The politics of patents

Washington infighting centers on trolls and risk

THE WAY BOSTON UNIVERSITY President Bob Brown sees it, the Massachusetts economy is fueled by a pipeline of innovation running from the state’s great research universities to start-up companies. University professors discover something and patent it. They then license their idea to firms that can bring it to market. Even if no one gets rich, it’s a noble pursuit and one that gives Brown’s faculty the incentive to think of the real world as they invent.

“This is the way business is done in Massachusetts, and it’s fantastic,” Brown says.

But Brown worries that Congress could be on the verge of upending the innovation apple cart. In both the House and Senate, legislation is pending that would make it more difficult for patent owners to sue others for infringement. For Massachusetts, with three universities among the world’s top 100 at producing patented technology — MIT, Harvard, and the University of Massachusetts — and others such as BU trying to rise in the ranks, he says any legislation making it tougher to defend a patent would be a significant blow. The biotechnology and pharmaceutical industries, which rely heavily on patent protection, are especially threatened, he says.

University patents “move into the entrepreneurial domain through startups and small companies,” Brown says. “Unless there is a firm base for that patent, you are going to really shut down the system of innovation.”

The patent bills, sponsored by the Republican chairmen of the House and Senate judiciary committees, Robert W. Goodlatte of Virginia and Charles E. Grassley of Iowa, would require plaintiffs in patent cases to pay the attorney fees of defendants if a judge thinks their case isn’t reasonable. The bills would also require plaintiffs to provide more detail in their initial pleadings and allow defendants to delay the discovery process until after initial motions are dispensed with. And the bills would bar plaintiffs from suing companies that are merely using an infringing technology, requiring they first go after the manufacturer.

The idea is to rein in so-called patent trolls, which buy up dormant patents left behind by failed companies, then sue others for infringement, often with little evidence. The trolls take advantage of the high cost of patent litigation to try to extort settlements. The problem, as Brown sees it, is that the bill’s mechanism for reining the trolls in also affects every legitimate patent holder who rightfully wants to defend his invention.

He’s not alone in his fears. “Any change in legislation that casts a shadow over intellectual property rights and their strength and how seriously they’re taken in the market is a problem,” says Fred Reinhart, who is a senior advisor in the Technology Transfer Office at the University of Massachusetts Amherst.

Universities face a threat to the bottom line as well.  Under the bills’ terms, if one of their licensees brings a frivolous suit but can’t afford to pay the defendant’s court costs, the patent holder could be forced to pay.

Massachusetts universities are lobbying against the bill. BU, Brandeis, MIT, North-eastern, and UMass were among the signers of a letter sent earlier this year to Congress arguing that the legislation under consideration “goes well beyond what is needed to address the bad actions of a small number of patent holders, and would instead make it more difficult and expensive for patent holders to defend their rights in good faith.”

The state’s biotech leaders are also pushing back. “In biotech, one single patent can be the difference, providing the potential to recoup millions of dollars of development costs and 10 to 12 years of research,” says Bart Newland, chief intellectual property counsel for Biogen in Cambridge. If passed, the legislation, will prompt “shareholders to invest elsewhere, which would inhibit future innovation for patients,” he says.

National trade groups for the universities and the biotechnology and pharmaceutical industries are making the same case, yet the bills moved with ease through the judiciary committees in June. In the Senate, the vote was 16-4. In the House, 24-8. And when the House considered a similar bill two years ago, it passed 325-91. The bills aren’t partisan, but Democratic objections sunk similar legislation in the Senate in 2014. Still, opponents can’t count on a Democratic majority there anymore.

Massachusetts lawmakers have had little say in the patent debate so far. The state has not a single representative or senator on the Judiciary committees. In the 2013 vote, the state’s House delegation was split. Five representatives, Niki Tsongas, John Tierney, Michael Capuano, Stephen Lynch, and William Keating, voted no. Three, Joseph Kennedy III, Jim McGovern, and Richard Neal, voted yes. The 5th District seat was vacant at the time.

A recent letter to House leaders raising concerns about the legislation was signed, again, by five members: Capuano, Lynch, Keating and the two newest members, Katherine Clark and Seth Moulton.
Critics of the legislation have made some headway. House leaders planned to bring the bill to the floor over the summer but, sensing growing opposition, pulled it and tasked Goodlatte, the House judiciary chairman, with building more support.

What’s emerged since is a battle between the high tech industry, which finds patents more hassle than boon, and an odd-bedfellows coalition comprised of the universities, pharmaceutical and biotech industries, and conservatives who view themselves as defenders of the small inventor. Groups including the American Conservative Union, Eagle Forum, and Heritage Foundation have all come out in opposition to the legislation.

Republican Rep. Thomas Massie of Kentucky, an MIT-trained inventor, has led a campaign to convince House Republicans to vote no. The bill, he says, would “gut the underpinnings of what has made our country great.”

Also working in the opponents’ favor is the fact that the troll problem is being dealt with in the courts. After steadily rising for years, the number of new patent suits declined in 2014 by 18 percent to 5,012. One explanation: the Supreme Court last year ruled in a patent case that judges could award attorney fees to defendants when plaintiffs bring frivolous suits. The federal courts are also speeding up the expensive discovery process in patent cases.

Still, the proponents are well organized and diverse. They note that the 5,012 patent suits filed in 2014 is still much higher than the 2,758 filed in 2007. The United for Patent Reform Coalition is led by high tech firms such as Google and Facebook, but also includes advocates for the retail, hotel, and restaurant industries.

For the tech firms, patents are of limited utility. They take years to be approved by the Patent and Trademark Office, at which time the state of the art has often moved on. Unlike the pharmaceutical and biotech industries, which spend years developing products and must receive government approval to sell them, tech products have lifespans of a year or two. The proliferation of patents also opens up the firms to attack by trolls.

Engine, an advocacy group for high tech start-ups, is a strong supporter of the legislation. Julie P. Samuels, the group’s executive director, told senators this spring that the “troll problem is an acute and growing menace that adversely impacts the operations and viability of companies who can least afford these threats.”

High tech’s allies on Main Street don’t hold patents at all but patent trolls have targeted them, often on the flimsiest grounds. Coffee shops have been sued for offering free wireless Internet access, retailers for including store locators on their Web sites. Still, patent litigation is expensive and it sometimes is cheaper for them to settle.

One possible compromise is pending House legislation that would take a narrower approach. It would permit the Federal Trade Commission to sanction trolls that send out lots of threatening — albeit fraudulent — demand letters in the hopes that a few recipients will cough up a settlement.

For Brown, the fight is personal. In his decade as Boston University’s president, Brown has focused on bringing the school into the top echelon of national research institutions. It’s not yet among the top 100 patent-producing universities in the world — MIT was No. 2 with 275 patents in 2014 — but BU is getting there. In 2012, the Association of American Universities, which counts the top 62 US research universities among its members, invited BU to join. Now Brown is co-chairing the AAU working group that’s focused on technology transfer, or the licensing of university patents to companies.

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For the universities, protecting the patent system is not so much about the money. Brown says that BU can make several million dollars in any given year but just as likely could lose money. More important, he says, is the incentive it provides for faculty and students. “It drives their research from the bench to the free market on the other side,” he says. “That’s a very major thing in the culture of the university.”