Protecting Innovation and Battling Patent Trolls

February 12, 2015

The Innovation Act was reintroduced this month by Rep. Bob Goodlatte in an effort to reform U.S. patent laws. The bill is focused on addressing patent trolls; however, some are concerned the bill overreaches and threatens innovation.
Typical patent trolls are companies that purchase as many vague patents as possible with the objective of suing other companies for infringement. Patent trolls do not have any intention of putting their patent portfolios to productive use; their sole purpose is to profit from infringement awards or by reaching settlement agreements. A second class of trolls has also been identified, so-called “transformer trolls” that assert their own patent portfolios after exiting a market as an alternate revenue stream.
The problem lies in that individual inventors, like patent trolls, are likely non-practicing entities, but for very different reasons. The individual inventor typically lacks the resources needed to put the patented idea into practice and may seek to license the invention. However, individual inventors may also have to resort to infringement action to protect their intellectual property.

 The challenge facing Congress is striking a balance between protecting the individual inventor’s rights while stopping the abuse of the patent system by patent trolls.

One tactic of patent trolls is to drag out litigation as long as possible to increase the likelihood of a settlement. The Innovation Act addresses this issue by determining the validity of a patent via claim construction earlier in the litigation process. The bill would also limit discovery, which is one of the most expensive aspects of litigation, until after claim construction was complete.
One of the largest reforms the bill would implement is the presumption awarding of attorney fees. Under the current law, the attorney fees of the prevailing party are available for recovery in “exceptional cases” only. However, under the proposed bill, the standard flips and a court would be required to award attorney fees as well as other expenses to the prevailing party unless the “court finds that the position and conduct of the nonprevailing party [was] reasonably justified in law and fact or that special circumstances (such as severe economic hardship to a named inventor) make an award unjust.”
With median attorney fees near $46,000 for plaintiffs and $148,000 for defendants (data from 2003-2013), the bill may have the intended impact of discouraging frivolous or weak infringement claims by presumptively awarding attorney fees to the victor. Furthermore, where the patent owner is undercapitalized, the bill would permit the court to pierce the corporate veil, thereby exposing investors and other interested parties to increased liability.
The reforms of the Innovation Act may indeed address the abuse of the system by patent trolls by increasing the risk the entity assumes by filing an infringement action through limited discovery, earlier claim construction, and presumptive attorney fee awards. However, those same changes also increase the risk to the individual inventor. While the claim construction and discovery changes may have less of an impact on the individual inventor, the risks associated with the presumptive attorney fee award may bar an individual inventor from the suit all together. While this is the intended effect of the act on patent trolls, the individual investor is caught up in the proposed solution to the troll problem.
With infringement claims by non-practicing entities increasing 28 percent from just five years ago and accounting for 67 percent of all patent lawsuits filed as of July 2014, it is clear that reform to the patent system is needed. The challenge for Congress is finding a solution that protects the rights of the individual inventor while stopping the abuse by patent trolls.