Legislation aimed at stymieing bogus patent lawsuits is heating up in the nation’s capital — pitting universities against industry groups, entrepreneurial innovators against the titans of Silicon Valley and some establishment Republican politicians against political newcomers.
At the center of the debate is the Innovation Act, a timeworn issue aimed at cracking down on “patent trolls,” mostly shell companies that buy up vague patents with the intent of later suing other companies for infringement.
The debate centers on whether the bill imposes overreaching standards on patent litigation that would make it hard for innovators to protect their property rights or whether it has just the right touch in making it tougher and more financially risky for patent trolls to file groundless lawsuits.
On Tuesday the House Judiciary Committee will hear from Michelle Lee, undersecretary of commerce for intellectual property and director of the U.S. Patent and Trademark Office, and executives from Yahoo!, Salesforce.com, Eli Lilly & Co and Biotechnology Industry Organization to debate the merits of the bill.
This will be the fourth hearing the Judiciary Committee has held this year regarding U.S. patent and copyright issues. The bill passed rapidly out of the House last session before the Senate squashed it.
This month, the Consumer Electronics Association (CEA) — which represents more than 2,000 technology companies, wrote a letter to more than 100 universities asking them to rethink their opposition to the bill, in what has become a very public spat between the two groups.
CEA is in favor of the bill, calling it “common-sense legislation that would curb abusive patent litigation by patent trolls,” whereas universities fear it may hinder their ability to enforce their own patent rights and trample their students’ ability to innovate.
In response to CEA’s letter, the universities released their own — reaffirming their view that the current legislation would weaken the U.S. patent system as a whole.
“We strongly agree that Congress should address the bad actors in the patent system,” wrote AAU President Hunter Rawlings and Peter McPherson, the president of the Association of Public and Land-grant Universities, in an April 8 letter addressed to CEA. “But we remain equally firm in our view that legislative efforts to curtail troll abuses should be narrowly tailored to address the abuses of this small minority of patent holders without substantially weakening the U.S. patent system as a whole.”
Such feuds have become commonplace in the debate for patent reform, often pitting large organizations against smaller, more entrepreneurial firms.
Last year, Google spent about $17 million on lobbying, and the majority of its efforts were focused on patent reform. In fact, Google spent more money than any other tech company on copyright, patent and trademark lobbying last year, according to the Center for Responsive Politics, which tracks campaign and lobbying expenditures.
Google stands to gain from a tightened legal patent process as it battles competitors such as Apple Inc. They, along with other industry heavyweights, argue that patent trolls have cost U.S. businesses $29 billion a year in direct costs.
CEA claims: “Patent trolls cost the economy an estimated $1.5 billion every week through a legalized extortion racket, sending thousands of letters each year threatening to attack businesses of all sizes.”
But those numbers have been disputed by the universities and others as being too large — meant to mislead Congress.
“The research isn’t as good as it should be on how much patent assertion entities are costing the defendants in these lawsuits — there’s a certain softness to this figure,” said Arti Rai, a patent law scholar at Duke University. “It is the case that there is a fair amount of patent assertion entity litigation going on, but it’s less clear how much money these entities then return back to the initial inventor.”
Last month, in a House Judiciary hearing evaluating the bill, Mark Griffin, a lawyer for Overstock.com, told lawmakers the online retailer spends millions to get rid of patent trolls, but other businesses may settle instead because they can’t afford the cost of litigation. This amounts to “a tax on innocent operating companies,” Mr. Griffin explained.
But Brian Pate, who is an inventor and CEO of an exercise bike maker called ElliptiGo, vehemently disagrees.
“The most important thing we can do to protect innovation in America is to stop Congress from passing the so-called ‘Innovation Act,’” Mr. Pate wrote in a column last week for the U-T San Diego newspaper. “If it becomes law, it could suffocate the engines of innovation that our economy relies on the most: inventors and entrepreneurs.”
Mr. Pate is worried about a part of the Innovation Act that would change the rules allowing patent owners to sue anyone in the supply chain. Mr. Pate, who owns the patent on his bicycle, claimed that he’s already seen shoddy copies of his bike being sold online in China, and by removing this provision, he would be unable to sue U.S. stores if they decided to sell the counterfeit model.
“Without the belief that we could use our patents to defend our company against future knock-offs, my co-founder and I would not have started ElliptiGO,” Mr. Pate wrote. “If our investors and employees did not believe in the enforceability of our patents, I am certain that they would not have gotten involved. Without founders, investors and employees, a startup cannot get off the ground. Many times when these people first get involved in a startup, the only asset it has is a pending patent. That is what they are betting on.”
The Innovation Act would require patent holders (and/or trolls) to specify exactly how somebody infringed their patent instead of sending out a generic complaint. Defendants complain that often they don’t even know what patent they’ve infringed without spending gobs of money in the legal process to try to find out.
The bill would also put time or cost limits on the patent holder (or plaintiff) to produce documents or testimony after they filed suit and make it easier for a defendant to recoup legal fees from the patent holder or troll if they’re found in the wrongdoing.
The bill has pitted Republicans, who champion small businesses and entrepreneurs, against those seeking to end abusive litigation, said Ms. Rai.
Most vocally, that has been Carly Fiorina, the former chief executive of Hewlett Packard and 2016 GOP presidential candidate, against Rep. Bob Goodlatte, Virginia Republican and House Judiciary Committee chairman, a former lawyer who wrote the bill.
“Our founders believed in property rights, including intellectual property rights, so under the Innovation Act Thomas Edison would be considered a patent troll,” said Mrs. Fiorina in an interview with The Federalist Society posted on YouTube. “The Innovation Act is broad overreach. It takes a relatively small problem and turns it into a vast piece of legislation that will have the effect of damping the innovative spirit and, like most overreaching legislation, it will also have the effect of giving an advantage to large companies and putting individual entrepreneurs at a disadvantage.”
Mr. Goodlatte disagrees.
“This legislation, which passed the House last year by a wide margin, is designed to eliminate the abuses of our patent system, discourage frivolous patent litigation and keep U.S. patent laws up to date,” Mr. Goodlatte said in an April 10 statement announcing Tuesday’s hearing. “I am hopeful we can move quickly here in the House and get this important legislation through the Senate and to the President’s desk.”
• Kellan Howell contributed to this report.