Senators Aim to End Patent Abuses that Cost U.S. Economy Billions of Dollars Every Year

April 29, 2015

WASHINGTON – Senate Judiciary Committee Chairman Chuck Grassley and Ranking Member Patrick Leahy, along with senior committee members John Cornyn and Chuck Schumer today introduced legislation that would make necessary and commonsense reforms to restore integrity to the U.S. patent system.  Judiciary Committee members Mike Lee, Orrin Hatch and Amy Klobuchar are also original cosponsors of the bill.

The bipartisan bill takes concrete steps to stop abusive patent litigation practices and prevent bad actors from further undermining the system that has made the United States one of the most dynamic and innovative countries in the world.

“Abusive patent litigation is a threat to our economy and costs consumers and businesses billions of dollars each year.  Too often, small business owners are being targeted for doing nothing more than using off-the-shelf products.  These types of frivolous lawsuits cost them millions of dollars and force them to settle despite having a strong defense,” Grassley said.  “The meaningful reforms in our bipartisan bill are needed to ensure that theinnovation and entrepreneurship our patent system was designed to protect isn’t undermined.”

“When small businesses in Vermont and across the country are threatened with patent infringement lawsuits for offering Wi-Fi to their customers or using document scanners in their offices, we can all agree the system is not being used as intended,” Leahy said.  “I have been working with Senators from both parties and a range of stakeholders for two years to design legislation that protects main street businesses and innovators. I am proud to be introducing the PATENT Act today with Chairman Grassley, Senators Cornyn and Schumer to protect those who are targeted by patent trolls while preserving what has made America’s patent system great.”

“The time has come to reform our patent system so innovators are free to develop important advances in technology without the threat of lawsuits from patent abusers only interested in making a dollar, not a difference,” said Cornyn. “I’m proud to work with Senators from both sides of the aisle to address this issue and help unleash the creative firepower of American entrepreneurs.”

“Patent trolls are taking a system meant to drive innovation and instead using it to stifle job-creating businesses around the country. Main Street stores, tech startups and more are being smothered by the abuse that is all too common in our patent system, and it’s time for that to end. This bipartisan bill shifts the legal burden back onto those who would abuse the patent system in order to make a quick buck at the expense of businesses that are playing by the rules. I’m hopeful we can move quickly and in a bipartisan way to get this bill passed in committee and on the Senate floor this summer,” Schumer said.

“Abusive tactics by patent trolls, both in and out of the courtroom, are harming innovation and our economy.  Our balanced approach to reform will deliver needed help to small businesses beleaguered by abusive demand letters and extortionate litigation, and will ensure a commonsense and efficient approach to litigating complex cases, without endangering the patent system” Lee said.  “I’m hopeful we can move quickly to pass this bipartisan legislation through the Senate.”

“Congress has talked about addressing the problem of patent trolls since 2005, when Senator Leahy and I first began work on what is now the America Invents Act.  I’m pleased that after a decade of serious policy discussions there is now strong bipartisan support for legislation to combat abusive patent lawsuits and safeguard American innovation. Effective patent troll legislation must provide a mechanism to ensure that defendants can recover fees even against judgment-proof shell companies.  With the addition of a strong fee recovery provision that I have long championed, the PATENT Act now does just that.  Having worked closely with stakeholders and innovators of all sizes and across many sectors, I am confident this bill can be enacted into law and finally end the plague of patent trolls on our economy,” Hatch said.

“This bipartisan legislation takes commonsense steps to protect patent holders against patent trolls, without impinging on the ability of good-faith actors to enforce their patent rights. Minnesota has one of the highest rates of patents per capita in the nation—we’ve invented everything from the Post-It Note to the pacemaker—and this bill will help our businesses and those across the country reap the reward of their innovations, while being protected from abusive lawsuits,” Klobuchar said.

The Key provisions of the Patent Act are below

Clarifies Pleading Standards.  The bill would establish clear, uniform standards for pleading in patent infringement suits to give defendants real notice of the claims against them, and keep meritless lawsuits from clogging federal court dockets.  It also increases transparency by requiring early disclosures about the patent-in-suit.

Protects End Users. The bill protect customers who are targeted for patent infringement based on a product they simply purchased from a manufacturer or off the shelf by allowing the stay of an infringement case against an end user of a product while the manufacturer of the product litigates the alleged infringement.

Reasonably Limits Early Discovery.  The legislation protects litigants from the threat of expensive discovery by requiring a court to stay discovery while it resolves key early motions in the case, including motions to dismiss and transfer venue.  The bill also directs the Judicial Conference to develop rules about how much a party should bear the cost of discovery beyond what is core for the case.

Creates Risk for Bad Actors.  In order to deter plaintiffs and defendants from engaging in abusive and dilatory litigation practices, the bill provides that reasonable attorney fees will be awarded if the winner proves and a court rules that the losing party was not “objectively reasonable.”  The legislation provides a process to recover fees where the abusive litigant is hiding behind a shell company.

Curbs Abusive Demand Letters.  The legislation adds requirements that demand letters contain meaningful information so they cannot be used merely to scare recipients into early settlements.  The bill also heightens penalties for those found to violate the FTC Act by sending misleading demand letters.

Increases Transparency. The bill requires the PTO to keep information about patent ownership in order to provide a resource about patents being asserted in a demand letter or lawsuit.