Patent rights in the United States have been steadily eroding for a number of years. Decisions by the Roberts’ Supreme Court and the four-year old America Invents Act have substantially weakened the rights of patent owners. Now, Congress is on the verge of passing major revisions to the Patent Act, which, if enacted, would be a blunder of historical proportions and would pose a threat to American innovation. Large corporations have been able to convince Congress and the public, through a well-funded, organized and misleading PR campaign, that innovation is being threatened by patent troll, entities that abuse the system by extorting settlements and by bringing frivolous lawsuits. Indeed, the opposite is true. Without strong patent protection, venture capitalists and other investors will no longer want to take the risk of investing in companies whose value is based on technology that is difficult to protect under U.S. patent law. Many large universities that depend on revenue from licensing their patents to make up for decreasing federal funding will have significant financial short falls. Technology will suffer and jobs will be lost.
At a basic level it is not clear whether there is even a legitimate issue that needs to be addressed. Ostensibly, the PATENT Act in the Senate and the Innovation Act in the House are aimed to curb the practice of patent trolls, which, among other things, has allegedly caused a large increase in patent litigation and, consequently, imposes an unnecessary cost on legitimate businesses. However, the evidence suggests that patent litigation is actually on the downswing According to a recent Pricewaterhouse Coopers patent litigation survey the number of patent cases filed in 2014 dropped 13% as compared to 2013, after doubling between 2009 and 2013.
Further, the proposed legislation is not narrowly targeted: there are, at least, three areas of concern that will severely curtail the patent rights of startups, single inventors and universities and would cause damage to the American economy. Both bills require a degree of pleading in patent complaints far beyond what is legally mandated and would require that patent complaints include a claim chart illustrating the theory of infringement for each asserted claim against each accused product. This would make it extremely difficult for many plaintiffs to bring suit because the full extent of infringement is often difficult to determine solely from publicly available information and without formal discovery. Conducting this due diligence would also be very expensive. Apart from being unduly burdensome and costly, it would also mean that patent complaints could easily be hundreds of pages long making it even more difficult and time consuming for federal judges, many of whom already find patent cases to be overwhelming. Finally, it would lead to extensive motion practice and delays over the sufficiency of pleadings, which would be very costly for both parties and would impose a greater burden on the already over-taxed federal judiciary.
Historical records also establish that strong patent protection leads to increased innovation by creating a financial incentive for investment in new technology. It is indisputable that parties are more likely to invest in new technology where they are more likely to obtain a high return. Conversely, venture capitalists and private investors are less likely to invest in companies where the technology that is created cannot be adequately protected. But that is exactly what the proposed legislation would do by significantly increasing the cost of enforcement, which would devalue patents and, in turn, lead to the reduction of investment and the loss of jobs.
Both of the bills also would alter the “American rule” that attorney’s fees should be borne by the respective parties absent exceptional circumstances and ignore the recent Supreme Court decisions giving district courts greater discretion to award attorney’s fees. Indeed, courts have recently begun to grant more motions seeking attorney’s fees. Fee shifting will likely deter legitimate owners of enforcing their patent rights by making the risk of enforcement prohibitively high.
Smaller companies also will be less able to enforce their patent rights by making it harder to obtain litigation funding. At present, in order to finance a patent enforcement proceeding small companies with limited resources often turn to “funders” that agree to provide funds to pay costs and expenses in return for a share of the recovery. The PATENT Act would permit the defendant to join individual “interested parties,” who have a financial interest in the patent, such as funders, and would make them personally liable to satisfy any award of attorney’s fees and expenses if the party owner cannot pay the award. This provision is likely to dry up most sources of patent litigation funding making it even more difficult, if not impossible for small companies and individuals to assert their patent rights against infringers. In essence, by creating disincentives to enforce patent rights, Congress is providing certain large businesses with royalty free licenses.
The bills pending in Congress go far beyond what is necessary to address the limited abuse of the system by patent trolls. Congress should wait until the full impact of recent Supreme Court decisions have had a chance to play out. The effect of these decisions may be far greater on the patent system than currently understood and patent rights may need to be strengthened rather than weakened. Instead of waiting, Congress appears to be rushing into uncharted waters without a map and is risking harm to the U.S. economy. The proposed legislation would make it vastly more expensive, risky and slower to litigate a patent case. The value of patents and the incentive to invest in new technology will go down. The winner will be large companies and corporations that will find it much easier to willfully ignore patent rights and be freed from having to pay royalties to patent owners. Apart for small patent owners, the loser will be the American public that will be deprived of jobs and new technology.