Bloomberg News

House Passes Measure Setting Limits on Some Patent Lawsuits (2)

December 05, 2013

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Google Inc. and Cisco Systems Inc. joined by Overstock.com Inc. and groups for hotel and casino operators, automakers and restaurants sent a letter to House leaders saying frivolous lawsuits are an “expensive distraction” for businesses. Photographer: Victor J. Blue/Bloomberg

The U.S. House passed legislation to rein in some patent lawsuits that technology companies say could reduce the time they spend fighting such suits in court.

The vote today was 325-91, with 27 Republicans and 64 Democrats opposing the measure. The Senate has its own version of the legislation, which it may take up early next year.

The vote “gives us a huge amount of momentum,” House Judiciary Committee Chairman Bob Goodlatte, a Virginia Republican who sponsored the bill, said in an interview.

The measure would place limits on entities that buy patents in order to demand nuisance royalties from as many companies as possible. Called “trolls,” such firms filed 19 percent of all patent lawsuits from 2007 to 2011, according to the Government Accountability Office.

The measure is “a great step in the right direction,” said Michael Beckerman, chief executive officer of the Internet Association, whose members include Google Inc. (GOOG:US), Facebook Inc. and Yahoo! Inc. (YHOO:US) “There are so many abuses in the system that it needs to be addressed. It’s become an extortion game based on, ‘We know your legal costs are going to be high, so you’re going to settle with us.’”

Senate Judiciary Chairman Patrick Leahy has introduced a different patent bill that may come up for a vote in 2014. Those measures would have to be merged before President Barack Obama could sign it into law.

Leahy’s committee is set to hold a hearing Dec. 17.

‘Common Sense’

Horacio Gutierrez, Microsoft Corp.’s head of intellectual property, said the House legislation had “common-sense reforms to curb abusive patent litigation.”

Critics including the Innovation Alliance whose members include Qualcomm Inc. (QCOM:US) and Dolby Laboratories Inc. (DLB:US), said the measure was pushed through the House too quickly.

The House version “will hurt U.S. innovation, economic growth and job creation,” Brian Pomper, the group’s executive director, said as he pledged to seek changes in the Senate bill.

Representatives Thomas Massie, a Kentucky Republican who holds 29 patents for touch technology that runs computers, and John Conyers of Michigan, the top Democrat on the Judiciary Committee that oversees patent issues, said the bill needed more vetting and should be put off until 2014.

“The bill will have unintended consequences that the people who drafted it don’t yet see,” Massie said in an interview, adding the measure will “weaken the patent system overall.”

Finding Balance

The debate centered on ways to find a balance between the goal of curbing litigation abuses while ensuring patent owners can protect their inventions from knockoff competition or unauthorized use. Companies that are routinely sued backed the bill while companies that generate revenue by licensing their patents opposed it.

The legislation would require patent owners to provide more information on their inventions and describe the infringement, and limits the amount of pre-trial information that can be sought from accused patent violators.

The measure “takes important steps to address abusive litigation practices that stifle innovation and hamper economic growth,” said Representative Darrell Issa, a California Republican who has 37 patents related to car alarms.

The Obama administration issued a statement that the House measure “would improve incentives for future innovation while protecting the overall integrity of the patent system.”

Drugmakers, Manufacturers

Industries with revenue tied to patent protection, including drugmakers, technology companies and manufacturers, supported 3.9 million jobs and generated $763 billion, or 5.3 percent, of U.S. gross domestic product, in 2010, according to a Commerce Department report last year.

Businesses that often are sued, such as Google, Cisco Systems Inc. (CSCO:US) and other companies in the Coalition for Patent Fairness, back the measure. They say it would hinder lawsuits against them and their customers.

Goodlatte handed lawmakers a two page list -- printed front and back -- of companies and groups supporting the measure including tech giants Apple Inc., Amazon.com Inc., Facebook Inc., Microsoft Corp. and Oracle Corp. (ORCL:US)

Overstock.com Inc. (OSTK:US) and groups for hotel and casino operators, automakers and restaurants sent a letter to House leaders saying frivolous lawsuits are an “expensive distraction” for businesses.

“Simply, patent trolls do not innovate, create jobs or promote economic growth,” according to the letter. “Our businesses do.”

Qualcomm, Patents

Opposition was led by the Innovation Alliance, which includes among its supporters Qualcomm Inc., the maker of chips for mobile telephones that generates almost a third of its revenue from licensing patents. It wants to limit congressional action.

Instead, the alliance is pushing lawmakers to stop diverting funds from the U.S. Patent and Trademark Office, which is supported by user fees and has been criticized for issuing too many patents of questionable validity.

The Coalition for 21st Century Patent Reform -- made up of General Electric Co. (GE:US), Johnson & Johnson (JNJ:US), Eli Lilly & Co. (LLY:US) and other patent holders -- supports limited legislation to combat litigation abuses. It says some provisions would take power from courts and increase the costs of litigation for all sides.

The Association of American Universities has said portions of the bill could increase litigation costs for research universities.

Court Proposals

Federal courts are weighing the same issues involving patents. The U.S. Supreme Court has a pending case to determine when to penalize patent owners for filing questionable claims.

The federal courts’ administrator is proposing rules that might lessen litigation costs and ease requirements for patent owners to disclose invention details and describe the infringement.

Groups backing smaller government, which usually align with Republicans, were split on the measure.

Americans for Prosperity and Americans For Tax Reform back the legislation. The Club for Growth and American Conservative Union were among those who joined in a letter saying the measure would “hamper innovation” and “increase litigation at the expense of innocent innovators.”

The House bill is H.R. 3309. The Senate bill is S. 1720.

To contact the reporters on this story: Derek Wallbank in Washington at dwallbank@bloomberg.net; Susan Decker in Washington at sdecker1@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net


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