Patent Revamp Legislation Seen Likely on Hiatus Until 2015

A Republican-led Senate would likely result in current Senate Judiciary ranking member Chuck Grassley, R-Iowa, becoming committee chairman, said Matt Levy, Computer and Communications Industry Association patent counsel. Grassley was a cosponsor of the Patent Abuse Reduction Act (S-1013), which included language on fee shifting championed during S-1720 negotiations by S-1013 sponsor Sen. John Cornyn, R-Texas.

The Republicans would likely have a very narrow majority if they took control in the Senate, but perceived current support from at least part of the Democratic caucus would be enough to clear procedural hurdles, Levy said. Even a narrow Republican majority would likely “make a big difference,” said Daniel Nazer, an Electronic Frontier Foundation staff attorney who has focused on patent revamp legislation. “My sense is there is definitely some Democratic support for this legislation in the Senate -- the Innovation Act passed the House with a majority of Democrats in favor. The problem is these procedural hurdles in the Senate where the leadership can say a bill won’t go to the floor even if it gets out of committee."

The “common assumption” is patent revamp legislation has a better chance of passage in a Republican-led Senate, and there is a potential for “a great deal of fatigue with this issue given how broadly and aggressively big tech pushed their agenda out there,” said Russ Merbeth, Intellectual Ventures chief policy counsel. “There may be a diminished appetite for this issue in the next Congress regardless of who controls the Senate, because of fatigue and recognizing how difficult it was this time in the Senate."

Blame, Repercussions

Pro-revamp stakeholders disputed Leahy’s claim that negotiations were faltering, telling us they had observed substantial progress in Senate Judiciary’s negotiations that could have led to a successful markup of S-1720 that had been planned for Thursday. CCIA expected Senate Judiciary to circulate a long-awaited manager’s amendment Wednesday containing the compromise language for S-1720, Levy said. “We were waiting for that and just before lunch we got Sen. Leahy’s announcement,” he said. “It was really stunning.”

Reports surfaced after Leahy pulled S-1720 that the decision occurred after Senate Majority Leader Harry Reid, D-Nev., said he would not bring the bill to a full Senate vote even if Senate Judiciary cleared it. Levy, Nazer and an industry executive cited those reports. “We get the sense that the fix was in,” Nazer said, saying Reid was facing pressures from the pharmaceutical industry and trial lawyers not to accept any bill that was similar to HR-3309. Reid’s office did not comment.

"I don’t have any sense that the death of this push in the Senate Judiciary Committee should be hung on Reid,” Intellectual Ventures’ Merbeth said. “I see this as a bill that Leahy was working hard to get through, but there was just never a good consensus. I think Leahy was making good faith efforts all the way through but the process broke down over big tech’s adamance for overbroad reforms.” IV had been critical of HR-3309 and some of the provisions that Cornyn and Sen. Chuck Schumer, D-N.Y., had attempted to include in S-1720’s final version. Unless Internet and technology industry proponents of patent revamp are willing to go along with “common sense reforms” that IV and other patent firms were comfortable with, “maybe it is dead for the year,” Merbeth said.

S-1720’s exit from the agenda could strain relations between the tech sector and Democratic leaders, some said. Those sectors have generally supported patent revamp legislation and lobbied heavily on the issue during Q1 (CD April 28 p10), but have been divided over specific provisions in S-1720 and its House-passed equivalent, the Innovation Act (HR-3309). Senate Democratic leadership “is really going to take a hit on this,” Nazer said. “There’s a big coalition of Main Street businesses and tech companies that are just going to see them as not caring about their interests and that they just capitulated to special interests that don’t really have a big stake in this debate."

Pending Legislation

Other patent revamp legislation remains active in both the House and Senate, but those bills are unlikely to go as far or be as effective as comprehensive legislation like S-1720, proponents said. The House Commerce Committee’s Commerce, Manufacturing and Trade Subcommittee gauged industry opinion Thursday on draft legislation from Subcommittee Chairman Lee Terry, R-Neb., that would curb abuses of pre-litigation demand letters related to possible patent infringement through a combination of increased disclosure requirements and a delineation of FTC and state enforcement authority over demand letter abuses (http://1.usa.gov/1lVUsBl).

Rep. Jared Polis, D-Colo., told the subcommittee he’s concerned the bill limits FTC enforcement authority over demand letters under Section 5 of the FTC Act and is too broad in preempting state enforcement actions. Polis and Reps. Ted Deutch, D-Fla., and Tom Marino, R-Pa., cosponsored the Demand Letter Transparency Act (HR-3540), which they unsuccessfully attempted to append to HR-3309. The FTC appreciates that the draft bill seeks to give it expanded authority to seek civil penalties against bad-faith senders of demand letters, said Lois Greisman, associate director-Bureau of Consumer Protection. Application Developers Alliance President Jon Potter said the draft is a “strong step,” urging the subcommittee to include additional disclosure requirements and not limit FTC’s Section 5 authority.

The House and Senate should continue to consider patent demand letter legislation because it maintains the patent revamp issue’s place in the overall policy debate, but passage of a bill in the absence of a more comprehensive revamp bill could be problematic, Levy said. “It’s still very easy to file a complaint with a lawsuit that’s incredibly vague, so changing the standard for demand letters would probably encourage patent trolls to just file suit first,” he said. “It may not have the effect people would like it to have.” Merbeth said he’s encouraged by language in Terry’s draft bill because it takes a targeted approach that focuses on bad-faith demand letters, but noted that he does not believe that bill or Senate legislation has enough momentum to make it through before the end of the year.