Date: 2013-12-05
Speaker: JACKSON LEE (democrat)
Chamber: H

Mr. Chairman. I rise to talk about innovation in Americathe great job creator that I feel is being put in jeopardy by H.R. 3309. the Innovation Act. H.R. 3309 is a bill before its time as the America Invents Act was signed into law barely two years ago. Many of the major provisions of this landmark legislation which many on the Judiciary Committee and in this body voted for have not even been put into practice. It is well documented that our innovation ecosystemfounded on patentsdrives economic growth and job creation in the United States. From the hustle and bustle of downtown Houston. Silicon Valley. Chicago. New York. and even here in Washington. D.C.. Americans want to keep our cherished system as strong as possible. For the future of our economy. we cannot risk jeopardizing it. And while the AIA was unquestionably proinnovator legislation. its postgrant challenge provisions also unquestionably shifted the balance of rights toward implementers and away from patent holders. The only remaining question. brought on by the adolescence of the AIA. isjust how much has that balance shifted? "Loser pays". also commonly referred to as the British Rule. mandates that the losing side in a civil dispute pay the legal costs of the other side. Loser pays laws ensure that only the wealthiest members of society or large corporations can afford to undertake a civil action and also unnecessarily punishes individuals with serious and meritorious claims for seeking access to justice. Loser pays policies fail to recognize that a person or a business can have a legally legitimate dispute regarding fact and law. and yet still ultimately lose the case. Loser pays policy sets a dangerous precedent and may prevent individuals from pursuing even the most meritorious civil liability claims. For most individuals and small businesses. the financial risk of having to pay the other sides costs and legal fees is one too great to bear. no matter how valid the claim. It creates a situation where experienced corporate defendants with enormous resources and expert legal talent can bully injured plaintiffs into unfair settlements due to the risks associated with losing a potentially successful case. If "loser pays" is implemented it could be a roadblock for people pursuing whistleblower. consumer mortgage. employment discrimination and other civil rights cases. The only losers under a "loser pays" system is the small business or individual plaintiff. or the innovator who is discouraged from pursuing her rights due to the chilling effect brought on by the onerous language in H.R. 3309. This bill tries to discourage patent litigation abuse by patent assertion entities. better known as "patent trolls". Trolls use patents of questionable quality to pressure their targets into settlement for an amount that is lower than the legal fees to defend against a lawsuit. Trolls typically have no interest in moving the patented technology into the marketplace. Generally. the trolls target has had a product on the market for some time and the trolls patent covers the targeted product through exceedingly broad claims. often through a broad interpretation of vague claim terms. In one common tactic. a troll will approach a target with a proposal to license patents with a onetime fee of $50k to $200k. where it might cost the target $15k to $50k for an initial legal opinion on validity and infringement. and it might cost the target $20k to $50k per month in legal fees in litigation proceedings (mainly driven by discovery and motions practice). So the onetime fee may sound appealing as a simple payoff to avoid legal fees that are comparable and inevitable. In theory. one can discourage the patent troll business model by increasing patent quality. promoting stricter requirements on claim construction. and lowering the cost of litigation (by limiting discovery). Each of these purported remedies has a cost that may be worse than the alleged benefit. That is why it is critical that we carefully consider any and all legislation and policy which looks to improve. At the outset of considering further changes to our patent system. we must recognize that the time constant of the patent systemthe period between new patent application and court decision on a patent infringement claimis very long. Therefore. the impact of Congress very recent major change to our patent system has barely begun to be felt. Moreover. in long time constant systems such as our patent system. overcorrection. especially that which leaves scant time for due deliberation. is a major danger. By the time we realize that an overcorrection is apparent. it will be years after the system is badly damaged. If there were ever a case where caution is called for. this is it. and I say that because my constituents in Texas. and particularly in Houston. wanted change in the patent system. and surely every one of them was not satisfied with the LeahySmith Act but some changes we can live with. I would hope that due caution would yield to a deliberative process that takes the time to reach out and listen to all stakeholders. including those who will not be the fastest ones off the mark. and I am sure that some of them exist in Texas. Many small innovatorstodays Priceline.coms. Yahoos. Googles. Facebooks. Eli Lillys. Twitters. akin to yesteryears Edisonshave not had time to make their views heard. Others having various levels of dependence on strong IP rights are just now beginning to consider the prospect of further changes to our patent system. We need to allow these important stakeholders their time to participate. I look forward to hearing from these witnesses but would hope that this Committee proceeds on any changes with due cautionbecause the ink on the America Invents Act is barely dryand another patent bill is before us with changes that are fraught with difficulty for many in our innovation economy. My amendment modifies the Managers Amendment to ensure that small businesses that motivated this provision are protected and by expanding the amendment so that businesses with under $25 million are includedmy hope is that it will garner the support. Under my amendment. the customer stay provision a covered customer is one who is accused of infringing a patent or patents on a covered product or process. and is a small business that has revenue of $25 million or less. I have modified this amendment from that offered in the Judiciary Committee markup in order to accommodate more businesses who feel they might benefit from the narrowed language while still maintaining the intended consequence of allowing for stays in proceedings. The expanded language might allow some businesses who are past the "mom and pop" growth phase but if this will provide mediumsized businesses from going bankrupt. or losing valuable revenues because of litigation. it is a useful expansion. A number of the provisions in this bill may be wellintentioned. but they have undesirable consequences for the patent system as a whole. They have the potential to undermine the enforceability of all patent rights. no matter how valuable the patent. and thus potentially incentivize infringement. That is why I offered three amendments in the Judiciary Committee and three in the Rules Committee yesterday. My first amendment struck section 9(a) of H.R. 3309 which strikes Section 9(a) of the bill which repeals Section 145 of 35 U.S.C. Under this repeal. applicants would be gratuitously denied the fundamental right of denovo judicial review of adverse patentability determinations by the Patent and Trademark Office when it refuses to consider certain evidence. This is a limiting provision and unfairly prevents a full adjudication of the rights of litigants. The importance of this 170yearold protective provision is in its restraining effect on PTOs potential abuse of discretion for all patent applicantsnot just for those who would seek judicial review. I attempted to modify my amendment based on a meeting I had with Chief Judge Rader of the Federal Circuit. which hears all patent claims. and is the lodestar for patent litigation. My second amendment which was made in order by the Rules Committee yesterday evening. modifies the Managers Amendment to ensure that small businesses that motivated this provision are protected and by expanding the amendment so that businesses with under $25 million are includedmy hope is that it will garner the support. Under my amendment. a covered customer is one who is accused of infringing a patent or patents on a covered product or process. and is a small business that has revenue of $25 million or less. I have modified this amendment from that offered in the Judiciary Committee markup in order to accommodate more businesses who feel they might benefit from the narrowed language while still maintaining the intended consequence of allowing for stays in proceedings. The expanded language might allow some businesses who are past the "mom and pop" growth phase but if this will provide mediumsized businesses from going bankrupt. or losing valuable revenues because of litigation. it is a useful expansion. Also madeinorder by the Rules Committee is my third amendment which simply requires the PTO Director. in consultation with other relevant agencies. and interested parties. to conduct a study to examine the economic impact of the litigation reforms contained in the bill (sections 3. 4. and 5 of this Act) on the ability of individuals and small businesses owned by women. veterans. and minorities to assert. secure. and vindicate the constitutionally guaranteed exclusive right to inventions and discoveries by such individuals and small business. This amendment supplements and improves the bill. which requires PTO to conduct 4 studies and submit reports to Congress. The required studies are: 1. Study On Secondary Market Oversight For Patent Transactions To Promote Transparency And Ethical Business Practices. 2. Study On Patents Owned By The United States Government 3. Study On Patent Quality And Access To The Best Information During Examination 4. Study On Patent Small Claims Court My last amendment was done with Ranking Member CONYERS of the Judiciary Committee. strikes Section 3(b) which requires that courts reward attorneys fees and expenses to the prevailing party. I remain convinced that this provision is onerous and prepares us for a slippery slope that leads to more and more restraints against plaintiffs in litigation. This will have a chilling effect and deter litigation in areas which might lead to more harm being exacted on the publicparticularly in areas such as civil rights. environmental protection. and business regulations. Mr. Chairman. in the name of fairness to the little personthe Davids in the land of the Goliaths. commerciallyspeakingand I ask my colleagues to slow the train down and exercise prudence and due caution before we vote on H.R. 3309. We must act thoughtfully and with great caution as we pursue reforms to a system which took sixty years to changeand then in batting of a Congressional eyelashlook to significantly modify once again. I was here during the long road that led to the path that became SmithLeahy. or the American Invents Act. That it took so long is somewhat perplexing. but even more interesting is that the bill had a Republican House and a Democratic Senate. Yet we came together in a collaborative fashion and made lemonade out of sixty years of lemons while in the midst of some of the most jarring partisanship we have seen in this great body. Yet H.R. 3309 has been cobbled together in a couple of monthsthis is no small. technical correction bill Mr. Chairmanit is comprehensive yet potentially pernicious legislation which should be slowed. if not stopped.