Goodlatte Could Introduce Patent Overhaul Bill This Fall, Lobbyists Say After Discussion Draft Released

The latest draft includes new provisions that would offer protection from patent litigation lawsuits to end-users purchasing devices or other patented goods. It would expand a Patent and Trademark Office program, the covered business method review, that allows for easier challenges to patents that might be too broad. Much of Goodlatte’s latest draft mirrors the discussion draft he put forward in May (CD June 3 p7), which would require the plaintiff in a patent infringement suit provide detailed information on the suit’s claims, as well as the identities of the patent’s owner and any parties with financial interest in the patent. It would also allow defendants to bring into any suits involving a patent any companies that have sold that patent but have maintained a financial interest in it. It would require each party to be responsible for core evidence discovery costs and it would include a more aggressive “loser pays” provision that shifts fees to the party that loses the infringement suit.

Groups that have been outspoken critics of what they see as abusive patent litigation cheered the discussion draft for making it more difficult for nonpracticing entities to bring frivolous suits, and for making it easier for defendants to fight back against what could be costly litigation. “The real bottom-feeder trolls are going to find these provisions very challenging, because they file lawsuits without doing due diligence, without giving details about how people infringe their patents, and rely on the expense of litigation to create settlement pressures,” said Daniel Nazer, Electronic Frontier Foundation staff attorney. “There’s a lot of good stuff here that will make abusive patent litigation, particularly from nonpracticing entities, more difficult.” Tim Sparapani, Application Developer’s Alliance vice president-law, policy and government relations, said he’s enthusiastic about the bill, which “contains a series of important reforms, which if enacted, could substantially reduce the economic incentives for people to engage in patent troll activities.” The proposal emphasized provisions that would make it harder for a company to enforce a patent and then quickly sell the same patent to another company that could again enforce it, said the Judiciary aide. Under the latest proposal, the aide said, people will know instantly if the patent has already been involved in litigation.

Sparapani, Nazer and others praised certain provisions, modeled on those in a bill introduced in May by Sen. John Cornyn, R-Texas, that would require plaintiffs to disclose more information. “Everything that can be done to give or mandate that more information be provided sooner from the entity alleging infringement to [the defendant] allows for the recipient to make a better, earlier decision about whether or not they might have infringed,” Sparapani said, and whether the recipient should seek counsel. Patent litigation critics also praised provisions that would require, rather than suggest, the U.S. judicial conference to develop rules about how to reduce discovery costs for defendants involved in patent litigation. Asymmetry in those discovery costs allows nonpracticing entities to “wound companies,” Sparapani said, adding that new rules could offer a “dramatic improvement” for the startups he represents.

Nazer and Levy said the draft could do more to address the software patents at the heart of the issue. “There’s not much in there to really get at the root of the problem, which is the flood of really low-quality, overly broad software patents,” Nazer said. Studies sought in the bill could help pinpoint the issue, but wouldn’t fix much, he added. It doesn’t look as though “there would be really big reform as to how the PTO reviews patents. Most of the dialogue is really focused on litigation reform,” he said. Russ Merbeth, chief policy counsel for the patent assertion entity (PAE) Intellectual Ventures, agreed. “We don’t think that the majority of this bill or any of the other bills actually addresses the reported problem” of low-quality patents, he said. Unlike Levy and Nazer, he said Congress should accordingly slow down its efforts at changes until it could find a solution to the reported problem.

The draft focuses on abusive patent litigation because legislation is the best way to deal with those issues, said the Judiciary aide. The aide said there are several ways in which the proposal will provide the PTO with more flexibility to address patents, including in provisions dealing with the covered business method review, which have been criticized by major companies including Adobe, Qualcomm and Microsoft (CD Sept 20 p9). The aide said the proposal attempts to give the PTO the most possible discretion to reexamine nontechnological patents under Section 18 of the America Invents Act, while still allowing the agency to quickly determine which patents are technological and which are not. Charles Duan, director of the Patent Reform Project at Public Knowledge, said the proposal struck a balance between “doing nothing,” with regard to covered business method review, and expanding the program very broadly, as does a bill put forth by Sen. Charles Schumer, D-N.Y., in May (http://1.usa.gov/1b35Khf).

Unlike the May discussion draft, Goodlatte’s latest proposal doesn’t include a provision aimed at addressing the use of demand letters, which critics say PAEs send to scare companies into licensing agreements. Matt Levy, patent counsel at the Computer and Communications Industry Association, said the provision was popular with those who criticized nonpracticing entities. Duan agreed, noting that the demand letter issue was one of the most widely known and understood in the area of patent abuse. Sparapani said any bill targeting patent assertion would need to add the earlier demand letter provisions “and then some” before heading to a final vote. The Judiciary aide said that the specific issue had been removed because it was too hard to legislatively define “demand letter.” Letters about normal licensing arrangements or even some general business agreements could fall into the category, he said, making it difficult to use them as a trigger for transparency requirements,as the first draft had intended. He said the area was one where the FTC could play a bigger role because it had the flexibility to determine which letters to regulate, and noted that Goodlatte would be watching to see how the commission might deal with the issue.

Several lobbyists criticized the bill for failing to provide further resources to the PTO. Todd Dickinson, president of the American Intellectual Property Law Association, pointed to requirements in the language that the PTO direct several studies on patent litigation and patent quality within several months of passage. The resource-strapped PTO could be hard pressed to achieve such results, he said. “To put these burdens of studies on the PTO without the resources is not fair.” Exempting the PTO from sequestration, as does the bill offered by Rep. Mike Honda, D-Calif., would have been the “single most important thing they could have done to fix the issue of low-quality patents,” said Dickinson. Merbeth said the proposal doesn’t address the real problems if it doesn’t provide better resources to the PTO. “If the problem that people complain about is based on purportedly low-quality patents being issued too frequently by the PTO, why wouldn’t we appropriately resource the PTO to avoid that sort of thing upfront?” he asked.

Sparapani said the issue wasn’t contentious. “Everybody wants the PTO to be fully resourced,” he said. “Our industry benefits dramatically when there are enough examiners to review patents in a reasonable amount of time and give them a full review.” The Judiciary aide acknowledged the importance of a well-resourced PTO. Such an issue would be the purview of the Appropriations committees or the Office of Management and Budget, which determines how the PTO is subject to sequestration and how the funds it receives for patent applications are distributed, he said.

Merbeth said Goodlatte and others in Congress were moving too quickly on an issue that required further study. “There’s not a lot of good, reliable data, at least not supporting a move toward heavy regulatory, prescriptive measures,” he said. “We'd like to see Congress take it a little bit slowly here and seek more data on the proposed problems, which we don’t think the legislation, even this, really goes very far in addressing.” He said none of the drafts or bills in consideration addressed the problem of low-quality patents, and none addressed the demand letter problem. “If the proposed solutions don’t match the reported problem, we think that’s a reason not to move very quickly on the proposed solution,” he said. Goodlatte’s discussion draft is an improvement over the first, but would still create problems for legitimate patent holders seeking to protect their intellectual property, said Merbeth. “We're still concerned though that it’s overly regulatory, and that it would impose a lot of additional costs and burden on the enforcement of legitimate patents by all holders large and small.”

Both sides of the debate applauded Goodlatte for his work on the drafts. Duan said the bill’s language made it clear Goodlatte and his staff had listened to a number of interested parties on both sides of the debate. Dickinson agreed, saying that “there’s a lot of concern about unintended consequences, about breadth, and about collateral damage, and they've got to hear from the widest range of stakeholders.” Merbeth is “very happy,” about the process Goodlatte’s office had followed, he said. “He’s been very inclusive and solicitous of industry input, and I believe that they incorporated some of the provisions we proposed to them when we went in and met about the original draft. All of that’s very encouraging.”