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30 October 2013Patents

Innovation Act receives warm welcome on Capitol Hill

US legislation aimed at reducing abusive patent litigation was widely supported during a hearing in the House of Representatives on Tuesday.

In front of House Judiciary chairman Bob Goodlatte, who introduced the Innovation Act this month, lawyers from EMC Corporation and Yahoo offered strong backing for the bill.

But David Kappos, former director of the US Patent and Trademark Office (USPTO), urged for further clarity to avoid “major negative consequences”.

Goodlatte introduced the bipartisan HR 3309, the latest in a number of Congressional bills seeking to clamp down on non-practising entities (NPEs) – or patent assertion entities (PAEs), as they were called in the hearing.

The bill’s measures include making fee shifting easier and forcing parties disclose more information during initial pleading.

“The enactment of this bill is something I consider central to US competitiveness, job creation and our nation’s future economic security,” Goodlatte said.

It takes meaningful steps to tackle abusive practices that have damaged the US patent system and caused significant economic harm, he added, arguing that “tens of billions” have been spent on settlements and litigation expenses associated with NPE suits.

The session’s first witness, Krish Gupta, deputy general counsel at data storage company EMC Corporation, outlined his company’s struggles with NPEs.

Since 2005, EMC, which owns more than 3,600 US patents, has been sued more than 30 times by NPEs, Gupta explained, but the company has never been found to infringe a patent.

“As a matter of principle, we don’t settle frivolous suits, but defending those suits has cost us millions and caused us massive business disruption.”

EMC’s problems were echoed by Yahoo, represented at the hearing by deputy general counsel for IP, Kevin Kramer.

Since 2007, he said, the number of cases “in our docket at any given time” has risen 10 fold.

“And the merits of those cases has declined. In about 96 percent of all cases filed in the last six years, plaintiffs failed to identify a patent claim at issue and they failed to identify the features of our products at issue.

“Instead, we have to guess what the cases are about.”

For Yahoo, which owns more than 16,000 US patents, the “common sense” reforms under the bill would make “significant strides” to restoring the desired balance protecting IP and discouraging litigation abuse.

“I think the Innovation Act is on the right track – it would streamline cases from the start, prioritise important decisions, force real parties into litigation, reduce costs and clarify when winning defendants are able to recover their fees.”

Earlier, Gupta had specified exactly why the act would be beneficial to EMC.

The fee shifting provision, he said, would ensure NPEs “have something to lose when they file meritless suits”, while it would level the playing field by requiring the disclosure of the “real party of interest”.

He added that it protects customers by providing explicitly that a manufacturer can intervene on behalf of – and stay a case for – a customer.

Urging for the act to be passed, Gupta said. “The act must be enacted to restore accountability and balance back into the system to alleviate the unfair burdens that PAEs are able to put on hardworking companies that are the lifeblood of our economy.”

Perhaps one of the more eagerly-awaited contributions came from David Kappos, USPTO chief from 2009 to 2012, now a partner at Cravath, Swaine & Moore LLP.

Welcoming the bill, Kappos said some of its provisions can reduce litigation costs and increase the value of legitimate patent rights.

But, he said, “significant further work is necessary to avoid major negative consequences of overcorrection, consequences more harmful potentially than the problems legislation is intended to address”.

For example, the stay provision is good policy, he noted, but a number of improvements are needed.

“A covered customer will almost never be in precisely the same situation as its covered manufacturer when you’re talking about the stay provision. That is because a covered customer cannot be expected to be bound in all respects in a judgement against its covered manufacturer. There are many different circumstances affecting the two parties.

“As a result, parties will find themselves embroiled in more, not less, litigation caused by this provision unless clarity is added to it to avoid this result,” Kappos said.

The bill is available here.

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Patents
6 December 2013   US patent reform is a step closer after the House of Representatives passed the Innovation Act, a bill seeking to reduce abusive patent litigation, on Thursday.