Re-Introduced Innovation Act May Stop Patent Trolls From Targeting Crowdfunding Startups

Venture Beat recently reported that on Thursday (February 5th), House Judiciary Chairman, Bob Goodlatte re-introduced the Innovative Act, which is considered a bipartisan bill that may stop “patent trolls” in their tracks.

The Electronic Freedom Frontier describes a troll as;

“A patent troll uses patents as legal weapons, instead of actually creating any new products or coming up with new ideas. Instead, trolls are in the business of litigation (or even just threatening litigation). They often buy up patents cheaply from companies down on their luck who are looking to monetize what resources they have left, such as patents. Unfortunately, the Patent Office has a habit of issuing patents for ideas that are neither new nor revolutionary, and these patents can be very broad, covering everyday or commonsense types of computing – things that should never have been patented in the first place.”

The Innovative Act gives startups a chance to fight against these kind of patent infringement situations. Although the bill won’t stop patent holders from filing such lawsuits, it will give companies a tool to fight back. It will require more transparency, shift costs of discover and shift legal fees when plaintiffs bring particularly baseless suits.

Key provisions to the Innovation Act include:

• Infringement Charts at Pleading Stage:  The bill would heighten the pleading requirements when making an infringement charge. In particular, a plaintiff filing an infringement lawsuit would need to include infringement charts showing how each limitation of each asserted claim in each asserted patent is found within each accused product or process. However, if the infringement is not readily available after a reasonable pre-filing investigation, the plaintiff would not be required to complete the entire chart.

• Presumption of Attorney Fees to Prevailing Party:  The bill would create a presumption of awarding attorney fees to the prevailing party. In particular, a court would be required to award attorney fees and “other expenses” to the prevailing party “unless the court finds that the position and conduct of the nonprevailing party or parties were reasonably justified in law and fact or that special circumstances (such as severe economic hardship to a named inventor) make an award unjust.” This would change the current rule in patent cases where attorney fees are only awarded in “exceptional cases.”

• Limits to Discovery:  The bill would limit discovery until after a claim construction ruling “if the court determines that a ruling relating to the construction of terms used in a patent claim asserted in the complaint is required….” This provision has the potential of greatly reducing litigation costs since claim construction is often dispositive in patent cases. (On the topic of limiting discovery until after claim construction, I wrote an article with my former colleague Steve Bauer of Proskauer Rose for The Sedona Conference Journal in 2003 setting forth a proposal on a “Simplified Approach to Patent Litigation Trials,” which can be found here.)

• Identity of Ownership:  Under the bill, the patent owner would be required to disclose “the ultimate parent entity” of any assignee of the patent. Further, the patent holder would be under an ongoing duty to update the U.S. Patent Office of any change in ownership.

• Demand Letters and Willful Infringement:  The bill would limit the applicability of pre-litigation demand letters for proving willfulness unless the letter identified: (1) the asserted patent; (2) the accused product or process; (3) the ultimate parent entity that owns the patent; and (4) an explanation of how the product or process infringes the patent.

• Claim Construction in Post-Issuance Proceedings:  The bill would require the U.S. Patent Office to construe claims in post-issuance proceedings (i.e., Inter Partes Review, Post-Grant Review, and Post-Grant Review for Covered Business Methods) in the same manner as would be done by a federal district court and “in accordance with the ordinary and customary meaning of such claim as understood by one of ordinary skill in the art and the prosecution history pertaining to the patent.”  If a court has already construed the claim then the Patent Office “shall consider such claim construction.”

The full text of the Innovation Act of 2015 can be found here.