Patent reform hangs by a thread as Senate Democrats bottle up key bill

For a second there, it looked as if Congress was about to fix the country’s dysfunctional patent system. The House passed a bipartisan bill in December, supported by the White House and a coalition of retail and tech giants, that would have stopped the legal and economic mayhem wrought by so-called patent trolls. The Senate was racing to do the same — and then pfffftttt. Progress ground to a halt in committee last month.

Patent reform is now on life support, and time is running out before Congress decamps for the midterm campaign season. So what happened? According to people close to the process, a new lobbying push by the troll camp and old-guard patent companies has led Senate Democrats to get cold feet, which has set the table for the second major failure for patent reform in the past three years.

Bottled up

As the National Journal reported on Tuesday, patent reform legislation promised a rare bipartisan “feel-good moment” for a fractious Congress, but suddenly the wheels came off. The culprit is the Senate Judiciary Committee, which had originally scheduled a vote for March that would have led the bill to go the Senate floor, then on to mark-up and on to President Obama’s desk.

Instead of taking place in March, though, the vote has been postponed multiple times. Sources say the earliest day for a vote is now next Thursday, at which point Chairman Patrick Leahy (D-VT) could introduce a long-awaited Manager’s Amendment that would consolidate the latest proposals and spring the bill from committee. But based on previous delays, Leahy appears more likely to sit on his hands and let the bill languish until it dies.

Staff members of the Senate Judiciary Committee, who did not want to be named, said by phone that the hold up is due to disagreements over two new points of contention: a provision that would require patent plaintiffs to provide detailed descriptions of alleged infringement in the pleadings they file, and one that would alter the legal process known as discovery (in which each side has to produce documents and witnesses). The latter reform is important because patent trolls rely on the economic asymmetries of patent litigation — especially the threat of discovery, which is extremely time-consuming and expensive — to force their victims into settlements.

These proposed pleading and discovery reforms have until now been uncontroversial. Instead, the main points of contention had been over so-called “covered business methods” (which makes certain patents eligible for a quick out-of-court challenge) and fee-shifting, which would make it easier for targets of abusive patent suits to recoup legal costs. The “business method” reform is now considered dead, however, while the committee members have reportedly overcome the fee-shifting logjam.

So why the new delays? It may be the result of renewed lobbying pressure on a pivotal Senator.

Bipartisan support not enough

At a time of extreme gridlock in Washington, patent reform appeared to be one of the few areas on which Republicans and Democrats could come together. The House bill led by Rep. Bob Goodlatte (R-VA) passed by a wide margin and, in the Senate, the companion measure has influential champions; conservative Sen. John Cornyn (R-TX) supports it as a means to curb abusive lawsuits, while liberal Sen. Chuck Schumer (D-NY) has hailed patent reform as way to protect startups and his state’s emerging tech industry.

Chairman Leahy, too, has been a longtime champion of patent reform, especially when patent trolls mauled the small businesses and nonprofit groups in his home state of Vermont. Recently, though, he has sounded more ambivalent. Speaking to Politico Pro (sub req’d) this week, Leahy cautioned that proposed reform must avoid “unintended consequences” — a favorite talking point of patent trolls like Intellectual Ventures, which regularly invoke it in hopes of thwarting reforms that threaten their business model.

According to a tech industry source, Leahy has changed his position in part as a result of pressure from the Coalition for 21st Century Patent Reform, a lobbying group whose law firm Akin Gump recently hired Leahy’s long time chief-of-staff. The source added that Leahy is prepared to let the reform bill founder, and then draw political cover by casting blame for the failure on committee members’ inability to produce a suitable compromise. Meanwhile, the bill’s momentum has also been sputtering as a result of the trial lawyer bar pressuring other Senate Democrats to slow the bill.

This account of the Senate patent bill’s slow death is consistent with a source cited by Reuters, who said “It’s somewhere between sinking like a rock and air going out of it, like a balloon,” 

Judiciary Committee staff reached by phone angrily denied, however, the suggestion that the fix is in, claiming the Senator’s Leahy’s office is working nights and weekends to ensure the bill gets passed. Meanwhile, another tech industry source claimed the bill could still make it to the Senate by June.

Failure is an option

Those familiar with the patent debate will recall how the last grand attempt at reform proved a bust. In 2011, President Obama signed the America Invents Act, but the reform law did little to solve the ongoing wave of questionable patent lawsuits (including nearly 200 of them filed in one day in April).

The outcome was expected to be different this time around, in part because of growing awareness over the patent problem, and because reform is no longer regarded as just a parochial concern of the tech industry.

Now, however, the clock has almost run out. If Sen. Leahy fails to spring the bill soon, companies large and small can look forward to paying the trolls (who filed a record number of suits last year) for years to come — and passing the costs along to their customers.