How the Senate’s Feel-Good Moment Fell Apart

In the upper chamber, “next week” could mean “never” for patent reform.

U.S. Sen. Patrick Leahy (D-VT) speaks with reporters following a weekly Democratic caucus policy luncheon at the U.S. Capitol June 25, 2013 in Washington, DC. Leahy has introduced a bill seeking to rein in NSA programs.
National Journal
Dustin Volz
May 13, 2014, 1 a.m.

It was only 19 words, but they came from the pres­id­ent of the United States. And every­one was listen­ing.

“Let’s pass a pat­ent-re­form bill that al­lows our busi­nesses to stay fo­cused on in­nov­a­tion, not costly, need­less lit­ig­a­tion,” Pres­id­ent Obama said dur­ing his State of the Uni­on ad­dress in Janu­ary.

It was far from empty rhet­or­ic. Obama’s words came after the House had passed a bill aimed at slay­ing pat­ent trolls — com­pan­ies that buy up pat­ents and then leach cash from in­vent­ors by threat­en­ing in­fringe­ment law­suits. The bill, which seeks to make trolling less luc­rat­ive and bet­ter po­liced, passed with enorm­ous bi­par­tis­an sup­port and — in con­gres­sion­al time — at light­ning speed: 43 days from in­tro­duc­tion to ap­prov­al.

With House ac­tion and White House back­ing, pat­ent re­form ap­peared pos­sible, even in a polit­ic­al en­vir­on­ment where nearly no oth­er le­gis­la­tion did.

Enter the Sen­ate.

Des­pite sup­port for re­form from a wide swath of in­dus­tries — in­deed, per­haps be­cause of it — the up­per cham­ber’s Ju­di­ciary Com­mit­tee has re­peatedly failed to find the just-right Goldilocks lan­guage for pat­ent-lit­ig­a­tion re­form. In­stead, nu­mer­ous delays have left the fate of its once-ex­pec­ted pas­sage in doubt dur­ing an elec­tion year.

Chair­man Patrick Leahy has pushed back a vote on pat­ent re­form — ori­gin­ally sched­uled for March — so many times that some watch­ers have lost count. Sources say they now ex­pect the earli­est vote to take place next Thursday, a date that is dan­ger­ously close to the Sen­ate’s end-of-May re­cess. Sen. Chuck Schu­mer, a Demo­crat­ic com­mit­tee mem­ber who has been cent­ral to the on­go­ing ne­go­ti­ations, has pub­licly stated that a pat­ent bill needs to get out of com­mit­tee by May for it to have any chance of get­ting to the pres­id­ent’s desk this year.

WHAT’S THE HOL­DUP?

A di­verse ar­ray of tech com­pan­ies, en­tre­pren­eurs, phar­ma­ceut­ic­al com­pan­ies, uni­versit­ies, and fin­an­cial ser­vices sup­port some level of re­form to the na­tion’s pat­ent-lit­ig­a­tion sys­tem. But some stake­hold­ers are more full-throated than oth­ers, and a num­ber of key play­ers have warned that over­cor­rect­ing could quash Amer­ic­an in­nov­a­tion.

Sen­ate staffers for months have been try­ing to forge a com­prom­ise to sat­is­fy the li­on’s share of stake­hold­ers, but even slight changes to cer­tain sec­tions have be­come battle­grounds.

Sources on and off Cap­it­ol Hill say one tricky pro­vi­sion in par­tic­u­lar con­tin­ues to be­dev­il ne­go­ti­ations: fee-shift­ing. This would make the loser pay the win­ner’s leg­al fees in some in­fringe­ment cases that are con­sidered mer­it­less. Re­pub­lic­ans gen­er­ally fa­vor a strong fee-shift­ing pro­vi­sion, but Demo­crats, who typ­ic­ally earn sup­port from tri­al law­yers fear­ful of any­thing that sounds like tort re­form, are less bullish.

{{ BIZOBJ (video: 4880) }}

Still, a way for­ward looked to be emer­ging dur­ing and after April’s two-week re­cess. Fol­low­ing weeks of back-and-forth talks, Schu­mer and Sen. John Cornyn — a Texas Re­pub­lic­an at the fore­front of his party’s pro-pat­ent-re­form bloc — offered Leahy a pack­age deal. It would have re­quired fed­er­al judges to shift fees — but only when a judge deems the los­ing party did not “be­have in an ob­ject­ively reas­on­able fash­ion,” ac­cord­ing to a cir­cu­lated draft.

But Leahy balked, ac­cord­ing to pat­ent lob­by­ists close to the ne­go­ti­ations. In­stead of ac­cept­ing the bi­par­tis­an com­prom­ise, Leahy at­temp­ted to cobble to­geth­er un­an­im­ous Demo­crat­ic sup­port for his ori­gin­al bill. As of this week, both ap­proaches ap­peared to lack the votes ne­ces­sary to punch through the com­mit­tee.

Leahy is “try­ing to swing from one end of the pen­du­lum to the oth­er, try­ing to see where he can get the votes — and he hasn’t found the sweet spot yet,” said one pat­ent lob­by­ist, who would speak only on back­ground be­cause of the sens­it­iv­ity of the ne­go­ti­ations. Vote-coun­ters be­lieve Demo­crat­ic Sens. Dick Durbin and Chris­toph­er Coons are likely to op­pose either meas­ure, and sev­er­al Re­pub­lic­ans re­main in doubt, as some have sug­ges­ted they could craft a bet­ter bill if they re­claim the Sen­ate after the midterm elec­tions.

Ad­di­tion­ally, two Su­preme Court rul­ings handed down at the end of April may have fur­ther com­plic­ated ne­go­ti­ations. The opin­ions make it easi­er for fed­er­al judges to im­ple­ment fee-shift­ing in pat­ent cases, which some say has de­creased the level of ur­gency in the Sen­ate.

“The folks that are try­ing to slow down or de­rail the bill are clearly try­ing to make the case that the Su­preme Court has solved the prob­lem, and we should wait and see,” said Peter Pap­pas, former chief of staff at the Pat­ent and Trade­mark Of­fice. “Those are im­port­ant steps, but the Court moved the needle from what was an in­cred­ibly high bar where it was vir­tu­ally im­possible to fee shift to a lower bar, but you’re still lim­ited un­der ex­ist­ing law to ex­cep­tion­al cases.”

What’s more, it re­mains un­clear wheth­er Sen­ate Ma­jor­ity Lead­er Harry Re­id has any in­ten­tion of bring­ing pat­ent re­form up for de­bate dur­ing a tight elec­tion year if a com­prom­ise ever gets through the Ju­di­ciary pan­el. Any le­gis­la­tion could run the risk of up­set­ting tri­al law­yers, who are typ­ic­ally a strong Demo­crat­ic donor base.

IS TIME RUN­NING OUT?

Des­pite its slug­gish pace, re­form ad­voc­ates for months res­isted cri­ti­ciz­ing the Ju­di­ciary Com­mit­tee, in­stead ex­press­ing con­fid­ence that a slow and steady ap­proach would ul­ti­mately yield res­ults. But with the shed­ding of each cal­en­dar page, stake­hold­ers are turn­ing up the rhet­or­ic.

Last week, after the com­mit­tee delayed a vote for the fifth time, the pro-re­form Con­sumer Elec­tron­ics As­so­ci­ation re­leased an un­usu­ally force­ful state­ment blast­ing the Ju­di­ciary pan­el — and oth­er stake­hold­ers plead­ing for a more cau­tious ap­proach — for cost­ing the eco­nomy $1.5 bil­lion each week it fails to act. That num­ber, it said, came from a fre­quently cited Bo­ston Uni­versity study that es­tim­ates pat­ent trolling saps the eco­nomy of $80 bil­lion each year.

“It is time for the Sen­ate to do the right thing: Ig­nore the pleas of tri­al law­yers, uni­versit­ies, and oth­ers who routinely profit from pat­ent ab­use, and pass strong, com­mon­sense re­forms to pro­tect Amer­ic­an in­nov­at­ors and en­tre­pren­eurs,” said Mi­chael Pet­ricone, CEA’s seni­or vice pres­id­ent of gov­ern­ment af­fairs.

Many re­form cru­saders re­main — on the re­cord, at least — con­fid­ent that the Sen­ate Ju­di­ciary will get something out of com­mit­tee soon, even as lob­by­ing from big tech, uni­versit­ies, phar­ma­ceut­ic­al com­pan­ies, and oth­ers con­tin­ues un­abated.

“Our gen­er­al view is to be good rather than to be fast,” said Dana Rao, Adobe’s vice pres­id­ent of in­tel­lec­tu­al prop­erty and lit­ig­a­tion, told Na­tion­al Journ­al last month. It’s es­pe­cially im­port­ant to get le­gis­la­tion just right, he ad­ded, be­cause “we’re not go­ing to get a third shot at a pat­ent bill in Con­gress,” re­fer­ring to the Amer­ica In­vents Act that Con­gress passed in 2011, which over­hauled some as­pects of the pat­ent sys­tem.

Such changes are “on the edge, not in the middle,” ad­ded Rao, who test­i­fied on the im­pact of pat­ent trolling be­fore the Sen­ate Ju­di­ciary Com­mit­tee in Decem­ber.

While the Sen­ate Ju­di­ciary tries to smooth out those edges, re­form back­ers will con­tin­ue to do what they have done for months: wait and see.

WHAT'S THE HOLDUP?

A di­verse ar­ray of tech com­pan­ies, en­tre­pren­eurs, phar­ma­ceut­ic­al com­pan­ies, uni­versit­ies, and fin­an­cial ser­vices sup­port some level of re­form to the na­tion’s pat­ent-lit­ig­a­tion sys­tem. But some stake­hold­ers are more full-throated than oth­ers, and a num­ber of key play­ers have warned that over­cor­rect­ing could quash Amer­ic­an in­nov­a­tion.

Sen­ate staffers for months have been try­ing to forge a com­prom­ise to sat­is­fy the li­on’s share of stake­hold­ers, but even slight changes to cer­tain sec­tions have be­come battle­grounds.

Sources on and off Cap­it­ol Hill say one tricky pro­vi­sion in par­tic­u­lar con­tin­ues to be­dev­il ne­go­ti­ations: fee-shift­ing. This would make the loser pay the win­ner’s leg­al fees in some in­fringe­ment cases that are con­sidered mer­it­less. Re­pub­lic­ans gen­er­ally fa­vor a strong fee-shift­ing pro­vi­sion, but Demo­crats, who typ­ic­ally earn sup­port from tri­al law­yers fear­ful of any­thing that sounds like tort re­form, are less bullish.

{{ BIZOBJ (video: 4880) }}

Still, a way for­ward looked to be emer­ging dur­ing and after April’s two-week re­cess. Fol­low­ing weeks of back-and-forth talks, Schu­mer and Sen. John Cornyn — a Texas Re­pub­lic­an at the fore­front of his party’s pro-pat­ent-re­form bloc — offered Leahy a pack­age deal. It would have re­quired fed­er­al judges to shift fees — but only when a judge deems the los­ing party did not “be­have in an ob­ject­ively reas­on­able fash­ion,” ac­cord­ing to a cir­cu­lated draft.

But Leahy balked, ac­cord­ing to pat­ent lob­by­ists close to the ne­go­ti­ations. In­stead of ac­cept­ing the bi­par­tis­an com­prom­ise, Leahy at­temp­ted to cobble to­geth­er un­an­im­ous Demo­crat­ic sup­port for his ori­gin­al bill. As of this week, both ap­proaches ap­peared to lack the votes ne­ces­sary to punch through the com­mit­tee.

Leahy is “try­ing to swing from one end of the pen­du­lum to the oth­er, try­ing to see where he can get the votes — and he hasn’t found the sweet spot yet,” said one pat­ent lob­by­ist, who would speak only on back­ground be­cause of the sens­it­iv­ity of the ne­go­ti­ations. Vote-coun­ters be­lieve Demo­crat­ic Sens. Dick Durbin and Chris­toph­er Coons are likely to op­pose either meas­ure, and sev­er­al Re­pub­lic­ans re­main in doubt, as some have sug­ges­ted they could craft a bet­ter bill if they re­claim the Sen­ate after the midterm elec­tions.

Ad­di­tion­ally, two Su­preme Court rul­ings handed down at the end of April may have fur­ther com­plic­ated ne­go­ti­ations. The opin­ions make it easi­er for fed­er­al judges to im­ple­ment fee-shift­ing in pat­ent cases, which some say has de­creased the level of ur­gency in the Sen­ate.

“The folks that are try­ing to slow down or de­rail the bill are clearly try­ing to make the case that the Su­preme Court has solved the prob­lem, and we should wait and see,” said Peter Pap­pas, former chief of staff at the Pat­ent and Trade­mark Of­fice. “Those are im­port­ant steps, but the Court moved the needle from what was an in­cred­ibly high bar where it was vir­tu­ally im­possible to fee shift to a lower bar, but you’re still lim­ited un­der ex­ist­ing law to ex­cep­tion­al cases.”

What’s more, it re­mains un­clear wheth­er Sen­ate Ma­jor­ity Lead­er Harry Re­id has any in­ten­tion of bring­ing pat­ent re­form up for de­bate dur­ing a tight elec­tion year if a com­prom­ise ever gets through the Ju­di­ciary pan­el. Any le­gis­la­tion could run the risk of up­set­ting tri­al law­yers, who are typ­ic­ally a strong Demo­crat­ic donor base.

IS TIME RUNNING OUT?

Des­pite its slug­gish pace, re­form ad­voc­ates for months res­isted cri­ti­ciz­ing the Ju­di­ciary Com­mit­tee, in­stead ex­press­ing con­fid­ence that a slow and steady ap­proach would ul­ti­mately yield res­ults. But with the shed­ding of each cal­en­dar page, stake­hold­ers are turn­ing up the rhet­or­ic.

Last week, after the com­mit­tee delayed a vote for the fifth time, the pro-re­form Con­sumer Elec­tron­ics As­so­ci­ation re­leased an un­usu­ally force­ful state­ment blast­ing the Ju­di­ciary pan­el — and oth­er stake­hold­ers plead­ing for a more cau­tious ap­proach — for cost­ing the eco­nomy $1.5 bil­lion each week it fails to act. That num­ber, it said, came from a fre­quently cited Bo­ston Uni­versity study that es­tim­ates pat­ent trolling saps the eco­nomy of $80 bil­lion each year.

“It is time for the Sen­ate to do the right thing: Ig­nore the pleas of tri­al law­yers, uni­versit­ies, and oth­ers who routinely profit from pat­ent ab­use, and pass strong, com­mon­sense re­forms to pro­tect Amer­ic­an in­nov­at­ors and en­tre­pren­eurs,” said Mi­chael Pet­ricone, CEA’s seni­or vice pres­id­ent of gov­ern­ment af­fairs.

Many re­form cru­saders re­main — on the re­cord, at least — con­fid­ent that the Sen­ate Ju­di­ciary will get something out of com­mit­tee soon, even as lob­by­ing from big tech, uni­versit­ies, phar­ma­ceut­ic­al com­pan­ies, and oth­ers con­tin­ues un­abated.

“Our gen­er­al view is to be good rather than to be fast,” said Dana Rao, Adobe’s vice pres­id­ent of in­tel­lec­tu­al prop­erty and lit­ig­a­tion, told Na­tion­al Journ­al last month. It’s es­pe­cially im­port­ant to get le­gis­la­tion just right, he ad­ded, be­cause “we’re not go­ing to get a third shot at a pat­ent bill in Con­gress,” re­fer­ring to the Amer­ica In­vents Act that Con­gress passed in 2011, which over­hauled some as­pects of the pat­ent sys­tem.

Such changes are “on the edge, not in the middle,” ad­ded Rao, who test­i­fied on the im­pact of pat­ent trolling be­fore the Sen­ate Ju­di­ciary Com­mit­tee in Decem­ber.

While the Sen­ate Ju­di­ciary tries to smooth out those edges, re­form back­ers will con­tin­ue to do what they have done for months: wait and see.

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