Wednesday, June 17, 2015

Is the proposed patent reform bad for small businesses?

As to patent reform, the Innovation Act of Congressman Goodlatte currently before the House is the same Innovation Act that passed the House in the last session, and includes the presumption of "loser pays". The PATENT Act, proposed in the Senate this session, responded to criticism of "loser pays," and modified the provision to make the situation more acceptable to smaller entities.

From within The Anti–Innovation Patent Act of 2015

Under the terms of the Innovation Act the losing party would have to pay the attorney’s fees of the prevailing party, unless the court finds that the positions taken by the losing party were objectively reasonable. This is a giant step beyond the PATENT Act that would allow a court to award attorney’s fees to the prevailing party if the position or conduct of the non-prevailing party was not objectively reasonable and, thus does not create a presumption of fee shifting. In either case, though, it alters the “American rule” that attorney’s fees should be borne by the respective parties absent exceptional circumstances. It ignores the recent Supreme Court decisions giving district courts greater discretion to award attorney’s fees. Indeed, courts have recently begun to grant more motions seeking attorneys’ fees. Fee shifting will likely deter legitimate owners of enforcing their patent rights by making the risk of enforcement prohibitively high.

Smaller companies also will be less financially able to enforce their patent rights. In order to finance a patent enforcement proceeding now, small firms with limited resources often turn to “funders” that agree to cover costs and expenses in return for a share of the recovery. The PATENT Act would let the defendant join individual “interested parties,” who have a financial interest in the patent, such as funders, and would make them personally liable to satisfy any award of attorney’s fees and expenses if the party owner cannot pay the award. This provision is likely to dry up most sources of patent litigation funding making it even harder, if not impossible, for small companies and individuals to assert their patent rights against infringers. In essence, by creating disincentives to enforce patent rights, Congress is providing certain large businesses with royalty free licenses.

The bills pending in Congress go far beyond what is necessary to address the limited abuse of the system by patent trolls. According to Dana Rohrabacher, (R-Calif.), the Innovation Act is “actually anti-innovation” and “in reality makes it harder for small inventors to protect their patents and easier for big corporations to steal them.” He added: “In all my years [in Congress] I have never seen a bill so deserving of the description crony capitalism.”

The piece concludes

The winners here would be large companies and corporations that will find it much easier to willfully ignore patent rights and be freed from having to pay royalties to patent owners. Apart for small patent owners, the loser will be the American public that will be deprived of jobs and new technology.

From a previous post on IPBiz:

An AP story notes that doughnut selling lawyers were partly to blame for the demise: A county commissioner who owns a doughnut shop and two lawyers who own a new Dunkin' Donuts on Panama City Beach turned against him ... After the lawyers threatened to sue, his bosses at the Florida Health Department made him remove the anti-fried dough rants and eventually forced him to resign, [Newsom] says.

This little story evokes themes in the story of patent reform, although the patent reform saga has added complexity. In patent reform, the big doughnut sellers (eg, IBM, Cisco) are complaining about the little doughnut sellers ("trolls") and are trying to implement "reform" to favor the big doughnut sellers, rather than to get rid of the doughnuts. The popular press would have the public believe that the little doughnut sellers are the only ones selling doughnuts, and that "reform" will get rid of the doughnuts. Anybody who actually advocated getting rid of the doughnuts would meet the same fate as Dr. Newsom, likely from doughnut selling lawyers. Furthermore, the position of the big doughnut sellers would do significant harm to smaller vendors, who aren't selling doughnuts at all.


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