The patent reform debate is finally becoming reacquainted with facts and data, particularly regarding H.R. 9, the so-called “Innovation Act,” on which a vote was scrapped before the August recess in the House of Representatives and which now seems less likely to see floor action this year. As members of Congress and their leadership learn more about this bill, they are increasingly recognizing the damage it would inflict on the American innovation economy. Purporting to club “patent trolls,” H.R. 9 veers dangerously beyond that objective by failing to make distinctions between trolls and legitimate patent holders, thus risking serious harm to the U.S. economy’s most important sources of innovation and job creation, including universities, small inventors and venture capitalists.
In today’s global economy, eroding patent rights creates unprecedented risk. If Washington is oblivious to the long-term damage of H.R. 9, the rest of the world is not. Overseas competitors of U.S. firms are gleeful at the prospect of copying the fruits of American innovation with impunity, while countries attempting to spur innovation by emulating the American system of strong inventors’ rights are dismayed with our undermining the world’s gold standard for intellectual property.
Given the global stakes, facts and data must shape the debate. Genuine assessment of the evidence will enable policymakers to tailor solutions to the problems that exist, not those that are imagined.
Since 2013, anti-patent advocates have decried “unprecedented” levels of patent litigation and “out-of-control” lawsuits. This narrative simply isn’t true, as judicial statistics demonstrate. In 2014, patent suits declined by 18 percent, while the number of litigants in new lawsuits declined 23 percent to the lowest level since 2009. The so-called post-2011 litigation “surge” is a clerical distortion, the result of new procedural rules in the 2011 America Invents Act (AIA) that require treating one lawsuit against multiple defendants as many suits.
The first half of 2015 brought a partial rebound in patent suits, prompting advocates of H.R. 9 to double down on the skyrocketing litigation myth. But the reality is that patent litigation has held steady at about 2 percent of issued patents for more than 200 years.
Beyond the courts, new streamlined post-grant review proceedings created by the AIA have attracted a surging number of challenges to issued patents at the U.S. Patent and Trademark Office, with more than 3,600 challenges as of Aug. 1. Data suggest the new system is easing the volume of patent litigation in district courts, where judges are granting motions to suspend litigation pending the outcome of post-grant proceedings at a rate of 86 percent. The AIA represents just one development making H.R. 9’s drastic measures unnecessary. In fact, correction is needed in the other direction to ensure the AIA post-grant procedures are not abused, for example, by curtailing speculative stock shorting tied to reviews brought against biopharma patents.
Recent court decisions, as well as the upcoming implementation this fall of rule changes by the Judicial Conference, will further curb abusive patent litigation. Among the rule changes is the elimination of Form 18, which allowed for bare-bones complaints requiring little more than the names of the parties and the date of the patent. With the upcoming changes, claimants will find it even harder to bring unspecific suits in the hopes of extracting nuisance value settlements.
Among the harmful proposals in H.R. 9 is a provision that would mandate a “loser pays” system for attorney fees—taking such judgments out of the hands of judges and isolating patent litigation from all other American jurisprudence, which has rejected this approach. “Loser pays” would deter legitimate patent holders with limited means from enforcing their rights because the financial risk of a loss would be too great. Moreover, recent Supreme Court decisions have already made it easier for judges to award attorney fees to the prevailing party in patent litigation.
Another ill-considered proposal is H.R. 9’s “covered customer stay” provision. Perhaps the most radical proposal in the bill, this provision is in theory aimed at dismissing “mere users” of potentially infringing technologies from litigation targeting parties higher up in the supply chain. But as it’s written, it could let any infringing party up and down the supply chain avoid trial for years and delay or deny justice to a patent owner. In some cases, such users are appropriately excused, but in many cases they are the infringing party. And federal courts already have and regularly use their authority to stay litigation against peripheral defendants.
H.R. 9 simply does not represent the measured, carefully calibrated reform required. A wide range of stakeholders across the U.S. economy (including labor organizations, conservative think tanks, academics, technology associations, venture capitalists and innovator companies large and small) have recognized this and voiced their opposition. With such broad concern expressed from so many corners of the innovation ecosystem, it is clear that Washington has made a wise choice by pivoting away from the unwarranted and short sighted legislation embodied by H.R. 9.
David J. Kappos served as Under Secretary of Commerce and Director of the United States Patent and Trademark Office from 2009-2013.