NCPA - National Center for Policy Analysis

Congress Should Not Rush Patent Reform

February 18, 2015

A new bill introduced by Representative Bob Goodlatte (R-Va.), the Innovation Act, attempts to tackle patent abuse. NCPA Senior Fellow Thomas Hemphill says it's a worthy goal, but he warns that Congress should be cautious as it drafts new laws affecting inventors and entrepreneurs.

Writing in Real Clear Policy, Hemphill describes the Goodlatte bill as an attempt to reduce lawsuits brought by patent assertion entities (PAEs). PAEs purchase patents not for their own use but to assert them against manufacturers who are using the technology, threatening litigation. These groups are referred to as "patent trolls," and Hemphill says their claims are often considered "dubious."

Writing in the Wall Street Journal, John Chambers, CEO of Cisco, and Myron Ullman, CEO of J.C. Penney, echo this sentiment and note that PAEs are responsible for 60 percent of patent litigation in the United States. They cite a 2012 Boston University study which found that companies spend $29 billion annually defending patent lawsuits. For example, J.C. Penney was hit with a patent lawsuit in 2009, and it wasn't until the company had spent millions of dollars defending itself that those patents were declared invalid by a court in 2012. Remarkably, Chambers and Ullman note that their two companies have spent more than one-third of a billion dollars over the last half-decade defending themselves against PAEs. Unfortunately, they say, most companies lack the resources required of litigation and end up settling.

However, Hemphill is concerned that the Innovation Act could create unintended consequences. For example, it calls for losers to pay the costs of winners' attorneys' fees, unless the losers' cases were "reasonably justified in law and fact or… special circumstances (such as severe economic hardship to a named inventor) make an award unjust." Hemphill's concern is that the standard could be vague, which he contends might deter young ventures from attempting to enforce patents. He encourages Congress to develop a standard that more clearly delineates the line between valid and meritless patent suits. He also cites a few developments that he says has changed the nature of patent litigation: 

  • A number of patent lawsuits decided in 2014 have made defeating PAEs easier and have discouraged meritless litigation.
  • New and relatively inexpensive procedures for challenging patents have been developed. Already, 2,300 patents have been challenged before the Patent Trial and Appeals Board since late 2012.
  • Recently adopted changes to the Federal Rules of Civil Procedure will raise pleading standards for patent cases and limit the ability of litigants to drive up costs and push parties into settlements.

Hemphill says reining in patent abuse is important, but he encourages lawmakers to take care as they reform the system and be cautious in adopting and changing laws as important as those related to innovation.

Source: Thomas A. Hemphill, "In Patent Reform, Less May Be More," Real Clear Policy, February 16, 2015

 

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