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The Innovation Act: Debating How to Protect US Innovation

August 12, 2015

8:00 pm

The United States is known for its so-called “American Dream,” where anything is possible if you can dream it and are willing to do the work. But is the US as innovative as should be? Earlier this year, Congress reintroduced the Innovation Act, H.R. 9. The Innovation Act is under debate as legislators fight to protect innovation in America.

Why is innovation important?

According to the Global Innovation Index, which was co-authored by the World Intellectual Property Organization (WIPO), Cornell University, and INSEAD, innovation plays a key role as a driver of economic growth and prosperity.

A related graphic visualizing the Innovation Rankings Index for the USA and the World shows that other countries are fostering innovation more effectively than America. Switzerland ranks number one in terms of global innovation followed by Sweden, the UK, and the Netherlands. The US comes in fifth. For “creative output” (a measure of intangible assets, creative goods and services, and online creativity), the United States falls to 19th place.

The suggestion that the United States is falling behind in fostering innovation requires action. One approach to protect innovation is through legislative reforms.

What is the Innovation Act?

If passed, The Innovation Act would change regulations concerning patent infringement lawsuits. Currently, patent owners can allege patent infringement and file lawsuits without specifically identifying how the defendant has infringed upon the patent upfront. It’s not until the discovery phase when these details are ultimately revealed. By that time, a great deal of time and expense will have been invested on a case that may not have merit. According to EFF.org, many defendants settle rather than paying a fortune in legal fees to reach the discovery phase.

According to a summary of the Innovation Act, the legislation would require patent owners alleging patent infringement to include far more detail in court pleadings, such as details on how specifically patents are being infringed upon, and what the authority of the party alleging infringement to assert each patent is, as well as the grounds for the court’s jurisdiction.

What are the Innovation Act’s Intentions?

At its core, the Innovation Act is intended to stop so-called “patent trolls.” These are patent holders who use abusive litigation tactics to bully businesses into settling patent infringement lawsuits. According to EFF, patent trolls often buy patents and then use broad allegations of infringement against unsuspecting businesses. They offer settlement amounts that, while hefty, are likely to cheaper than paying legal fees. The Innovation Act is intended to add transparency, reduce the number of frivolous lawsuits filed, and make it easier to defend against patent infringement lawsuits.

Opposition to the Innovation Act

While stopping patent trolls sounds good on the surface, the Innovation Act faces opposition. An IPWatchdog article suggests that concerns about litigation costs and frivolous lawsuits are “just another phony ‘crisis’ – and the proposed cure is much worse than the disease.”

Opponents argue that the Innovation Act would weaken the patent system with new pleading, discovery, fee-shifting, and ownership disclosure rules, and create unfair advantages for some larger incumbents while penalizing startups, inventors, and entrepreneurs. Alternative legislation is proposed in the form of the STRONG Patents Act of 2015,” S.632 — 114th Congress (2015-2016)

Representative Dana Rohrabacher (R-Calif.) and Rob Arnot have expressed their opposition to the Innovation Act in an op-ed piece published on TheHill.com. They pointed out that the FTC already targets patent trolls demanding compensation for alleged patent infringement with fines of $16,000 for illegitimate letters of this nature. They argue that small patent holders often rely on Patent Assertion Entities (PAEs) to assert their ownership rights, and that PAEs have been rebranded as “patent trolls.” According to them, the bill devalues all patents and makes them more costly to defend — a boon to the “rich, patent-infringing mega companies.”

Current Status of the Innovation Act

The House of Representatives was slated to vote on the Innovation Act in July. However, according to an article on Law360, Innovation Act Vote Delayed as Opposition Voices Get Louder, the legislation has stalled in Congress due to mounting opposition. The vote has been postponed, and Congress won’t be back in session until after Labor Day. The bill’s opponents say the bill goes too far, that it’s not ready; that it needs a more thoughtful and thorough review.

Two House members, Representatives Ted Deutch (D-Florida) and Karen Bass (D-California), who supported an earlier version of the bill, announced that they no longer support it.

If the United States wants to live up to its promise of the “American Dream,” it must fight to protect innovation — one of the key drivers of economic growth and prosperity. Stay tuned as the outcome of this proposed legislation will impact entrepreneurs everywhere.

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Andrew Armstrong is a technology enthusiast, business owner, and digital marketing strategist based in the San Francisco Bay Area. A graduate of UC Berkeley in 2003, Andrew enjoys Cal Football games, experimenting with new technology, and chasing around his toddler son with his wife.

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