Five Things Entrepreneurs Should Know About the Latest Patent Reform Proposal

The Innovation Act, introduced last month by Representative Goodlatte (R-VA) and approved by the House Judiciary Committee this week, seeks to curb “patent troll like” behavior with some major changes to patent litigation and Patent and Trademark Office (“PTO”) practice.

The Innovation Act has received more extensive media coverage than other recently discussed patent reform proposals, and many people expect at least some version of the bill to pass in the House. Likely due to the difficultly in identifying exactly who qualifies as a patent troll, or the more politically correct term non-practicing entity (“NPE”), the bill targets abusive patent litigation tactics instead of specific types of entities.

Here are some things entrepreneurs and startup companies need to know about the bill:

  • Heightened pleading requirements would make it harder for patentees to file patent infringement suits. Under current law, a complaint for patent infringement requires minimal detail. The Innovation Act would require a patentee to identify the asserted claims, the infringing products or services, and, “with detailed specificity,” how the infringing product meets each limitation of the asserted claims. Thus, complaints would be akin to infringement contentions, making it more difficult for patentees to file suit without investigating first. This heightened standard applies to NPEs and practicing entities alike, so while it may make it more difficult for NPEs to file patent infringement suits en masse, it will also make it more expensive and difficult for smaller companies to file legitimate patent infringement suits.
  • If you don’t win, you could end up paying the other side’s legal fees and expenses. Currently the only way a party will have to pay attorney fees and costs to the other side is if they are the nonprevailing party in an “exceptional case.” The Innovation Act would create a presumption that the losing party pays the prevailing party’s legal fees and expenses unless doing so would be unjust or the losing party’s positions were substantially justified. This is a double-edged sword – if someone brings a frivolous suit against you and loses, they will pay your legal fees and expenses.
  • Bifurcated discovery and limitations on electronic discovery could be an advantage to deep-pocketed litigants. Under the proposed bill, pre-claim construction discovery would be limited to information necessary for the court to construe the claims. After claim construction, discovery of email and instant messaging would be limited to five custodians (with some exceptions) and could be subject to cost shifting. While this could decrease the overall costs of discovery in patent litigation, it could also make it cost-prohibitive for smaller companies and startups to obtain sufficient discovery to explore certain claims and defenses in a case.
  • Disclosure of patent ownership requirements would make it easier to find out who really has an interest in the patent. The Innovation Act would require a patentee filing a patent infringement suit to disclose to the PTO, the district court, and adverse parties who has a legal and financial interest in the patent in suit. Failure to do so would result in forfeiture of any damages for infringement.

Representative Goodlatte’s original draft of the bill would have expanded the Covered Business Method Review program created by the America Invents Act.  This provision was removed after many companies objected that it would threaten all software patents.

Many people in the startup and entrepreneur community have voiced support for the Innovation Act because the threat of frivolous patent litigation can stop a developing company in its tracks.  Oftentimes the company will simply not have the resources to fight such a suit, and the only option is to pay for a license, even if the validity or enforceability of the patent is dubious.

Many established tech companies with significant patent portfolios, however, have expressed concerns about the bill and its impact on the ability to prosecute legitimate patent cases.  Because the bill is directed to everyone (not just NPEs), it will make it harder for companies big and small to protect their intellectual property and bring valid patent infringement suits against competitors. While the Innovation Act has received significant attention to date, it will likely undergo substantial debate and possibly amendment before it becomes law.            


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