Be careful tinkering with patent law

When the Senate returns from its current recess the Judiciary Committee is expected to take up a bill by Chairman Patrick Leahy (D-Vt.) to deter plaintiffs from using patents for the primary purpose of bullying defendants into paying them off to go away.

Patent cases are heard only in federal courts and are expensive. Average legal bills for a case going all the way through trial are about $2.5 million for each side. Knowing this, it is usually cheaper for a defendant to settle very early than to pay the attorneys’ fees necessary to mount a full-fledged defense. Plaintiffs who bring frivolous cases are often called “patent trolls.” They acquire patents for the sole purpose of intimidating defendants in infringement lawsuits into early – and for them – lucrative settlements. 

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Sen. Leahy’s “Patent Transparency and Improvements Act,” addresses this problem head-on by requiring full disclosure of who really owns the patent and makes it an “unfair trade practice” to threaten an infringement suit without a reasonable basis. The Senator gives the Federal Trade Commission enforcement authority and also protects customers of defendants who are sometimes brought into the case to put greater pressure on the defendant for a lucrative settlement. His bill is a thoughtful and appropriate legislative response to the problem of frivolous patent litigation.

Also pending in the Senate is a House-passed bill that goes much further and would cripple the ability of inventors to prevent infringement of patents they have earned through their own hard work and genius. And just because an inventor works alone or for a small company should not brand him or her as a “patent troll” when seeking justice. American competitiveness today rests on the inventiveness of individuals with the talent and drive to fuel a startup that can shake up an industry and the world. For them patents and their ability to enforce them are fundamental to get the financial backing necessary to transform their dreams into reality. Patents also enable well-established companies, especially small and medium sized enterprises, to meet the challenges of global competition by preventing up-start foreign competition from unfairly competing through intellectual property theft.

Inventors in university labs also account for many of the most important breakthroughs in applied technology. The only way their inventions reach the marketplace is when their patents are licensed, either to a spin-off company or to an established firm with manufacturing and marketing capability. The ability to enforce university patents in federal court is a cornerstone of this process. When universities bring lawsuits they have a high success rate and, according to recent studies, receive the highest damage awards. They can never be thought of as patent trolls.

The House-passed bill would have an additional chilling effect on small businesses and universities by burdening them with the obligation to pay defendants’ legal costs unless they can prove they were justified in bringing the case. Since few small businesses have the money to litigate on their own, they can get justice only by sharing damage awards with their attorneys as an alternative to paying out of pocket. The prospect of having to pay the other side’s fees would dry up this source of funding for legitimate infringement suits. Only the rich would get justice. Moreover, since fewer than five percent of cases reach the point of final judgment, shifting the burden of paying costs would not deter true patent trolls whose strategy depends on getting defendants to agree to early settlements to avoid the costs of a full blown defense.

The House bill also imposes severe limitations on the ability of a plaintiff to obtain evidence to prove their case. It limits this process – known as discovery – until very late in the litigation. Until then the plaintiff may seek only the information necessary to define the terms describing the invention. Yet, it is often necessary to have access to technical documents and other information to fully evaluate the merits of a case. The bill also requires the federal judiciary to establish rules making it harder and more costly to obtain information stored in electronic formats when such information may be vital to assessing testimony or assertions of fact made by the other party. 

Another pending bill, sponsored by Senator Schumer, extends and expands a program that was originally designed to address a narrow quirk in our patent system due to judicial decisions relating to financial business method patents.  The program allows broad challenges to these specific patents at any time for any reason. Challenges against other kinds of patents can only be initiated for a limited time at the beginning of a patent’s life. Senator Schumer’s bill would expand and make permanent this limited program to cover a much broader class of patents. This would create unintended uncertainty for breakthrough, hard technologies and could stifle investment in important innovation essential to American competitiveness. Prudence suggests going slow on this and letting the experiment directed at financial business methods play out before making more drastic changes.

In contrast to other countries where parliaments legislate the details, our system is simple and elegant. The Congress passes broad legislation based on Constitutional principles and the courts tailor Congress’s instructions to meet the ever changing circumstances of technological innovation as previously unseen advancements take place. The federal appeals court with jurisdiction over patent matters has done an excellent job tailoring the law to fit changing circumstances. Through its rule-making power and through precedent the Court has adequate power to address abuses of the discovery process and to shift the burden of paying fees where appropriate.

Further, less than three years ago Congress undertook the most comprehensive revision of patent law in over 60 years by passing the America Invents Act. That Act greatly enhanced the ability of all parties affected by a patent to seek post grant review by the US Patent and Trademark Office. This was intended to weed out questionable patents of the kind that result in abuses of infringement litigation. So far more than 1000 patents have been subjected to review, many of which have been asserted in the kinds of suits to which the current legislation is directed.

American patent law, grounded in the Constitution, has been the bedrock on which our country’s technological edge has rested for over two centuries. Over those years Congress has been careful in tampering with this engine of economic growth. Senator Leahy’s Patent Transparency and Improvements Act is in this tradition and deserves favorable consideration. The Senate should exercise caution, give the courts time to address alleged problems and allow the 2011 America Invents Act to achieve its intended effect before considering the more drastic response developed in the House of Representatives.

Lehman is former assistant secretary of Commerce and commissioner of Patents & Trademarks 1993-1999.