Congress Reintroduces Innovation Act in Hopes to Curb Frivolous Patent Litigation

Recently, House Judiciary Committee Chairman Robert Goodlatte reintroduced a patent reform bill, known as the Innovation Act of 2015 (H.R. 9) (“The Act”). This reintroduced bipartisan bill is substantially similar to its predecessor, Innovation Act of 2013. The Innovation Act of 2013 had received overwhelming support by the House of Representatives, but was ultimately tabled, along with other patent reform bills, due to bipartisan disputes.

According to Rep. Goodlatte, the objective of the Innovation Act is to prevent the use of the patent system as “a playground for litigation extortion and frivolous claims.” The bill aims to curb the exponential increase in the use of weak or poorly granted patents by patent assertion entities to file numerous patent infringement lawsuits.

The key provisions of the bill are:

• Heightened Pleading Requirement: First, the bill aims to raise the initial pleading requirements for the patent holder. Under the bill, a plaintiff’s initial pleading would be required to identify asserted patent(s), identify asserted claim(s) and accuse an infringing product(s) or service(s). These allegations must be made “with detailed specificity” about how the product(s) or service(s) infringe. The heightened pleading requirements are designed to discourage patent assertion entities from sending mass demand letters to end users alleging infringement.
• Fee Shifting: Second, the bill would also require judges to award reasonable fees and other expenses to the prevailing party, unless: (1) the non-prevailing party was reasonably justified in law and fact, or (2) a special circumstance makes an award unjust. Thus, these provisions could ease costs of fighting frivolous lawsuits brought by patent assertion entities.
• Transparency of Ownership: Third, the bill would require a plaintiff to disclose the real parties in interest that may financially benefit from litigation. This requirement is designed to prevent patent assertion entities from hiding behind shell companies. Thus, a plaintiff will be required to disclose the assignee(s) of the patent(s), any licensee(s) empowered to sublicense or enforce the patent(s), any other entity having a “financial interest” in the patent(s), and the “ultimate parent entity.” The reporting requirements here would be ongoing and the failure to comply could lead to sanctions, prevent a successor from recovering fees and expenses, or increased damages.
• Staying Suits: Fourth, the bill provides a “consumer-suit exception.” This exception would allow end user(s) of product(s) or service(s) to stay litigation until the suit against the manufacturer(s) is resolved. Alternatively, it would also allow manufacturer(s) to step into litigation against their customer(s). This voluntary process can postpone expensive litigation costs until the dispute with the manufacturer(s) is adjudicated. Ultimately, these provisions serve to protect end user(s), such as consumers and small businesses, who merely bought the product off-the-shelf.
• Discovery: Fifth, the bill would place limits on discovery until after a claim construction hearing is held. Therefore, for cases where claim construction is dispositive, the ruling would enable the defendants to dispose frivolous lawsuits earlier without needing to incur expensive legal fees and court costs as well as the expense and inconvenience of discovery.

Gibbons P.C. will continue to report on developments on the Innovation Act of 2015.