Here is what the bill proposes to do:
1) "Loser Pays." In an attempt to dissuade patent holders from suing infringers, H.R. 9 will automatically require plaintiffs to cover legal expenses of the defense if their suit fails. In addition, should the patent holder not be able to cover these costs, investors in the patent holder can be found liable for these expenses. By the same token, plaintiff's do not have this risk and can mount as many defense arguments as they like without fear of having their own weak arguments cost them money. What does this mean?
- Defendants already have the ability to file for legal fees if they can make a case that the lawsuit was without merit. Making this automatic presumes that all failed suits are because they are "baseless" and without merit. This is not the case. It may turn out that after weighing all of the evidence, an infringement accusation may be refuted by a competent judge and jury but the basis for the suit was still reasonable. This happens in civil cases all the time.
- Patents have long been an important consideration for early-stage investors. The competitive advantages they create give a startup the chance to get a head start thus creating upside potential for venture capitalists and "angel investors." These investors by definition have more money than the startups they fund, but they are not going to be willing to expose their other assets for the sake of a startup in which they have made a small investment. For this reason, investment in innovative technology startups will disappear.
- NOTEWORTHY: Google is one of the most active anti-patent companies in the world, and they invested more than $17 million in lobbying to kill the US Patent system in 2013. The irony is that without the patent system, Google would never have gotten off the ground. It's original two patents were what attracted investors, and it's aggressive enforcement of these patents gave it the headroom it needed to unseat the previously dominant search companies like Yahoo, Excite (remember them?), and AltaVista (IBM's early winner in the space). Google is promoting this bill because it does not want to be "googled" the way they did IBM and others.
2) "Increase specificity of infringement claims." H.R. 9 wants to require plaintiffs to describe exactly how a specific claim is being infringed when a suit is filed. Lack of specificity will be cause for dismissal. This is impossible.
- In technology, it is often only possible to see the end-product. Hardware companies often label their devices with warnings against unlawful attempts to reverse engineer their systems. Software terms and conditions nearly always prohibit attempts to de-construct code. The "Innovation Act" would require plaintiffs to violate these rules, terms and conditions creating a whole new liability. Think of this as saying "If you think your neighbor has stolen your wristwatch, you have to break into his house, take pictures, and prove it before you can bring your suspicions to the police."
3) "Delay discovery until post-claim construction." The anti-patent group does not even bother to justify this one - there is no justification. What does this mean?
- "Claim Construction" is the phase in a patent lawsuit where all parties agree to a definition of what, precisely, the asserted claims in an invention mean. For example, if I invent a new mousetrap that uses dog food as bait, claim construction would define exactly what is meant by "dog food" including ingredients, original intent, packaging, palatability, nutritional value, etc.
- "Discovery" is the phase during which the accusers can obtain detailed information from the accused about their current technologies, business practices, systems, etc. to substantiate or refute their allegations of infringement. Think of this as "permission to open the iPhone case to see what is inside." It currently happens prior to Claim Construction so that both parties have potential access to the same information and therefore an equal basis for arguing their version of what a specific claim means
- Delaying Discovery until after Claim Construction would mean that only the defendant will know these details at that time. This will enable them to argue for definitions that they know they do not infringe. In my earlier example, this would be like arguing that "dog food means anything edible that does not contain artificial ingredients" while knowing that their technology ONLY uses dog food treated with preservatives. A plaintiff would have no idea of this prior to Claim Construction and might not realize how important this is to their case.
- Bottom line - this provision would hand the defendants a "non-infringement" verdict before the case was even started.
4) "Patent Lawsuits are on the Rise." Not true. Lex Machina recently completed a study and found that patent cases are declining. Furthermore, most patent cases are not initiated by patent licensing companies or "Non-Practicing Entities" but instead by giant technology companies! The only people that this new law will deter from filing suit are small companies, independent inventors, and universities who simply cannot bear the risk or financial burdens created by this Act.
In a recent op-ed piece in the Wall Street Journal, John Chambers, CEO of Cisco argues that the Innovation Act is critical to our economy. He cites a case where Cisco spent over $10 million to defend a patent case and was successful in reducing the damages award to $0.10 per client. He uses this as an example of a "baseless" lawsuit. He wants us to overlook the fact that Cisco lost the suit and was found guilty of infringement. This means that the patents were valid and the plaintiff had good reason for filing suit. What Cisco really proved with this example was the power of giant companies to bully small ones through their superior access to capital, lawyers, and now lobbyists.
Google is issued an average of 10 new patents a day. They purchased Motorola primarily to obtain its extensive patent portfolio and immediately filed multiple suits against alleged infringers, including Apple. Cisco is a well-known "patent bully" and has a history of attacking upstarts and potential rivals with an avalanche of patent infringement lawsuits. H.R. 9 will do nothing to prevent these kinds of tactics. Only independent inventors, startup companies, universities, and innovation advocates will be impacted by this terrible law.
Please take a moment to write your Congress representative and tell them to vote against H.R.9.
