Tuesday, December 17, 2013

Senators are sympathetic to targets of dubious patent assertions but want focused reform

Today the Judiciary Committee of the United States Senate held a hearing on the Leahy-Lee patent reform proposal, "Protecting Small Businesses and Promoting Innovation by Limiting Patent Troll Abuse". After the recent fast-track passage of the Goodlatte bill by the House of Representatives, the key question at this juncture is what position the Senate will take on reform. The National Journal even wondered whether the current push for patent reform could survive the winter.

The purpose of this blog post is just to share my overall impressions of the debate. I will go into more detail on the substance of the Senate and House bills in the early part of next year.

Based on today's hearing, I believe patent reform will remain high on the agenda after this winter, and while there are calls by some politicians, such as Sen. Dianne Feinstein (D-CA), to take more time and hold more hearings, I think the push for reform has enough momentum that something will probably happen in 2014 -- but it won't be broad. There won't be a law unless the Senate and the House reach a consensus, a fact that Sen. Sheldon Whitehouse (D-RI) strongly urged reform advocates to consider. Sen. Whitehouse advised the reform movement to be flexible and not to "vindicate [its] ire at the deplorable conduct of these patent trolls at the expense of getting a bill through the Senate".

Wise words, and I think patent reform advocates have already learned their lesson in the House. In particular, they know that an expansion of the Covered Business Methods (CBM) program is a surefire way to delay and probably derail the process. Sen. Charles ("Chuck") Schumer (D-NY) delivered by far and away the most emotional speech at today's hearing. The witnesses (two panels) were all rather low-key, and so were almost all of the senators, except for Sen. Schumer, who still hopes to garner support for his proposal to expand the CBM program. He argued that patent litigation is a highway with two exits, both of which exact a high toll: settle or pay lawyers to defend yourself. He views an expansion of the CBM program as a "cost-effective off-ramp from the patent litigation highway", though this is debatable because it would still be quite costly to challenge a patent even on that basis. Sen. Schumer openly conceded that he's very emotional about this and called it a "shame that those who believe in valid patents so strongly defend the invalid patents", which he said he finds "appalling". But he recognizes his proposal is controversial. He looks ready to keep pushing for it after the winter. At this stage I think this effort is futile. It will be hard enough to build a consensus even without such a major league dealbreaker.

Just like in the House, there's awareness in the Senate for the importance of the patent system to the innovation economy. Politicians have received numerous letters from victims of dubious patent assertions, and there's definitely a lot of sympathy there and a will to act. Still, a broad majority doesn't want to enact any overreaching measures. Sen. Leahy's introductory remarks are online and reflect that spirit very well. And the co-sponsor of his bill, Sen. Mike Lee (R-UT), was also very clear about the need to proceed with caution.

There was some criticism of fee-shifting (by senators and witnesses), but it still looks like something that will happen. Even the chief IP counsel of Adobe, Dana Rao, who is definitely against overbroad reforms, argued very passionately for fee-shifting, though some politicians (such as Sen. Dick Durbin (D-IL) are profoundly concerned that fee-shifting compromises access to justice for small inventors (this concern is obviously very hard to understand for someone who lives in a jurisdiction in which it's the norm).

Just like patent reform advocates have an opportunity now to make progress with fee-shifting and transparency and possibly in the demand letter context, those who defend the status quo should also think hard about what realistically achievable outcome would constitute a "sweet spot" from their perspective. After today's hearing it's clear that there is an exceptionally high level of awareness among politicians for the problems created by patent trolls. From a short-term perspective some may want to dilute any reform proposals beyond recognition. A complex political process in which two chambers of Congress have to reach an agreement offers various opportunities for dilution. But the desirable outcome for defendants of the status quo would actually be a reform bill that has an easily verifiable effect on the activities of patent trolls and the related statistics. Fee-shifting should make the patent trolling business costlier and riskier. That would be meaningful progress, and it would greatly reduce the likelihood of another series of patent reform hearings after whatever comes out of the current process.

After the passage of the Leahy-Smith America Invents Act, hardly anyone would have thought that patent reform would be on the political agenda again so soon. Sen. Patrick Leahy (D-VT) himself is now in favor of another bill, recognizing that the previous one didn't go far enough. He sees that small businesses in his state continue to suffer from patent assertions. While still a supporter of the patent system, Sen. Leahy now proposes targeted measures in order to combat the patent troll problem. And that appears to be the position of a broad majority of U.S. legislators.

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