Innovation Act Passes House: What it Does, Doesn't Do

By William Peacock, Esq. on December 06, 2013 | Last updated on March 21, 2019

That Innovation Act we talked about back in October? It just passed, 325-91 in the House. It's expected to have support in the Senate and White House as well, so if your company ever deals with IP or patents, this is a law worth getting acquainted with.

What does H.R. 3309 do? Stomps patent trolls. Somewhat. Fee-shifting, delayed discovery, heightened pleading, true owner transparency, and pinch-hitting for customers in litigation are all included in the bill. Read on for the fine points.

What It Does

Fee-shifting might be the biggest change. If a frivolous suit, which is not "reasonably justified under law," is lost, the loser pays. Plus, if the loser (typically, a shell company) can't pay, interested parties (parent companies) can be joined.

Innocent customers, who purchase a good that leads to patent infringement claims (such as the scanner troll) also receive protections in the bill. Manufacturers can step in, and litigate patent infringement claims, while the suit against the customer is stayed. The caveat, of course, is that any issues decided in the suit against the manufacturer are binding against the customer.

Another big change, should the law pass in its current form, is the amount of information that will be provided to the defendant. Heightened pleading standards will require the party alleging patent infringement to identify the patent and describe how the patent is being infringed.

Plus, there's no more hiding behind shell companies -- all interested parties (assignees, parent entities, licensees, and those with financial interests in the patent) must be disclosed.

Finally, to decrease the exorbitant cost of litigation a bit, if claim construction is an issue for the court to decide, the judge can limit discovery until after the claim construction has occurred. This should mean less abusive and intrusive discovery about infringement issues at the outset of the litigation.

What It Doesn't Do

If you heard about the rumored brilliant idea of having the USPTO review questionable past patents, prepare to be disappointed. Covered Business Review, which was formerly included in the America Invents Act, but stripped out, was similarly removed from the House's version of the Innovation Act. As the Electronic Frontier Foundation noted, expanded review may still happen, if a Senate bill makes its way across the President's desk.

The bill also doesn't address the plague of waves of abusive and dubious demand letters, sent by non-practicing entities to small businesses, that threaten litigation, and reap settlements. The fee-shifting provision should help some, as small businesses may be emboldened by the assurance that going to court and defending against a frivolous suit won't cost them millions of dollars.

According to Politico, the Innovation Act's sponsor, Bob Goodlatte (R-Va.), noted the obvious issue with restricting the content of patent infringement demand letters: free speech.

"Part of the issue with demand letters is the First Amendment of the Constitution," he said. "You gotta be careful that you don't try to tell people things that they can't say in a demand letter because they have a right to put in that demand letter almost anything they want to."

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