American innovation depends on the rights of independent inventors

{Re-posted from the United Inventors Association, an organization that every inventor should join! See www.uiausa.org.}

H.R.9, the Innovation Act, is inventor killing legislation moving rapidly through the House of Representatives. It passed out of the House Judiciary Committee and is scheduled for a full floor vote in the next two weeks. H.R.9 will effectively wipe out patent rights for small entities – independent inventors and small companies.

This legislation is being driven through the House with huge money from a consolidated lobby of banks, consumer internet companies, and retailers led by Google. These companies benefit from weak patent rights. The Google lobby has dumped hundreds of millions of dollars on Washington over the last eight years to buy the legislation and they are within weeks of winning. This is cronyism on a grand scale and must be stopped.

US Inventor, Independent Inventors of America and The United Inventors Association have all spent significant time in Washington for over a year going door-to-door in the House and Senate to educate every Congressional office about the damage H.R.9 will bring on inventors, small innovation companies, and the economy overall. Our combined efforts have created momentum and shifted the conversation away from the fictional “patent troll” narrative supported by the anti-inventor Google lobby to the plight of inventors and small companies. But even though the conversation has shifted, H.R.9 is still rapidly moving toward possible passage.

There is some good news. Both the far right and the far left are against H.R.9, and the floor vote has been postponed several times. The vote counters are not sure it will pass, but it is very close.

Many of those who are being pressured to vote for this bill want an excuse to go against it. I am being told in virtually every meeting that hearing from constituents is what is needed. We are at the point where an increase in constituent contacts could stop H.R.9 from even making it to the floor for a vote. This week is the key. We can stop this bill if we all get on the phone and call our Representatives. Even just a few constituent calls will tip the scale and embolden Representatives to go against senior leaders in their party. They know H.R.9 is bad legislation – they just need to hear from us. You can find your representative here.

H.R.9 creates “presumptive” Loser-Pays. This means that if you sue for patent infringement and do not win, you will automatically owe the infringer his legal costs (which could be over $1,000,000). To not have to pay this amount, you will have to litigate further to prove that the points of your case were “objectively reasonable,” while your opponent tries to prove the opposite. Every case will be more expensive, but there is a worse result. Your contingency attorney will have to be willing to continue to fight for you, after losing, for no pay. This means that it will be very difficult, if not impossible for the average inventor to even find representation and have any access to justice. The typical independent inventor will no longer be able to stop the theft of his or her intellectual property.

Joinder “joins” investors in the Loser-Pays liability. In certain situations, investors are personally liable, meaning that their liability goes beyond any funds invested and includes all their personal assets. This inflicts tremendous damage on what is called the secondary market for patent assets. This secondary market encourages capital investment in early stage companies by providing a financial outlet for patent assets. Without the secondary market, inventors cannot attract the investment needed to commercialize inventions.

The secondary market for patents works something like the secondary market for mortgages. When you get a mortgage to buy a house, the bank takes a security interest in your house. If you default, the bank takes control of the house and resells it to return their investment. No bank will loan you money if they are not allowed to resell the house. Investors in startup companies take a similar security interest in a patent. H.R.9 makes it nearly impossible for an investor to sell a patent if the investor ends up owning it. It’s like telling banks they cannot resell houses. Banks won’t write mortgages and investors in early stage companies won’t invest.

H.R.9 has even more provisions further damaging inventors and small companies. If some big retailer, like J.C. Penny for example, is selling your product and you sue them for patent infringement, the retailer can stop the suit against them and move it to the manufacturer. Unfortunately, many products are manufactured overseas in places like China, which means that you will likely be forced to litigate in multiple jurisdictions some or all of which are overseas. This will radically increase the costs of defending a patent and increase the odds of losing. You can bet that major retailers will find ways to ensure nobody can defend a patent by using this so-called customer stay exception.
H.R.9 expands what former Chief Judge Randall Rader called “death squads killing patent rights.” He was referring to the procedures created by the America Invents Act in 2011 for invalidating existing patents, which are invalidating more than 75% of the patents they are directed at. H.R.9 actually expands the use of one of these procedures, Post Grant Review (PGR), by removing a barrier to its excessive use. The result will be that corporations can mount multiple PGRs against an inventor as a method of depleting his funds and rendering him defenseless. H.R.9 creates highly burdensome pleadings requirements and restrictive discovery rules. These provisions act together to make patent holder have to plead with more specificity than he is able to with the limited information available. This makes it harder for the patent holder to obtain justice.
There is nothing in H.R.9 that helps inventors. Virtually every provision makes defending your patent against theft more difficult, more expensive and more risky. If H.R.9 passes, it ensures that small inventors will have no reasonable way to defend their patents.

If you cannot defend a patent against theft, you will not be able to attract investment to commercialize your invention. Why invent anything?

H.R.9 destroys our innovation ecosystem for the short-term gain of large multinationals. It is cronyism of the highest order. We, as inventors, can stop it, but we need to act this week.

Your voice has never been more needed. Call and email your Representatives now. Find them here.

Sincerely,

Randy Landreneau,Founder, Independent Inventors of America
Paul Morinville, US Inventor
Warren Tuttle, President, United Inventors Association

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