2015 could be the year Congress takes action on patent trolls

There's a growing problem with patent trolls, the companies that create no products of their own but earn money threatening other companies with patent lawsuits. The problem has become so widespread that even low-tech companies like restaurants and grocery stores have begun lobbying Congress to do something about it.

Now Congress could be on the verge of taking action. On Friday, a Senate aide close to the negotiations told me that a bipartisan group of senators is "very close" to introducing legislation with broad support in the Senate.

Supporters of the legislation have good reason to be optimistic, as the coalition supporting the legislation is broader and more unified than in the past. But given Congress's penchant for gridlock, it's far from a sure thing.

What patent reform would do

Patent trolls take advantage of the fact that patent litigation is so expensive that it's often rational for defendants to pay even if they haven't done anything wrong. Patent reform legislation is expected to change how patent litigation works in ways that make the tactics used by trolls less profitable.

One example is known as fee-shifting. By making trolls pay when they lose a patent lawsuit, this change would discourage frivolous lawsuits.

Patent trolls take advantage of the fact that patent litigation is so expensive

Another proposal would delay discovery — the expensive process in which each side must produce documents relevant to the lawsuit — until later in the process. This will give defendants a chance to get a lawsuit thrown out before racking up huge legal bills.

A third reform would require patent holders to be specific about how a patent is being infringed — both when they send threatening letters to potential targets and when they file lawsuits.

Finally, trolls sometimes use a divide-and-conquer strategy in which they target users of a product — who often lack the resources to fight back — rather than its manufacturer. Patent reform legislation may give manufacturers the option to step into their customers' shoes and fight a lawsuit on customers' behalf.

This is a rare issue on which bipartisan agreement is likely

Sen. John Cornyn (R-TX), left, and Sen. Patrick Leahy (D-VT) are influential advocates of patent reform legislation. (Bill Clark/CQ Roll Call)

In the polarized environment of Washington, it's rare to find an issue that can unite Republicans and Democrats. But patent law — a complex and technical subject that has never been seen as a subject for partisan politics — is one issue on which bipartisan consensus seems within reach.

That potential for bipartisan consensus was visible in 2013. The House of Representatives passed the Innovation Act, written by Rep. Bob Goodlatte (R-VA), the chairman of the House Judiciary Committee, in December 2013. It received the support of 130 Democrats as well as 195 Republicans.

But then Senate Majority Leader Harry Reid (D-NV), an ally of trial lawyers who opposed the legislation, blocked it. They were concerned with "fee-shifting" rules that would make it easier for a winning defendant to recover legal costs from a troll. Trial lawyers are concerned that including this language in a patent reform bill could set a precedent for applying similar rules to other types of litigation.

Reform advocates are trying again this year. Substantively, the new legislation is expected to be similar to the legislation the House passed in 2013. But this year, the legislation may have a better chance of getting through the Senate.

Thanks to the 2014 election, Reid is no longer the majority leader, and his successor, Kentucky Republican Mitch McConnell, has no love for trial lawyers. Patent reformers also have a powerful ally in Sen. Chuck Schumer (D-NY), who will take over for Reid as Democratic leader in 2017 and has been pushing for strong patent legislation. Schumer has been working with his fellow Democrat, Patrick Leahy (VT), and two senior Republicans — Majority Whip John Cornyn (TX) and Judiciary Committee Chairman Chuck Grassley (IA) on the Senate bill.

Schumer and Leahy supported the inclusion of some kind of fee-shifting language in the patent bill last year, and are expected to do so again this year. That leaves ample room for a compromise that should please most Republicans and many Democrats. And with Reid no longer in control of the Senate calendar, it will be harder for trial lawyers to scuttle a bill this year.

Technology companies have settled their differences to get patent reform done

Microsoft lobbied against a proposal to eliminate low-quality software patents in 2013. Now that idea has been shelved, and Microsoft is expected to support patent reform legislation. (Joe Raedle/Getty Images)

In 2013, the patent reform debate was divided into three camps. On one side were pharmaceutical companies, patent lawyers, and other defenders of the status quo. They opposed the whole patent reform effort. On the other side was a coalition of technology companies — led by Google — and brick-and-mortar businesses that were lobbying for reform. Standing in the middle was a group of large software companies, most notably Microsoft.

Reformers are anxious to avoid reopening an old wound

Large, patent-rich software companies like Microsoft and IBM didn't object to going after patent trolls, but they lobbied against measures to nix low-quality software patents. Technology companies with fewer patents — and other industries frequently targeted by patent trolls — lobbied for it. Ultimately, Microsoft and IBM won; the proposal was ultimately left out of the patent legislation that passed the House.

This year, reformers are anxious to avoid reopening this old wound. So they're planning to focus on procedural changes designed to hobble patent trolls, and leave out efforts to weed out bad patents.

Earlier this year, patent reformers launched a new umbrella group called United for Patent Reform that brings together a broad coalition of patent reform supporters. The members range from Facebook and Oracle to General Motors and even the Culver's fast-food chain.

And while language to eliminate low-quality patents won't be part of this year's patent reform bill, supporters have gotten an important consolation prize: a 2014 Supreme Court ruling has called into question the legality of the most dubious software patents. So the standards for patent quality are going up without Congress lifting a finger.

Universities and Big Pharma are key reform opponents

With Republicans in control of the Senate, Sen. Harry Ried (D-NV) won't be able to block patent reform legislation as he reportedly did last year. (Win McNamee/Getty Images)

While patent reform has broad support, there are also some powerful interest groups on the other side. Two longtime opponents of patent reform are the pharmaceutical industry and patent attorneys. Both groups have prospered from current laws, and have little interest seeing the playing field tilted more toward defendants.

A more surprising source of opposition to patent reform is universities. Since the 1980s, universities have developed "technology transfer" offices that patent inventions by university researchers and then demand that companies in the private sector pay licensing fees. In a piece for the Wall Street Journal earlier this month, two university presidents warned that patent reform legislation could "change the U.S. patent system in ways that would diminish the benefits of university research." My reporting suggests that university groups are actively lobbying against legislation like the bill the House passed in 2013.

In this Congress, nothing is certain

In 2013, the House of Representatives passed a patent reform bill before the Senate even had time to start working on one. This year, advocates plan to take a different approach, pushing the House and Senate versions of the legislation through in parallel. That will reduce the chances of the House putting a lot of time into legislation that never gets a serious hearing in the Senate.

Last week, disagreement flared up over a House proposal to regulate demand letters

On paper, patent reform has an excellent chance of passing in 2015. The lopsided vote for the 2013 legislation suggests broad bipartisan support in the House. And in the Senate, legislation is supported by some of the most powerful legislators on both sides of the aisle.

But a lot could go wrong. Last week, disagreement flared up over a House proposal to regulate the vague demand letters trolls send to businesses in search of a quick payoff. Many patent reform groups opposed the bill, arguing that it falls far short of what's needed. Patent reform advocates will need to iron out this kind of disagreement in order to shepherd a bill through Congress.

The legislation could also be derailed due to outside forces. Last week, for example, Senate business ground to a halt due to a disagreement over abortion funding within a popular bill to combat human trafficking. While this fight was going on, other priorities — like patent reform — were put on hold.

The human trafficking dispute has been resolved, so patent reform may be able to move forward. But there remain a lot of tricky issue to be resolved, and even if patent reformers do everything right, the legislation may or may not make it through the legislative process before the clock runs out.

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