House Passes Controversial Innovation Act

Both the legislature and the judiciary are currently engaged in attempts to curb so-called “patent trolling” – the use of patents solely for litigation instead of innovation, development, and protection of marketed products. Rising concerns over this behavior led to the recent passage of H.R. 3309 (the “Innovation Act”) with overwhelming bipartisan support, only about a month after the bill was introduced to the House. The Innovation Act aims to encourage innovation by creating a number of alleged procedural safeguards against frivolous patent infringement claims, including heightening pleading requirements, limiting discovery, and shifting fees to the prevailing party. It also contains provisions for making post-grant review procedures before the Patent Trial and Appeal Board a more attractive alternative to challenging patents in court. The Innovation Act has generated its own set of concerns, however, particularly among small corporate or individual patent owners, who worry that the bill may unfairly limit the rights of all patent owners, and among certain members of the judiciary, who feel that the bill is an improper legislative encroachment on judicial authority.

The Innovation Act followed quickly on the heels of the Leahy-Smith America Invents Act, which was actively debated in Congress for more than five years. By contrast, the Innovation Act was introduced to the House on October 23, 2013, and passed on December 5, 2013. Several members of Congress, including Congressmen John Conyers and Melvin Watt, as well as former PTO director David Kappos, attempted in vain to urge Congress to proceed with caution and questioned the apparent need for urgency. Because the bill passed so quickly, there is a perception that Congress never had a chance to hear from several interest groups with significant stakes in patent rights, such as individual inventors and small or early stage companies.

Some commentators have argued that the lack of input from individual or small corporate patent holders is problematic and that the bill contains several provisions which could weaken the patent rights of such parties. Although the bill is theoretically targeted at patent trolls or non-practicing entities (“NPEs”), the same provisions that would limit an NPE’s ability to enforce its patent rights also limit any other patent owner’s ability to enforce its patent rights. For example, some argue that the provision lowering the standard for shifting litigation fees to the prevailing party could prevent small entities that cannot pay both sides’ fees from pursuing legitimate infringement claims. Intellectual property rights are often a significant if not principal asset of early stage companies, and the provisions of the Innovation Act that make it more difficult to enforce those rights could make it harder for start-up companies to attract investors.

Several members of the judicial branch, most notably Chief Judge Rader of the Federal Circuit, believe that the Innovation Act is a legislative intrusion on the judiciary, and that the judiciary is better equipped to deal with any type of frivolous litigation. The fee shifting provision is also of particular concern to the judiciary, since there are currently two cases pending before the Supreme Court that focus on the same topic. If the Innovation Act passes before the end of the term, it may prevent the Supreme Court from addressing the issue.

While the Innovation Act has received significant criticism, representatives from several large companies have spoken in favor of the legislation, particularly of provisions that would make post-grant procedures before the Patent Trial and Appeal Board a more attractive and lower-cost alternative to litigation. The White House has also signaled its approval. The debate is now raging in the Senate, where the bill is facing more opposition than in the House and must compete with a much more limited version that was introduced by Senator Patrick Leahy.

Stay tuned to future issues of Nutter’s IP Bulletin, where we will address any significant future developments regarding the Innovation Act.

This update was prepared by Nutter's Intellectual Property practice. For more information, please contact your Nutter attorney at 617.439.2000.
This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.

Maximizing the protection and value of intellectual property assets is often the cornerstone of a business's success and even survival. In this blog, Nutter's Intellectual Property attorneys provide news updates and practical tips in patent portfolio development, IP litigation, trademarks, copyrights, trade secrets and licensing.

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