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Innovation Act: Bad for Small Businesses with IP?

By William Peacock, Esq. on October 24, 2013 | Last updated on March 21, 2019

Nobody likes a patent troll. Still, even with the prevalence of frivolous litigation brought by these non-practicing entities, there remains a portion of the court's docket that is filled with legitimate claims brought by small businesses with actual, legitimate infringement claims.

We'd like to stop patent trolls in their tracks, but the remedy has to be narrowly tailored. Otherwise, we risk bringing the hammer down on both idiots and innovators alike. An act intended to spur innovation by decreasing frivolous patent litigation could have the opposite effect, and may keep smaller companies and inventors from enforcing their intellectual property rights.

What is this proposed "Innovation Act?" And what are its pros and cons for your company?

The Bill, in Brief

In short: the bill requires initial pleadings in patent litigation to assert the the patent and claims infringed, and exactly how they are infringed -- think fact pleading, rather than notice pleading. There is also fee-shifting to the losing party, unless that party's claims were "substantially justified," using the decades-old Equal Access to Justice Act standard.

Other neat tidbits include joinder and shell company transparency, which helps to identify all parties with a financial interest in the patent, and to hold them liable for frivolous litigation. Discovery would also be limited until after the claim construction phase is complete.

For a more in-depth look at the bill, check out our Technologist Blog coverage.

The Benefits

This bill is fantastic for companies defending themselves in patent litigation, especially when the plaintiff is bringing frivolous claims. Limited discovery in the initial stages of the case reduces the astronomical cost of litigation, and fee-shifting should reduce abusive litigation practices.

For consumers, another provision, which allows them to stay litigation while the manufacturer dukes it out with the patent holder, should curb lawsuits against "downstream" alleged infringers, who are merely using a company's product, such as a copy machine.

Of course, if you are the manufacturer, this is a mixed blessing: patent trolls target consumers because they can't afford litigation. Now, your customers may begin to look to you to defend them in court, when before, you'd be too big for a troll to target. If you don't take up the case, you risk irking (and losing) your customers.

The Burdens

Fee-shifting. Sure, it dissuades trolls from filing frivolous suits, but what about small businesses with legitimate claims? Sure, the standard employed doesn't shift fees when the losing party had a position that was "substantially justified or ... special circumstances make an award unjust," and substantially justified has been interpreted by the courts to mean "a reasonable basis in law and fact."

If your stance in a lawsuit, plaintiff or defense, isn't completely out of left field, you should be safe from the shift ... but how much will the uncertainty, and the possibility of paying the other side's million-dollar tab, scare small businesses away from enforcing their rights? And if they do make a mistake, and file a lawsuit that, in retrospect, appears less than legitimate, how many small businesses will survive after paying both sides' bills?

As in house counsel, knowing that the laypeople running companies are often risk-averse, and that they don't understand the complexities of patent litigation or EAJA fee-shifting standards, how likely are you to recommend taking legal action in a fee-shifting world?

We'd love to hear your thoughts. Tweet us @FindLawLP.

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