5 Notes on the Patent Troll Crushing 'Innovation Act' Bill

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By William Peacock, Esq. on October 24, 2013 1:08 PM

Finally, some bipartisan legislation, with a decent chance of passing, that addresses the issue of abusive patent trolls. Congress cooperating? And doing something useful? (Can I get an amen?!?)

House Judiciary Committee Chairman Bob Goodlatte, whose name oddly enough makes me crave Starbucks, introduced the blandly-named, but bipartisan supported, "Innovation Act," a bill that incorporates provisions from a number of prior attempts at patent reform litigation. (Tip to lawmakers: if you really want to attract attention, call it something like "The Patent Troll Extermination Act of 2013.")

For those not interested in perusing lengthy legislation, here are five things to know about the bill:

1. Shift to Fact Pleading?

To these eyes, the legislation appears to shift patent law into fact-pleading territory. At present, one only needs to assert infringement, and name the infringing product, in one's complaint. Under the new legislation, the patent holder will have to identify exactly what parts of the product infringe, and how.

2. Discovery Delayed

Until the claim construction phase of the patent lawsuit is complete, there will be no fishing expeditions into defendant companies' email, financial records, etc. Instead, discovery is limited only to materials related to the patent itself.

In theory, this should drastically reduce the cost of defending oneself in a patent lawsuit, unless, of course, the defendant loses the claim construction phase.

3. Nearly Fully British Fee Shifting

To the victor goes the spoils? Almost. The bill provides that the loser pays, unless they can show that their position "was substantially justified or that special circumstances make an award unjust."

It's British-style fee-shifting, with some grey area for those close-call cases where there was an actual, legitimate issue to be decided by the court, the kind not usually found in docket-clogging boilerplate suits filed by non-practicing entities (NPEs, a.k.a. trolls).

4. Shell Companies Get Shelled

Actually, to put it a bit more accurately, the parent company gets shelled. A common tactic by NPEs is to set up shell companies, "sell" the patents to those companies, and to take a cut of any successful payouts. If the company gets sued, well, too bad -- that's why shell companies, with little to no tangible assets, exist, right?

The bill makes anyone with a "financial interest" in the patents liable for those fabulous fee-shifting awards.

5. Missing Pieces

Two things stand out as problematic: the bill does nothing to curb mass demand letter mailing, and it may hurt legitimate patent plaintiffs.

One common business model for patent trolls is to send out thousands of demand letters to alleged infringers, especially end-users and mom-and-pop businesses that can't afford to hire a patent attorney. They gather small settlements from terrified consumers, often based on frivolous claims. This bill does nothing for them, though it's not clear what a solution to that problem might look like, other than state-by-state crackdowns, as seen in the recent "scanner" patent troll saga.

As for patent plaintiffs, especially small businesses, how appealing does it look to bring litigation against that infringing competitor? You may be pretty sure of the merits of your suit, but are you willing to risk the fee-shifted $2 million defense attorney's bill on it?

What do you think? Will the "Innovation Act" crush patent trolls, or terrify small businesses seeking to enforce their IP rights? Tweet us your thoughts @FindLawLP.

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