Patent Reform Update: Small Businesses Concerned about Bills Moving through House and Senate

Congress is currently considering another round of reform of our nation’s patent system. Current reform efforts are aimed at curbing the practice of sending fraudulent demand letters to extort unjust licensing fees or settlements by alleging broad claims of patent infringement. Advocacy has engaged with small businesses who have received such demand letters, small businesses who own patents, universities, and the technology transfer organizations that work with small patent holders to license and commercialize their inventions.

Last year, Advocacy submitted a letter in response to a request by the Chair of the Senate Committee on Small Business and Entrepreneurship regarding the concerns of small businesses with respect to the ongoing legislative efforts. Our letter can be seen here. In the letter, Advocacy highlighted the importance of a strong patent system to support small innovators, and urged Congress to carefully tailor any legislative reforms aimed at curbing abusive demand letters to avoid harming small business’s ability to enforce their legitimate patent rights. This year, both the House Judiciary Committee and the Senate Judiciary have voted bills out of committee for consideration by Congress.  The House bill (HR 9) is expected to come to the House floor in early July.

Advocacy has heard significant concerns from small innovators about several provisions of HR 9, especially with regard to both the fee shifting and joinder provisions of the bill.  HR 9 includes a presumption in favor of requiring the losing party of a patent dispute to pay the prevailing party’s fees. Some stakeholders are concerned that this provision would offer a strong disincentive for a small business to attempt to enforce their legitimate patent rights.

The Senate bill (S. 1137) has fee-shifting language that is slightly different than the language in HR 9. The Senate’s language gives a judge discretion to award attorney fees upon a showing by the prevailing party in a patent dispute that the actions of a non-prevailing party were objectively unreasonable. Some stakeholders believe the Senate’s fee shifting provision is slightly less onerous for patent holders than HR 9, because it does not require them to overcome any presumption that their attempt to enforce their patent rights was unreasonable.

However, small businesses are also concerned about the joinder provisions in both bills, that would make investors liable for attorney’s fees in the event a patent holder loses their lawsuit. While S. 1137 includes a carve-out for universities and other educational institutions, some stakeholders have expressed concern that the joinder provisions will deter investment in start-ups by venture capital and angel investors.

Advocacy is interested in hearing from small businesses regarding the ongoing patent litigation reform efforts. Please contact Assistant Chief Counsel Jamie Belcore Saloom for further information.

For more information on Advocacy’s research efforts on small business patenting, please review today’s issue brief as well as a study released earlier this month, The Leahy-Smith America Invests Act: A Preliminary Examination of Its Impact on Small Business.