or causing another person to infringe a patent. Inducer must be aware of patent and intend for their actions to result in third party infringing that patent
• Contributory infringement: seller provides part of component that itself does not infringe on a patent, but has a particular use as a part of some other machine that is covered by a patent