16 Jul
2015

The Innovation Act is pulled, but uncertainty lingers and that’s bad for business

The Innovation Act was dramatically pulled from consideration last night just days before a vote on it was expected in the House of Representatives. It is now unlikely that the proposed legislation will be considered again until after the summer recess, but whether it happens in September or October remains to be seen, as all sides seem to acknowledge that more work has to be done before it is ready. Thus, yesterday’s decision raises further questions over whether patent reform will get done in the current Congress.

The move to delay came after it became clear that a number of key groups still oppose the legislation championed by the chair of the House Judiciary Committee, Bob Goodlatte. Among them is the Coalition for 21st Century Patent Reform, the advocacy group with a membership including big guns such as GE, Bristol Myers Squibb, Caterpillar, Dow Chemical, DuPont, Procter & Gamble and Johnson & Johnson, whose support is generally seen as crucial to any proposed reform. It underlined its opposition to the House Bill earlier this week. Writing in the Hill, 21C Chairman Kevin Rhodes of 3M declared that:

[The Innovation Act] seems to be drafted on the premise that every patent holder enforcing its legal rights is a “patent troll,” which weakens all patents, favors business models that do no rely on innovation and patent protection, and makes it more difficult, costly, and uncertain for all patent owners to protect their inventions against infringement, thereby chilling investments in R&D and innovation.

The National Venture Capital Association and a range of organisations representing American universities have also made plain their opposition to the Goodlatte legislation.

The proposed bill is not without support including backing from United for Patent Reform, the powerful group of tech companies and advocacy groups which includes major retailers and tech giants like Google and Facebook. However, yesterday’s news represents a significant turnaround for the House bill and the pro-reform side.

Last September Congressman Goodlatte revealed that patent reform was one of his three legislative priorities for this Congress. In early February 2015, he introduced a bill that was virtually identical to the one that breezed through the House by 325-91 votes in the last Congress. 

However, what has been clear since late last year when reform started to be seriously discussed again, is that those who opposed reform or at least the kind of broad-based package proposed by the Innovation Act, were far better organised this time around. The inability to bring round a group like 21C is perhaps the clearest indication of the Innovation Act’s failure to achieve a consensus among major stakeholders.

As our interview in January with former Senate Judiciary counsel Aaron Cooper, highlighted, reaching a consensus is always the key to moving legislation through both chambers. “I think the goal for members of Congress is to find enough of the reasonable pro-reform companies and reasonable anti-reform companies, for want of a better term, and keep that set of companies in the middle that see themselves on both sides of these issues and find a consensus among them,” Cooper told us. That’s where legislators, in the House at least, have so far failed.

Attention now passes to the Senate where it has always seemed more likely a compromise would emerge. The PATENT Act has already passed out of mark-up in the Senate Judiciary Committee, but is not expected to reach the floor for a vote until the autumn at the earliest. It now seems clear that it will form the basis of any legislation that ends up on the President’s desk.

That, however, seems like a distant prospect. There has been little sign yet of compromise on the issue of inter partes review (IPR) reform. That has added a layer of complexity that was not a factor in the last Congress and given that changing it has become such a key issue for the pharmaceutical industry, while the tech community remain opposed to any weakening, it’s not clear where a consensus is going to come from.

Earlier this week an influential group including AARP and health insurer BlueCross BlueShield Association spelt out its opposition to changes to the IPR process in a letter to legislators. Generic pharmaceutical manufacturers have also made plain their opposition to pharmaceutical patents receiving a carve-out from post-grant reviews. It looks increasingly like as IPR reform goes so too does patent reform. At some stage legislators may find themselves having to pick one side or another – something that few of them are likely to relish, especially as a big election year approaches.  

But that is not the only area where serious concerns continue to be raised. Last week David Kappos, former director of the USPTO and now a partner at Cravath Swaine & Moore, wrote an op-ed which was critical of much of the terminology around envisaged covered customer stay provisions, saying that the “language in the pending legislation could ravage intellectual property rights, while ironically causing more patent litigation instead of less”.

That’s quite a warning from someone who not only used to head the USPTO but also now acts as a senior adviser to the Partnership for American Innovation, which includes major patent owners like GE, Apple and Microsoft.  But his words reflect just how much more there is to do to reach the level of agreement needed for reform to pass.

The longer it takes for legislation to get to a vote, however, the more time legislators and the patent community as a whole have to determine what impact ongoing changes introduced by the America Invents Act and recent court decisions such as the Supreme Court’s Alice judgment, are having. Pro-reform advocates would argue that these are separate from the litigation reforms that the Innovation Act targets, but they have clearly undermined patent assertion rights.

Those who regularly assert patents or see the House bill as a serious threat to patent rights will undoubtedly welcome yesterday’s news. In the longer term the picture is more mixed. Despite this setback, patent reform remains on the agenda and that continues to create a level of uncertainty that many will be nervous about.

If you’re looking to create, assert and/or invest in patents then that ongoing doubt might make you less likely to make a move. Of course, for buyers that risk will be priced into any assets, so some may see an opportunity to invest at the bottom of the market but for many institutional players it will surely remain off the agenda. The sooner reform is resolved either way the better it will be for the market as a whole.

Richard Lloyd

Author | Editor

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Richard Lloyd