The U.S. patent system is the envy of the world. It has nurtured small inventors and innovative small businesses in this country for centuries. In effect, H.R. 9, known as the Innovation Act, would do great harm to this system. It would block innovation and dismantle important aspects of the system that, at most, need only minor changes.
The Innovation Act goes well beyond what is needed to address bad actions of a small number of patent holders, and it instead raises costs for all legitimate patent holders to enforce their Constitutionally-given property rights in court. The perceived need for legislation to address abusive litigation practices already is being dealt with effectively by the Supreme Court, the U.S. Patent & Trademark Office, and the Federal Trade Commission. Any legislative action should be limited and focused on specific abusive behavior, not the overly broad approach on procedural aspects of enforcing patents, as H.R. 9 does.
The Innovation Act’s negative impacts include:
•Chilling investment in patent-intensive companies, depressing innovation and job creation.
•Making it more difficult, risky, and expensive for emerging companies to enforce their patents.
•Increasing costs and risks for smaller companies trying to defend against patent litigation brought by larger, incumbent competitors.
•Making conditions hostile for small inventors and is opposed by small inventors, at least 144 major universities, and other organizations including Club for Growth, American Conservative Union, biotech & pharmaceutical advocates, Business & Industry Council, and venture capitalist & patent advocates.
The five most dangerous provisions included in the Innovation Act are:
1.Mandatory fee-shifting (Loser Pays) requires courts to award attorneys’ fees and costs to the winning party, with a possible waiver of fee-shifting based on vague, subjective criteria. The prospect of substantially increased financial risk will discourage individual inventors and small business patent holders lacking extensive litigation resources from enforcing their patents. This increased risk will deter potential licensees and venture capitalists from investing in patents, reducing the number of research discoveries that advance the marketplace.
2.Involuntary joinder pierces the corporate veil to apply Loser Pay to all “interested parties,” forcing investors to pay damages for actions of third parties over which they had no control. This threat will drastically reduce investment in inventors, patents, startup and technology companies, and patent licensing.
3.Excessive Heightened Pleading Standards require patent holders to allege, beyond what every other party in any civil action is required, how each asserted claim under a given patent is found within each infringing process, product, or instrumentality. The Act’s rigorous requirements may effectively bar valid infringement claims as an unintended consequence.
4.Discovery limitations require courts to delay a patent holder’s discovery requests until a hearing on the claims of the patent is completed. This delay deprives the patent holder from obtaining valuable information to form the case, will increase attorneys fees, and will prolong the litigation.
5.Shrinking Post Grant Review (PGR) Estoppel incentivizes infringers to prolong litigation and bankrupt an individual inventor or small business patent holder. The bill strikes “or reasonably could have raised” from current law prohibiting petitioner from later arguing “any ground that the petitioner raised or reasonably could have raised during the post-grant review.” A petitioner could effectively slow walk the PGR process by filing a PGR under one ground while holding back other grounds until the first PGR is completed. If they do not get the result they want, they can file another PGR under the ground they held back or bring it up in court. This will prolong court costs and raise attorney fees.
In the end, small inventors must have equal footing in the innovation race, not be muscled out by larger, wealthier, and better-established competitors. Our patent system deserves measured reform, not a hatchet job like H.R. 9
Rep. Marcy Kaptur is a Democrat who has represented Ohio’s 9th Congressional District since 1983.