A bill known as the Innovation Act has passed the House of Representatives and is headed to the Senate. The bill, sponsored by Congressman Bob Goodlatte, is designed to prevent “abusive patent litigation.”
Some companies known as “patent assertion entities,” “non-practicing entities,” or (less politely) “patent trolls” have been criticized for actions such as sending large numbers of demand letters to small businesses, claiming patent royalties without first determining whether the recipients were actually infringing any patents.
For example, one such entity threatened to sue about 8,000 hotels, coffee shops, and retail stores, claiming that they infringed its patents by setting up Wi-Fi networks for their patrons.
Congressman Goodlatte said that his bill was designed to discourage lawsuits that “target a settlement just under what it would cost for litigation, knowing that these businesses will want to avoid costly litigation and probably pay up.”
Among other things, the Innovation Act requires disclosure of the identity of the ultimate entity that owns the patents asserted in litigation, to prevent patent owners from hiding behind shell companies and sending multiple demand letters to the same targets.
The Act could affect a wide range of patent holders, and not just so-called patent trolls.
The bill would require patent holders to plead patent infringement more specifically, with reference to infringing products by name and model number. The patent holder would also have to identify which claims of a patent are being infringed on an element-by-element basis with reference to the purportedly infringing products.
The Innovation Act would also create a version of the “loser pays” system that applies in many other countries. The Act states that “a court shall award, to a prevailing party, reasonable fees and other expenses incurred by that party.”
However, the Act also gives a court the discretion to decline to award fees if “the position and conduct of the non-prevailing party or parties were reasonably justified in law and fact” or if “special circumstances” would “make an award unjust.”
The Act prevents patent holders from using an alleged infringer’s failure to settle in response to a demand letter as evidence of willful infringement, unless the letter set out with particularity the identity of the patent owner, which patents had allegedly been infringed, and the manner in which the patents had allegedly been infringed.
Opponents of the bill argue that it will discourage legitimate inventors with meritorious claims and favor wealthy parties which can afford to risk being liable for other parties’ costs. They say that the bill does not fix real “patent troll” problems.