Innovation Act (H.R. 9): Can it cause more harm than good?

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The US House Judiciary committee passed the bipartisan Innovation Act (H.R. 9) on the 11th of June, 2015. The bill aims to crack down on Non Practicing Entities (otherwise known as Patent Trolls) to address the problem of the abuse of patent demand letters, which entitles attempt to extort, or succeed in extorting, money from the targets of the letters to avoid costly litigation.

 

H.R.9 Bill briefly states the following:

  • To make it clear who the real parties are behind the litigation, it is primarily required to disclose who the owner of the patent is before litigation. This will in a way stop patent trolls from hiding behind small companies to avoid accountability for bringing senseless litigation.
  • Plaintiffs are actually required to explain why they are suing a company in the first place before the court.
  • Courts are required to decide if a patent is valid or invalid in the early litigation process so as to avoid patent trolls from dragging patent cases for years on invalid claims. This will prevent invalid patents from being used to extort money from the retailers and end users.
  • For parties bringing baseless lawsuits or claims, this act will allow judges to award attorneys’ fees to the victims of the frivolous lawsuit in special circumstances. This is applicable to both defendants and plaintiffs who file frivolous claims.
  • To stop patent trolls from using high costs of discovery to extort money from small businesses and entrepreneurs, the judicial conference is required to make rules to reduce the costs of discovery in patent litigation.
  • This bill enables a process for small businesses to postpone expensive patent lawsuits as opposed to their larger business counterparts completing similar patent lawsuits against the same plaintiffs.
  • Requires the Patent and Trademark Office to present all the educational resources for all those that are facing abusive patent litigation.

 

Patent trolls (Non-practicing Entities) – General perception

Protecting intellectual property isn’t a modern practice. In fact, it was so important to our founding fathers that they included patent protection in the constitution. A general perception is – Patent trolls make money by filing lawsuits against companies with a hope that they will pay a fee rather than going to the court. They don’t manufacture anything but gaining money from the companies that do – in a way legally extorting the innovators.  

This video by John Oliver explains how NPEs are perceived in general:

 

Why may it matter to us?

This bill openly targets Non Practicing Entities from exploiting loopholes in the patent system. There are many companies that have lined up in support of the bill including Apple, Google and Broadcom to mention a few.

Paying off such companies increases the cost of doing business. Manufacturers eventually pass that cost along to the wholesalers; wholesalers pass it along to the retailers and retailers pass it along to us – the consumers. Hence, making us pay more for something may not be worth.

 

Conclusion

Generally, a patent troll is assumed to be any entity that owns a patent but doesn’t make any products. By this logic, trolls would include many universities that discover processes with wide commercial application which can only be monetized through licensing. And trolls would also include small inventors whose inventions could always be stolen if they approach large manufacturers even with good patents in their kitty.

If all NPEs are treated the same way, it could have a daunting effect on innovation and entrepreneurship. It would reward bigger corporations by making them even more rich causing huge disparity in the economic ecosystem.

Good arguments exist on all sides of this debate. But it is clear that H.R. 9 still needs some fine tuning to prevent it from substantially damaging the innovation ecosystem.

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