Dems split on how to ‘club’ patent trolls

A divide among Senate Democrats has resurfaced on the question of how far Congress should go to “club the trolls.”

The fissure over patent reform legislation reaches all the way up to the party’s leadership. And while it is an old battle, a pair of hearings last week refocused the fight over the best remedy for “trolls” — people or companies that do not make anything but instead buy up patents with the intent of extracting legal settlements with the threat of sometimes frivolous lawsuits.

“Our goal remains the same, and that would help us club the trolls once and for all without harming legitimate inventors and innovators who rely on a robust patent system,” said Sen. Charles Schumer (N.Y.), the third-ranking Democrat in the Senate who is working on broad reform with bipartisan leaders of the Judiciary Committee.

The divide among Democrats has become less of an impediment to Senate approval now that Republicans control the upper chamber. But a small number of Democrats will ultimately have to sign on to any deal to ensure passage.

A broad spectrum of interest groups — from technology and retail firms to the university system and biotechnology industry — have pulled the party in different directions.

Senate Majority Whip Dick Durbin (D-Ill.) is one of the most vocal opponents of broad changes, which he says could damage innovation. He has joined a few other Democrats in support of a scaled back approach sponsored by Sen. Chris Coons (D-Del.).  

“It isn’t just about clubbing the trolls, we are clubbing the filers of patent litigation,” Durbin said in response to Schumer. “And that includes a lot more than mischievous, little gnomish figures.”

The divide was on full display last May when then-Senate Judiciary Chairman Patrick Leahy (D-Vt.) said he was “furious” after being forced to abandon reform, when Senate Democratic Leader Harry Reid (D-Nev.) said he wouldn’t bring the proposal to the floor if it passed through committee.

The main opposition at the time, Leahy said, came from the biotechnology industry, trial lawyers and universities. That opposition remains, and has been vocalized by Democratic opponents, like Durbin.

On the other end is a broad swath of technology companies and retailers who have been pushing for broad changes and are confident of success this year.

The House has already reintroduced a proposal to curb abuse of the patent system.

The House bill, which passed last Congress, includes provisions that would require greater detail in initial court filings and would cut back on discovery at the outset, which can be abused to run up legal costs. It would prioritize a patent lawsuit against the manufacturer of a product before a lawsuit against a company that uses the product.

It also includes a provision on fee shifting, which would require the loser of a lawsuit to pay the winner’s fees if the litigation was found to be frivolous.

That provision in particular has been a major sticking point for Democrats and other critics. Durbin has painted that type of “loser pays” system as a concern for smaller companies that could be discouraged from bringing legitimate patent infringement suits.

“Honest to goodness there are going to be small patent holders who are going to get up and fight the big boys, who are abusing their patent rights,” Durbin said. “And when we start throwing in loser pays, most of them are going to walk away and say we just lost it.”

During a hearing, he told one witness of a large cloud computing firm that he was skeptical that the abuse has “crippled” larger companies, adding, “I would say you probably have nuisance lawsuits in a lot of other areas.”

Other Democrats this week who expressed wariness of broader reform include Sens. Sheldon Whitehouse (R.I.), Richard Blumenthal (Conn.), Mazie Hirono (Hawaii) and Coons.

Sen. Ben Cardin (Md.), ranking Democrat on the Small Business Committee, applauded Durbin’s and Coons’s leadership on the scaled back proposal but clarified, “I’m not endorsing a bill today, don’t get me wrong.”

Whitehouse compared the inclusion of court procedural changes in a reform bill to “unnecessary” GOP riders to limit government funding for abortion currently being debated in a human trafficking bill.
 
“I think we have a really significant opportunity to pass a significant piece of legislation if people will rein in their ambitions for ulterior purposes being achieved through this,” he said.

Blumenthal warned against overreaching legislation. He noted a number of Supreme Court decisions have changed the landscape, including one that gives judges more discretion to award legal fees.

But Democrats like Schumer and Leahy are more open to broader reform. Schumer has worked with Sen. John Cornyn (R-Texas) on a deal, and he expressed confidence that principles they agreed to last year will become the framework for a deal.

While Senate leaders have not introduced a draft proposal, about two-thirds of House Democrats ultimately approved of a bill in the lower chamber last Congress. Republicans would only need a handful of Democrats in the Senate if most in the GOP signed on.

Cornyn has said reform would not be worth passing without a fee shifting provision. But he has sought advice on a provision that would not go as far as the House language.

Critics have argued that the House version would switch the current dynamic, and put an unfair burden on losers to prove their litigation was not frivolous.

New Democratic Sen. Gary Peters (Mich.), who voted for the House version when in the lower chamber, has also asked about a less stringent fee shifting provision.

“What if a potential fee shifting rule was not presumptive but rather we just provided the court with some additional guidance on how to deal with fee shifting?” he asked when questioning witnesses at a Small Business Committee hearing.

Schumer has compared the process to a Rubik’s Cube that he believes can be solved by the end of the year.

“The good news is I think we are in a good place,” he said.

–This report was updated at 5:20 p.m.