One section of the House’s patent reform bill has the potential to limit investment in start-ups, U.S. Patent and Trademark Office (USPTO) Director Michelle Lee told lawmakers on Tuesday.
In prepared testimony to the House Judiciary Committee, she recommended a small clarification that would give investors and venture capitalists clarity that they would not be on the hook during patent infringement litigation.
“Individual investors, for example, may not be willing to invest in a start-up company if the risks of doing so included not just the loss of their initial investment, but also personal liability to the investor for the company’s subsequent patent litigation decisions,” she said in prepared remarks.
Lee said her office “generally supports” the major provisions of the Innovation Act, which is aimed at thwarting companies who bring vague or abusive patent infringement lawsuits in the hope of scoring a settlement.
“Upon careful consideration of these issues, and in light of the changes that have happened in the patent system, the USPTO believes that legislation to curtail abusive patent litigation is necessary and appropriate at this time,” she said.
Lee expressed general support for provisions of the bill that would increase pleading requirements and require the losing party of abusive litigation to pay the winner’s legal fees, as well as another provision called customer stay that would delay litigation against a seller of a product until a lawsuit against the manufacturer is finished.
She did, however, make small suggestions on the customer stay, fee-shifting provision and discovery provisions. On the fee-shifting provision, Lee said the winning party should “bear the burden of demonstrating that it is entitled to such an award.”
The “joinder provision” that Lee recommended tweaking has been a cause of concern with critics of the bill, along with the fee-shifting provision.
Those two provisions are meant to work hand in hand, allowing courts to go after a patent troll’s parent company or other interested parties if it is not able to pay the court fees resulting from a losing lawsuit.
Lee said it is important to clarify who would be on the hook. At the moment, she said, it is unclear if that liability would extend to either the inventor or passive investors that do not have authority over litigation.
“While there seems to be general agreement on these principles, implementing them through legislation is difficult,” she said.
Chairman Bob Goodlatte (R-Va.) and a bipartisan group of lawmakers reintroduced the bill in February. The legislation passed the House last Congress, but reform got caught up in the Senate at the time.
In an opening statement, Goodlatte said the committee would “continue to work to perfect” some provisions of the bill. He has also expressed hope of quickly moving the bill.
The Senate is working on its own proposal.
Tuesday was the first time Lee has testified before Congress since being officially sworn in last month. Her testimony represented her broadest statement on the bill since its introduction.
The Obama administration as a whole has supported congressional action on patent reform.