Patent reform bill passes the house 325 to 91. Here’s what you need to know.

December 5, 2013

Update: At 1:13 p.m., the House passed the Innovation Act by a vote of 325 to 91. More Democrats than Republicans opposed the legislation, but the legislation enjoyed large majorities in both parties.

Original post: Right now on the House floor, members are considering H.R. 3309, the Innovation Act. Sponsored by Rep. Bob Goodlattee (R-Va.), the legislation is designed to rein in the growing problem of patent trolls, companies who make no useful products themselves but profit by threatening other companies with lawsuits.

What's in the bill? Who's behind it? And what happens next? Read on for details.

Wait, why is Congress working on patent legislation? Didn't they just pass a patent bill?

It's true: Congress passed the America Invents Act in 2011. The day that legislation passed, I described it as "mostly pointless," arguing that "almost all the serious reform ideas wound up on the cutting room floor." Instead, the legislation made a number of technical changes to the patent system, most significantly a switch to a "first to file" (as opposed to "first to invent") rule for granting patents. But it didn't do much to address the problems of low-quality patents and frivolous patent litigation.

In the two years since the AIA was enacted, patent litigation has exploded. More and more firms are acquiring broad patents not to use the technology but rather to extract licensing fees from companies that infringe the patents accidentally. And these "trolls" have moved beyond targeting the conventional technology companies. Increasingly, they are suing restaurants, supermarkets, airlines, casinos, real estate agents and other brick-and-mortar businesses. So a number of industry groups that weren't traditionally involved in patent debates have begun agitating for patent reform.

The political climate has changed so quickly that barely two years after President Obama signed the America Invents Act, there's serious momentum for another major patent reform bill.

How does the bill being considered in the House today try to improve the patent system?

The Innovation Act's provisions have a common theme: making procedural changes to the patent system to discourage the tactics preferred by trolls. The major provisions are these:

Require specificity in patent lawsuits. Right now, patent plaintiffs can file lawsuits that are vague about exactly how the defendant allegedly infringed the plaintiff's patent. That makes it easier for trolls to sue many people without doing their homework. The bill would require lawsuits to be more specific.

Make patent ownership more transparent. Patent holders sometimes form shell companies to engage in troll-like behavior. To discourage this, the Innovation Act requires patent plaintiffs to name anyone who has a financial interest in the patent being litigated.

Make losing plaintiffs pay. The Innovation Act makes it easier for a victorious defendant to recover the costs of defending against an unsuccessful patent lawsuit. Also, if a losing plaintiff cannot pay, the bill would allow a judge to order others who had a financial stake in the plaintiff's lawsuit to join the lawsuit and pay the defendant's legal fees.

Delay discovery to keep costs down. A big reason patent lawsuits are so expensive is that plaintiffs often force defendants to produce millions of pages of e-mails and other internal documents to help them build their case. The Innovation Act would delay this phase of the litigation process until after the courts have addressed legal questions about the meaning of patent claims. Hopefully, that will allow more frivolous lawsuits to be resolved before defendants have racked up huge legal bills.

Protect end users. A common troll tactic is to sue end users (such as coffee shops offering their customers WiFi access) rather than technology vendors (such as the manufacturer of the WiFi equipment). These small-business defendants can often be intimidated into paying regardless of the merits of a plaintiff's case. The Innovation Act allows technology vendors to step into the shoes of their customers and fight lawsuits against trolls on their customers' behalf.

Is that going to fix the patent troll problem?

The legislation will rein in the most egregious trolling tactics. Fly-by-night companies that send demand letters out to thousands of targets hoping to extract nuisance settlements are likely to find the Innovation Act a significant barrier. The ability of manufacturers to defend their customers against frivolous patent lawsuits could be particularly powerful, and the loser-pays provision will make frivolous patent lawsuits more expensive in general.

But legal scholar Brian Love argues that these "bottom feeder" tactics are only half of the patent troll problem. The other half is that there are a huge number of low-quality patents in existence, and right now there isn't a quick and cost-effective way to invalidate them. Larger and more sophisticated trolls acquire broad patents and use them to seek large checks from deep-pocketed technology companies.

An earlier version of the Innovation Act expanded an awkwardly named program called the "Transitional Program for Covered Business Method Patents." In plain English, the CBM program provided a fast-track process for knocking out low-quality patents. But opposition from software companies with large patent portfolios, including Microsoft and IBM, led to that language being removed from the bill.

Who favors the Innovation Act?

The Innovation Act is sponsored by Bob Goodlatte, chairman of the House Judiciary Committee. That committee approved the legislation by a broad 33 to 5 margin. The legislation enjoys the support of the White House.

The proposal also enjoys broad support from the technology sector. Internet companies such as Google have been a driving force behind the bill. Microsoft had opposed the CBM provision of the bill. But the company is now expressing support for the legislation after that provision was removed.

The proposal is also supported by a wide variety of brick-and-mortar industries that have become frustrated by patent threats. These include restaurants, retailers, realtors, casinos, airlines and more.

Who is trying to stop the legislation?

As I noted above, five members of the judiciary committee voted against the legislation. That includes Rep. John Conyers (D-Mich.), the committee's top-ranking Democrat. He and Rep. Melvin Watt (D-N.C.) have become the legislation's leading critics. "While we support measured and balanced changes to respond to the most egregious practices involving patents, we do not believe that this legislation should become a vehicle to pass far-ranging changes to the litigation system, such as limits on pleadings and discovery, and intrusive mandates on the court system," the two members of Congress said in a Nov. 19 statement.

Conyers and Watt are supported by a number of groups that have traditionally favored strong patent protections. Groups expressing concerns about the Innovation Act include  patent lawyers, the biotechnology and pharmaceutical industries and the Intellectual Property Owners' association. Surprisingly, universities have also spoken out against the legislation, warning that it could harm their patent-licensing revenues.

What's happening today?

The legislation is being considered by the full House of Representatives. The House will consider eight possible amendments to the legislation. One amendment from Rep. John Conyers would completely replace the text of the bill with an alternative that supporters of the Innovation Act say would dramatically weaken the legislation. Given the lopsided vote for the Innovation Act by the Judiciary Committee, this amendment seems like a long shot.

According to The Hill, two amendments have a decent shot at passing. One comes from Rep. Jared Polis (D-Colo.) that would require greater transparency in demand letters (letters from patent owners to those accused of infringement). The other, from Rep. Sheila Jackson Lee (D-Tex.), requires a study on the economic impact of the legislation.

Once the amendments have been considered, the full House will vote on the bill. Given the lopsided 33 to 5 vote in favor of the legislation in the Judiciary committee, the legislation is likely to sail through the full House.

What happens next?

The Senate still need to pass companion legislation, which is likely to be sponsored by Sen. Patrick Leahy (D-Vt.), chairman of the Senate Judiciary Committee.

The big fight is likely to be over expanding the Covered Business Method program to invalidate low-quality patents. That program was originally created by Sen. Chuck Schumer (D-N.Y.) in the 2011 America Invents Act, and Schumer is expected to push for language expanding the CBM program to be included in the Senate companion to the Innovation Act. That would spark another lobbying war between supporters of the CBM program (such as Google) and opponents (such as Microsoft and IBM).

If legislation passes the Senate, then the House and Senate bills will need to be reconciled by a conference committee and sent to President Obama's desk for a signature.

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Andrea Peterson · December 5, 2013