Issa Vows to Push Innovation Act in House With Strong Pleading Rule, No Big Changes

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By Tony Dutra

Feb. 11 — Opponents of the Innovation Act targeting patent litigation abuses who thought the new head of the House's IP subcommittee might give them some relief got bad news at a Feb. 11 conference in Washington.

“I inherited a bill with broad bipartisan support and I have no intention of watering it down,” Rep. Darrell E. Issa (R-Calif.) said a day before his subcommittee is scheduled to hold a hearing on whether recent Supreme Court decisions obviated the need for several provisions of H.R. 9.

The bill is identical to the one that passed the House in December 2013 by a vote of 325-91, he noted.

So opponents “must bring to me two, three or even four votes for every one we lose” for him to consider major changes, Issa said.

Several participants at the event—Patents in Theory and Practice: Implications for Reform, sponsored by the Technology Policy Institute—were disappointed that Issa took such a hard line.

Some seemed resigned to hoping that the Senate—which failed to agree on an Innovation Act parallel in the 113th Congress—will fix problems with a bill that will be “rammed through” the House.

Michelle K. Lee, deputy director of the Patent and Trademark Office, answering a question from the audience after a “fireside chat” focused on patent quality, hinted that the Obama administration believes “we need to have a conversation” about certain provisions, because there has been “a lot going on” since 2013.

Most participants agreed, but Issa's definitive tone took many by surprise.

Issa ‘Loser Pays' View Disputed

The Innovation Act was introduced Feb. 6 with the same lobbying battle lines that caused the Senate to give up in May.

Even by then the Senate was dealing with a “watered down” version of the House bill, but there is an open question about whether the change in the Senate to a Republican majority changes the dynamics.

The Innovation Act's most controversial provision is a change to the way a district court determines whether or not to award attorneys' fees to a prevailing party, “unless the court finds that the position and conduct of the nonprevailing party or parties were reasonably justified in law and fact or that special circumstances (such as severe economic hardship to a named inventor) make an award unjust.”

Other components of the bill include:

• a heightened pleading requirement;

• a joinder provision that would force the real party in interest on the patent ownership side to join the suit;

• a customer stay exception that would require the patent owner to litigate against the manufacturer that developed the allegedly infringing product rather than against customers; and

• a discovery provision that would allow district courts to limit early discovery and delay more costly discovery in patent suits.

 

“The most critical element under the Innovation Act is heightened pleading,” Issa said. “It will not be watered down,” he assured the audience. “Any other changes will be minor, but they may occur.”

Issa agreed to look more carefully at trying to address venue shopping problems, particularly as related to the customer stay provision. And he further vowed to consider an issue not currently in the bill—the question of whether the one-year grace period for a patent applicant has been eviscerated by the Patent and Trademark Office's interpretation of a “disclosure” during the grace period, a modification made by the 2011 America Invents Act.

But he parried a question about the “loser pays” provision, on whether that was still necessary in light of Supreme Court's Octane and Highmark decisions in April that loosened the definition of an “exceptional case” worthy of awarding fees.

Issa said that the provision is intended to shift attorneys' fees only in “egregious cases,” though most of the bill's opponents do not read it that way.

“If you shift the presumption, you are making a big change,” according to Laurie Self, vice president and counsel for government affairs at Qualcomm Inc., speaking on a panel after Issa had left.

Half-Hour Intro Preempts Three-Hour Discussion

The main point of the four-hour conference was, in fact, to allow academics and practitioners to have a “conversation” about the need for legislative action. But a few of the presenters began their talks asking whether Issa's half-hour opening had preempted their views.

“Our plea is that, if the House rushes to judgment, that we have an opportunity in the Senate to get this right, because the stakes are too high,” Self said.

Ron D. Katznelson, president of Bi-Level Technologies, criticized Issa's “watered down” comment, because the bill “is already watered down on the other side.”

By that he meant the asymmetry of the bill, requiring detailed pleading by the patent owner and no corresponding detail from an accused infringer filing a declaratory judgment action.

That plaintiff, he said, is only being asked to say: “Sorry, I'm not infringing; We'll do discovery and figure it out later.”

In general, the panel of four professors tried to draw conclusions from the limited research on the litigation behavior of the patent assertion entities—often pejoratively referred to as patent trolls—targeted by the legislation. But the studies they relied on conflicted in some ways.

A key problem for these researchers is the narrative that litigation has skyrocketed in recent years, but that the increase coincides with a change in the America Invents Act that limited a plaintiffs ability to join multiple defendants in the same legal proceeding.

Accordingly, Jay P. Kesan, a law professor at the University of Illinois, Urbana-Champaign, described a study that found “very little change in the number of patents asserted and the number of defendants asserted against,” with all of the change potentially attributed to the change in joinder.

But Timothy S. Simcoe, senior economist with the President's Council of Economic Advisers, said that other studies supported the conclusion that the joinder issue did not account for all the growth in litigation.

And Catherine Tucker, a management professor at the Massachusetts Institute of Technology, presented statistics on a separate economic impact—the decrease in innovation at companies involved in patent litigation lawsuits.

A practitioner panel featured a debate between Self and Katznelson on one side—representing patent owners for the most part—and those targeted by trolls on the other, but mostly driven by anecdotes.

Diane K. Lettelleir, senior managing counsel for litigation at J.C. Penney Co., for example, cited “simply unsustainable” “unprecedented costs,” mostly to litigate patents asserted against the firm's operations and not on the products it sells.

Qualcomm is a member of the Innovation Alliance, an advocacy group fighting to eliminate or “water down” many if not all provisions of the Innovation Act.

J.C. Penney is a member of the United for Patent Reform organization, a coalition of companies, associations and advocacy groups fighting to keep the Innovation Act intact.

PTO Quality Initiative a Long Term Partial Solution

The quality focus of Lee's chat with Gene Quinn, founder of the IPWatchdog.com blog, was welcome because quite a few of the anecdotes exhibited “the effects and the cost to society of a patent that should not have issued,” as Lee said.

Lee restated the details of a Feb. 4 PTO announcement of a new Enhanced Patent Quality Initiative intended, ultimately, to reduce the issuance of over-broad patent claims and force more clarity and precision in the claims allowed .

However, as Simcoe had previously noted, the question ultimately boils down to whether the PAE business model favors shelving commercialization of a innovation because the litigation costs are too high.

“The patent didn’t go from being good to being bad” because it was sold by the inventor to a PAE, he said. The question we should be addressing to maximize the value of innovation, he said, is to figure out the right balance: “How do we get the [litigation and commercialization] prices right?”

To contact the reporter on this story: Tony Dutra in Washington at adutra@bna.com

To contact the editor responsible for this story: Tom P. Taylor at ttaylor@bna.com