Judiciary Committee taking on patent trolls

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A bill designed to address abusive patent litigation is making its way through Congress.

The bipartisan Innovation Act (H.R. 3309) was the topic of a House Judiciary Committee hearing Tuesday on “Improving the Patent System to Promote American Innovation and Competitiveness.”

The lengthy bill was introduced Oct. 23 by committee Chairman Robert Goodlatte, R-Va., who said he considered its enactment central to innovation and taking meaningful steps to address abuses that have damaged the patent system.

Ranking Member Rep. John Conyers Jr., D-Mich., however, urged Goodlatte to move “cautiously, carefully and deliberately,” to make sure actions are not taken that would increase the problem of shell corporations with little or no assets threatening innovators with “endless and costly” litigation.

Conyers also noted the U.S. Supreme Court will be taking up one of the major issues in two upcoming cases: Octane Fitness LLC v. ICON Health & Fitness Inc. and Highmark Inc. v. Allcare Health Management Sys., both challenging aspects of Section 285 of Title 35 of the U.S. Code, dealing with the awarding of attorneys fees.

As outlined by hearing witnesses, the problem is patent assertion entities, companies or individuals who acquire patents and then sue competitors or large companies for infringement and/or licensing fees. The patent assertion entities, also called “patent trolls,” are not the manufacturers or creators.

Krish Gupta, senior vice president and deputy general counsel at EMC Corp., a Massachusetts company specializing in information storage, said his company has spent millions of dollars on more than 30 such suits since 2005 and has never been found to be in violation. He said the typical suit involves a shell company with secret backers and a vague complaint with little information about the allegations.

Gupta said a recent case involved a claim against a discontinued product in which it was eventually found EMC was the license holder. He said the plaintiff walked away, but the court denied EMC’s request to have the plaintiff pay attorney fees.

He suggested there are a lot of frivolous suits where plaintiffs hide the defects in their litigation, hoping for a settlement, only to find out the defendant products are properly licensed in the first place. Even if a company prevails, the litigation is costly. Gupta further suggested disincentives to bringing bad cases and limits on what needs to be produced in discovery.

Gupta said EMC believes the proposed Innovation Act must be enacted to restore accountability and balance to the patent system.

Goodlatte’s bill targets the behavior, not specific entities to prevent individuals from taking advantage of gaps in the system to engage in what he refers to as litigation extortion. In his Oct. 23 release, he noted his proposal will not eliminate valid patent litigation.

The proposal would also increase transparency through heightened pleading standards, requiring parties to provide more details when filing a suit, allowing courts to limit discovery and modernizing Section 285 by allowing fees to be shifted to the reasonable standard under the Equal Access to Justice Act, instead of the exceptional standard under Section 285.

Kevin Kramer, vice president and deputy general counsel for Intellectual Property at Yahoo Inc., said his company has seen a tenfold increase in the number of suits filed against it since 2007. He said the merits of the claims have declined, plaintiffs fail to identify a claim and features of Yahoo products at issue so the company has to guess, and that most cases require producing hundreds of thousands of documents when less than 1 percent of those are actually used.

Congress must ensure full funding for the U.S. Patent and Trademark Office, said David J. Kappos, former undersecretary of Commerce for Intellectual Property and PTO director.

He also cautioned the committee to move slowly, saying many innovators, “today’s Edisons,” have not had time to make their voices heard yet. He said he believes many of the provisions can reduce costs, but that significant work is needed on others such as fee shifting, and covering customers who he said are almost never in the same situation as a covered manufacturer.

Robert A. Armitage, former general counsel to Eli Lilly & Co., said he thought the case for patent reform was made and that the proposal should be crafted and refined and quickly moved through Congress.

Rep. Melvin Watt, D-N.C., tried to find common ground, noting a lot of his colleagues and the witnesses agreed on many provisions of the proposal. He also mentioned the cases pending before the Supreme Court, asking what would be the justification for proceeding before it issues its opinions.

A video of the hearing is available on the committee’s website at: http://judiciary.house.gov.