Innovation Act

On February 5, 2015, House Judiciary Committee Chairman Bob Goodlatte was joined by Representative Peter DeFazio (D-Ore.), Subcommittee on Courts, Intellectual Property, and the Internet Chairman Darrell Issa (R-Calif.), Subcommittee on Courts, Intellectual Property, and the Internet Ranking Member Jerrold Nadler (D-N.Y.), Science, Space and Technology Committee Chairman Lamar Smith (R-Texas), Representative Zoe Logren (D-Calif.), and Energy and Commerce Subcommittee on Communications and Technology Ranking Member Anna Eshoo (D-Calif.) in introducing a bill to address the ever increasing problem of abusive patent litigation. The bipartisan Innovation Act (H.R. 9), which is the same legislation that passed the House in 2013, builds on the reforms that were made in the America Invents Act and addresses certain abusive practices taking place in our courts.

On June 11, 2015, the House Judiciary Committee overwhelmingly passed the Innovation Act by a vote of 24-8.

• Requires plaintiffs to disclose who the owner of a patent is before litigation, so that it is clear who the real parties behind the litigation are. This will ensure that Patent Trolls cannot hide behind a web of shell companies to avoid accountability for bringing frivolous litigation.
• Requires plaintiffs to actually explain why they are suing a company in their court pleadings.
• Requires courts to make decisions about whether a patent is valid or invalid early in the litigation process so that Patent Trolls cannot drag patent cases on for years based on invalid claims. This prevents invalid patents from being used to extort money from retailers and end users.
• When parties bring lawsuits or claims that have no reasonable basis in law and fact, the Innovation Act requires judges to award attorneys’ fees to the victims of the frivolous lawsuit. The bill allows judges to waive the award of attorneys’ fees in special circumstances. This provision applies to both plaintiffs and defendants who file frivolous claims.
• Requires the Judicial Conference to make rules to reduce the costs of discovery in patent litigation, so that Patent Trolls cannot use the high costs of discovery to extort money from small businesses and entrepreneurs.
• Creates a voluntary process for small businesses to postpone expensive patent lawsuits while their larger sellers complete similar patent lawsuits against the same plaintiffs, to protect customers who simply bought the product off-the-shelf.
• Requires PTO to provide educational resources for those facing abusive patent litigation claims.

The Innovation Act previously passed the House of Representatives in the 113th Congress by an overwhelming bipartisan vote of 325-91. That legislation was supported by a wide range of groups that include stakeholders from all areas of our economy representing businesses of all kinds from every corner of our country including independent inventors and innovators.

Patent trolls are harming America’s small businesses – including startups and non-tech companies – every single day. Small businesses are unequipped to defend themselves. As a result, a far higher percentage pay extortive settlements to patent trolls, even when the cases against them have no merit.

The American Intellectual Property Law Association (AIPILA) estimates that the average cost of defending a patent infringement case is $650,000 for even the smallest cases and $2.5 million for those seeking $1 million to $25 million in damages.

• Two-thirds of unique defendants in patent troll lawsuits earn $100 million per year or less.
• Over half are from main street businesses, like retail, hotels and restaurants.
• 55% of troll suits are filed against small businesses with revenues of less than $10 million.
• 40% of small companies that received a patent troll demand … reported a ‘significant operational impact’: delayed hiring or achievement of another milestone, change in the product, a pivot in business strategy, a shut-down business line or the entire business, and/or lost valuation.