U.S. government patents could be affected by Innovation Act legislation

The U.S. government’s ownership of tens of thousands of patents has thrown an unexpected wrinkle into a congressional effort to alter the system that governs American inventions.

The Innovation Act, being shepherded through the House by Judiciary Committee Chairman Bob Goodlatte, Virginia Republican, was designed to reorganize the patenting process to address concerns about frivolous lawsuits filed by so-called patent trolls.

Republican leaders hoped the bill would breeze through the chamber like similar legislation in the last Congress. The bill had four hearings in the Judiciary Committee since January and was being fast-tracked for a floor vote by Republican leaders in hopes of getting it to the Senate, where it faces a less-certain future.

But the measure has met larger-than-expected resistance from small inventors, lawyers, universities and some conservative activists, including expected Republican presidential candidate Carly Fiorina. Critics have argued that the bill would create a “big government” solution that could weaken patent protections envisioned by the Founding Fathers in the U.S. Constitution, tipping the system in favor of big corporations and hurting small inventors.

Rep. Dana Rohrabacher of California has been leading an effort within the House Republican ranks to slow down the legislation. He and others have been focusing on a concern they believe the authors of the legislation have not considered: potential financial and liability implications for the U.S. government.

Federal agencies have held tens of thousands of patents over the decades, including the Ebola virus, medical marijuana and space and military equipment. A 2008 study by the U.S. Patent & Trademark Office identified at least 47,220 patents owned by federal entities, about 1 percent of all patents issued. Last year, federal agencies sought 1,024 patents.

The legislation attempts to discourage lawsuits by patent trolls by shifting the burden of litigation fees to the losing party in a legal dispute. Mr. Rohrabacher and others want to determine how shifting fees could impact taxpayers because the government holds so many patents.

“The federal government holds a tremendous number of patents and licenses them for use. The hastily crafted ’Innovation Act’ includes provisions that put licensees and the federal government itself at tremendous financial risk and disadvantages small inventors in the courtroom by putting them up against slick corporate legal teams,” Mr. Rohrabacher told The Washington Times.

He said the proposed law was “the worst case of crony capitalism I’ve witnessed in my 3 decades in Washington.”

Mr. Goodlatte’s office did not respond to a request for comment on the concerns about federally owned patents, though a spokeswoman said he didn’t think it would pose a problem for the legislation.

Advocates of the proposed law, including corporate giant Google, say the system needs to be revised to stop lawsuits from tying up innovation and economic growth.

The proponents got an unexpected ally this week far from America’s shores when China’s largest telecommunications equipment company, ZTE Corp., came out in favor of changing the American patent system.

“Technology innovation is central to ZTE’s business, as evidenced by our expanded patent portfolio of more than 60,000 patents filed. This commitment to patent research allows us to deliver award-winning products to consumers and thus grow our business globally,” said Lixin Cheng, chairman and CEO of ZTE’s U.S. arm. “We hope that by joining other companies who share our mutual respect for intellectual property in the United for Patent Reform [coalition], we can encourage others to use their resources to develop new and innovative products for the consumer.”

The company’s announcement made clear its reason for supporting the reform: “ZTE is constantly faced with upwards of 50 patent cases brought against the company at any given time by patent-assertion entities which have no intent to manufacture products.”

ZTE said it was joining the fight to change U.S. patent law to “create a system that fosters innovation and investment that benefits the American economy.”

Critics of the legislation immediately seized upon ZTE’s role in the lobbying effort to raise concerns about foreign interference in the American patent market.

“Even worse, this is bad for America, but good for China’s state-supported businesses interests — which, not so coincidentally, favor the bill’s passage — and good for huge, multinational corporations, with no loyalty to this country, who have been trying to ram it through Congress,” Mr. Rohrabacher said.

Some Democrats have joined the opposition. Rep. Marcy Kaptur, Ohio Democrat, said the bill is a “hatchet job” that overreaches in trying to fix a narrower problem. “The U.S. patent system is the envy of the world. It has nurtured small inventors and innovative small businesses in this country for centuries. In effect, HR 9, known as the Innovation Act, would do great harm to this system. It would block innovation and dismantle important aspects of the system that, at most, need only minor changes,” she told The Times.

The cost of defending just one patent infringement lawsuit, excluding any damages awarded, was $650,000 to $5 million, depending how much was at risk, according to a 2011 survey of patent lawyers by the American Intellectual Property Law Association.

Mr. Goodlatte’s office said the Equal Access to Justice Act determines how the government pays fees in litigation and the legislation he is sponsoring extends that law’s fee structure to private challenges to patents.

Still, some patent law analysts say the Innovation Act has too many unanswered questions.

“I think it raises a really important point, which is that there are so many aspects to the proposed legislation that is under consideration that have been unexamined and what will be the effect to the innovation economy both public and private,” said Adam Mossoff, a professor of law and senior scholar of the Center for the Protection of Intellectual Property at George Mason University.

Conservatives are divided on whether the Innovation Act will help or hurt innovators.

Supporters say the law would protect small businesses from patent trolls who make their money by buying up vague patents and bringing bogus patent infringement cases against inventors.

In a February letter to the House Judiciary Committee, a coalition of 12 conservative organizations, including Americans for Tax Reform and the Competitive Enterprise Institute, urged the committee to move forward with the bill to stymie the increasing litigation issues.

“Sadly, it has become clear that the current litigation environment surrounding our patent system has become an immense burden on the very innovators and innovations that the Constitution sought to encourage and protect. Each year, abusive patent litigation drains tens of billions of dollars from the economy, creating tremendous deadweight losses as well as a great deal of uncertainty. This, in turn, dramatically reduces spending on research and development, venture capital investment and other essential business activities,” the letter reads.

But analysts say the problems that the Innovation Act seeks to solve are resolving themselves without interference from Congress and that the outdated legislation will only hurt innovators and help litigators.

A study by Lex Machina found that patent litigation rates were declining steadily and last year were back to 2009 and 2010 levels and more courts are already shifting fees to curb bogus patent cases.

“To the extent that there was a problem, it was been addressed and the problems are being addressed by the institution that should address them, and that’s the judiciary,” Mr. Mossoff said.

The committee is quickly circulating the legislation, which was passed in the House in 2013 by a vote of 325-91 but stalled in the Senate.

Mr. Mossoff said the Innovation Act’s sponsors risk being portrayed as the Democrats who supported the Affordable Care Act in that they are moving to pass a bill too quickly without having a full debate on the issues.

“I think Republicans widely and legitimately decried the passage of Obamacare when then-Speaker Nancy Pelosi commented that ’we have to pass legislation in order to find out what’s in it.’ It’s really unfortunate that House Republicans are about to do the same thing with the patent system, which as been the innovation engine of the economy for the past 200 years,” Mr. Mossoff said.

The Senate Judiciary Committee is expected to release its own patent reform bill this week, but it is not clear whether the Senate’s version will include the fee-shifting mandate.