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Congress is Reconsidering “Anti Troll” Legislation

February 27 2015

By: Intellectual Property Group

On February 5, 2015, Congressman Bob Goodlatte reintroduced the “Innovation Act”; a bill designed to implement several changes to the legal framework governing United States patent law. The law is designed to make it more difficult for non-practicing entities (also known as “patent trolls”) to maintain patent infringement lawsuits. The law appears to have significant support among both houses of Congress, and may soon become law.

If passed, the Innovation Act purportedly will create several disincentives aimed at increasing the risk faced by non-practicing entities when bringing patent infringement lawsuits. First, the Innovation Act would require non-practicing entities to meet a heightened pleading requirement. Non-practicing entities would be required to plead “with detailed specificity” how the accused products allegedly infringed their patents. Additionally, the Innovation Act contains a fee-shifting provision which would allow the court to award attorneys’ fees to the prevailing party. This provision was included in the Act to address the fact that most lawsuits brought by non-practicing entities are settled by the accused party because the defense costs and legal fees associated with defending patent infringement cases often run into the millions of dollars. Accordingly, by including a fee-shifting provision, the supporters of this bill hope to create a greater incentive for accused parties to defend themselves, and to punish non-practicing entities for asserting specious claims. The Innovation Act doubles down on this fee-shifting approach by placing limitations on the discovery that can be propounded during the litigation. First, the Innovation Act would limit discovery to so-called “core documents.” According to the proposed legislation, “core documents” are documents that are most likely to be germane to the litigation, such as documents detailing how an accused product functions. Additionally, the Act would delay most of the discovery in a case until after the relevant portions of the patent asserted by the non-practicing entity had been interpreted by the court. Because the discovery process in litigation represents a significant portion of the expenses incurred by parties to litigation, Congress hopes that these limitations will remove some of the financial pressure associated with defending patent litigation claims, thereby creating an incentive for more parties to defend themselves instead of entering into extorted settlement agreements.

While there are many non-practicing entities bringing baseless patent infringement litigation against innocent third parties, there are myriad legitimate small businesses who have developed intellectual properties, obtained patents, but never have manufactured physical embodiments of their inventions. As a result, many legitimate businesses fall within the reach of laws directed toward curtailing the ability of non-practicing entities to bring and maintain patent litigation matters. As a result, while well intentioned, proposed legislation such as the Innovation Act, while being promoted as a means of protecting small business from the perils of the hordes of patent trolls wandering the small business landscape, may actually inhibit the ability for small intellectual property-based startup companies to bring lawsuits designed to vindicate their own patent rights. Additionally, the Innovation Act also may reward patent trolls who have significant financial resources and can financially support patent litigation, or tolerate the risk associated with the proposed fee-shifting provisions. Therefore, ironically, the Innovation Act could cause legitimate small businesses who own intellectual property to sell or license their patent rights to well-funded non-practicing entities, thereby creating much larger, more diversified “patent trolls.”