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U.S. Government Moves Toward Patent Reforms

The Innovation Act could reduce lawsuits against technology users, but it could also have an adverse effect on innovation.
By Mark Roberti
Dec 09, 2013

Last week, several manufacturers of radio frequency identification products signed license agreements with Round Rock Research, a patent-assertion entity that holds 10 patents related to radio frequency identification technology, which it has used to sue Walmart, Macy's, American Apparel and other end users (see Avery Dennison, Alien Technology and Invengo Sign Licensing Deals With Round Rock). The agreements will pave the way for the adoption of RFID without the threat of a lawsuit, as long as companies use licensed technology.

The U.S. House of Representatives, in a rare show of bipartisanship, also passed the Innovation Act last week, by a margin of 325 to 91. The bill, which still must be passed by the Senate and signed by President Obama, attempts to reduce frivolous lawsuits by "non-practicing entities"—companies that buy patents with no plans to introduce products, but simply use them to sue others. These companies are derisively referred to as "patent trolls."

The bill passed by the house offers a number of fixes to the current system, including:

Heightened pleading: The bill essentially requires patent holders to provide greater information regarding which patents they feel are being infringed, which claims within those patents are at issue, which products infringe those patents and how they are being infringed (it is hard to believe this isn't required now).
Fee reform: The bill gives the court more authority to require the party that loses a patent-infringement case to pay the winner's fees and costs. This means the patent holder must have confidence that it will win before bringing a lawsuit, and that it cannot use the high cost of fighting a case to force a settlement—something all too common now.
Greater transparency: The bill would require patent holders to reveal the parties that would benefit from the litigation, preventing a patent holder from hiding behind a shell company.
Customer protection: One of the most important aspects of the bill is that it would require the courts to stay patent litigation against the user of a technology at issue if there is parallel litigation against the technology's manufacturer. This makes it more difficult to sue a technology firm's customers in order to force the technology company itself to settle, as we've seen happen with Round Rock.
Discovery reform: The bill stops discovery—the process of investigation that allows the sides in a lawsuit to obtain information from each other—until the court has examined the patent claims. This would make it easier for defendants to have frivolous suits thrown out before incurring significant legal fees.

Overall, there is a lot to cheer about in this bill—but it is not perfect. Requiring the loser of a patent lawsuit to pay the winner's court fees could hurt innovation. If a small RFID firm were to invent a new type of reader antenna that could, say, interrogate ordinary passive ultrahigh-frequency (UHF) tags from a distance of 2,000 feet away, and a larger company were to steal that concept, the smaller firm would have to carefully consider whether or not to sue. Losing the case—which is not altogether unlikely, given the complexity of patent cases and the larger company's resources—could result in bankruptcy for the smaller business.

I think judges should be given discretion to determine whether the company bringing the patent-infringement case is acting in good faith to protect its intellectual property (IP), or is simply trying to use the courts to extort money from players with deep pockets. A key consideration would be whether the business bringing the suit is actually being hurt by another firm using its IP. If you do not make a product and do not plan to do so, it is difficult to argue that you are being hurt by the use of intellectual property. (Non-practicing entities would argue that if you owned land but did not plan to build on it, you could still be hurt if someone were to dump garbage on that land.)

The U.S. Senate is expected to pass its own patent reform bill, and there are fears it will cave to powerful companies that hold patents and sue others as a way of making money. I hope the Senate will improve protections for legitimate patent holders, while making it more difficult for non-practicing entities to bring suits—particularly against a technology's users.

As a side note, I want to make one comment about the passing of Nelson Mandela. I came across this quote in one of the many articles I read last week after his passing: "[Change] always seems impossible until it's done." That is true in business, as well as in world affairs. It's impossible to bring in-store inventory accuracy up to 99 percent until a retailer does it. It's impossible to eliminate medical errors until someone does it. And it's impossible to have 100 percent shipping accuracy until a company does it. That's why I love my job—I get to write about the impossible being done all the time.

Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below. To read more of Mark's opinions, visit the RFID Journal Blog, the Editor's Note archive or RFID Connect.

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