Patent Reform Bill A Good Step, But Still Falls Way Short Of Fixing A Broken System

As was widely expected, earlier this week, a bunch of high-profile Senators introduced a big patent reform bill, known as the Protecting American Talent and Entrepreneurship (PATENT) Act. It’s backed by Senators Chuck Grassley, Patrick Leahy, Chuck Schumer and John Cornyn, and has a decent chance of becoming law. From a quick look at the bill itself, it looks an awful lot like what we expected to show up last year, right before Senator Harry Reid stepped in and killed the bill. With the Republicans taking over in Congress, however, Reid no longer has the power to do that. Meanwhile, Schumer, who has long been supportive of patent reform and is basically taking over Reid’s leadership position as Reid prepares to retire, has declared that this time the bill is getting done.

That’s all good. The bill is a good start. But, unfortunately, it’s not nearly enough. It does target some of the symptoms of the problems of the patent system, but does little to fix the underlying causes. The bill targets the worst of the worst: the patent trolls who thrive on shaking down companies. Specifically, the bill aims to do a few key things:

  1. Fee shifting on ridiculous lawsuits: It would allow for attorneys’ fees to be awarded if the patent holder was not “objectively reasonable” in filing the lawsuit. The Supreme Court has already made it easier for courts to award attorneys’ fees, but this would slide the scale over a bit in a helpful way. This certainly increases the risk for patent trolls who have no real case.
  2. Limiting discovery: Defending a patent lawsuit is crazy expensive. We often hear stories of it costing like a million dollars just to get to trial. And one big expense is “discovery,” in which the patent holder gets to ask for all sorts of information from the company its suing — emails, plans, source code, etc. This process is super expensive and there’s not much you can do about it. It often starts pretty quickly after a lawsuit is filed as well. This new bill would put limits on early discovery, allowing those sued to seek motions to dismiss the case altogether or to transfer venues. That could decrease the early cost, taking away some of the pressure on defendants to just settle, and giving them more ability to fight back against bogus claims.
  3. Limits vague demand letters: The patent troll’s weapon of choice is often to send totally vague demand letters, insisting companies infringe without telling them how. It also makes it easier for the FTC to go after those who send such bogus threat letters.
  4. Protecting some end users: We’ve highlighted plenty of cases where patent holders sue those who make devices or software, and then sue a variety of end-users as well. This bill, in a fairly limited way, would put those kinds of lawsuits on hold until the manufacturer can fight the infringement in court. But this only counts if the troll also has sued the manufacturer. So it’s a bit limited.
  5. Transparency: The bill would make it harder for trolls to hide behind shell companies. This is a fairly big deal, as many patent trolls have a series of shell companies, and often you have no idea who really owns the patent. The bill will also require actual lawsuits to be a lot more clear in terms of what they’re actually suing over and why the defendant infringes (and what it infringes).

These are all good things, but it’s unlikely to truly be enough. Missing, unfortunately, is the expansion of a program that would allow the patent office to do a faster review of crappy patents, known as the covered business method (CBM) process. This is too bad — as this was an idea that Schumer had been a strong champion for, but which Microsoft and IBM pushed back very hard on, as they HATE the idea that the USPTO might start invalidating their crappy patents with a quick review.

Yet, as Schumer knows well, this CBM tool has proven tremendously effective in dumping a bunch of crappy financial services patents. Hell, just this week, DataTreasury, a massive trolling operation that has received over $350 million in settlements had its key patents invalidated via a CBM review. It’s too bad that program couldn’t have been expanded. Blame Microsoft and IBM.

But there are a lot of other problems that the new bill doesn’t touch at all. Yes, it may shut down the worst of the worst in trolling, but will still allow plenty of bad situations to flourish. Bad patents will still get through and be used to hinder innovation. The new bill does absolutely nothing to address the situation with independent invention either, and that’s a major problem in the patent space.

Either way, even with this incremental fix, it’s likely we’ll see a bunch of ridiculous claims that the above changes in patent law will somehow harm inventors, though, I can’t see how that’s true. As long as you’re transparent and upfront with how the infringement happens, and don’t file “objectively unreasonable” lawsuits, it seems like patents are still a powerful tool to demand money from companies.

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