Law & Disorder / Civilization & Discontents

How the patent trolls won in Congress

Trial lawyers and pharma companies teamed up to stop change to patent laws.

Senate Majority Leader Harry Reid (D-NV) killed the patent reform bill on Wednesday morning.

On Wednesday morning, tech sector lobbyists thought they were in the final stages of pushing through a hard-fought compromise on patent reform. "Tuesday night it was moving forward, Wednesday morning it was moving forward," said Julie Samuels, director of Engine, a group that lobbies for startups. "Then I looked at Twitter and there was a tweet saying it was dead. What the hell?"

Samuels' story was a typical one for Wednesday, as those lobbying both for the bill, and most of those against it, were taken completely by surprise when Sen. Patrick Leahy (D-VT) made an out-of-nowhere statement to the press saying that the bill was being dropped from his agenda, making it essentially dead for the year. While the announcement came from Leahy, sources close to the negotiations all pointed to Sen. Majority Leader Harry Reid (D-NV) as the one who really killed the bill.

"I feel like a mouse who never knew he was a mouse," said one tech sector lobbyist close to the negotiations, who spoke to Ars anonymously because he expects to be haggling over the same issues in the future. "They were just waiting to hit that Harry Reid button."

Sources pointed to two powerful and wealthy lobbies as the ones that ultimately shot down the reforms: trial lawyers and pharmaceutical companies.

“We thought we had a deal”

"We felt really good the last couple of days," said the tech lobbyist. "It was a good deal—one we could live with. Then the trial lawyers and pharma went to Senator Reid late this morning and said that's it. Enough with the children playing in the playground—go kill it."

According to this narrative, the basics of which were confirmed by multiple sources working on the pro-reform side, Reid told Leahy that even if his committee passed the bill, it would never make it to the Senate floor. In our sources' telling, Leahy's public statement saying that the two sides "couldn't compromise" isn't true. There was a compromise draft, hashed out mainly by Senators Chuck Schumer (D-NY) and John Cornyn (R-TX), that was expected to move forward and be marked up by the committee.

Difficult compromises had been made in recent weeks, and the pro-reform side didn't get everything it wanted. For instance, a carve-out was added for universities, that would make key provisions of the bill not apply to their own patent litigation. "The tech industry gave up a ton to try to make this thing work," said the lobbyist who spoke to Ars.

The fact that the deal was a hard-fought one led those working on it to believe it would advance, and reformers could continue to work to win enough Senate votes, especially on the Democratic side. "We were shocked," said Samuels. "We thought we had a deal."

Many opponents of the bill appear to have been taken by surprise as well. At 9:30am Eastern Time on Wednesday, a coalition of patent holders called the Innovation Alliance sent out a letter blasting the bill as a proposal that would "treat every patent holder as a troll" and asked for more time to review the proposal Leahy was putting to the committee.

Powerful lobbies

Trial lawyers are heavy donors to Democratic politicians, including Reid. A Washington Post article on Reid's fundraising during his 2010 campaign noted big-money fundraisers taking place at a Florida trial lawyer's home, as well as one held in California by the top securities class-action law firm, now named Robins Geller Rudman & Dowd.

They weren't the only ones lobbying against this bill, which was a first-of-its-kind proposal aimed squarely at "patent trolls." Universities and invention promotion groups like Edison Nation were vocal throughout the process, and Leahy noted the university opposition in his statement killing the bill. Companies that rely on heavy patent licensing as part of their business, including Qualcomm and Dolby, lobbied through the Innovation Alliance.

While those groups may celebrate the end of this bill, they weren't able to orchestrate the political shutdown that occurred Wednesday. "They were active throughout the entire process, but they don't have that kind of money, power, and juice," said the tech sector lobbyist. "This was entirely done by the pharmaceutical industry and the trial lawyers."

Pharmaceutical and biotech firms are often plaintiffs in patent disputes and haven't been hit hard by troll lawsuits. The bill was crafted in many ways to avoid treading on those industries' interests, but the companies remained opposed to the bill.

Many law firms working in traditional plaintiffs' areas like personal injury or securities class actions have added patent work as other sources have dried up. In Texas, there has been talk about how tort reform in that state had a hand in creating the patent litigation hotspots like the Eastern District of Texas, as lawyers went "from PI to IP."

Tort reform redux

The historical divide over other kinds of legal tort reform loomed over the bill, which was dubbed the Innovation Act in the House. The fact that it was the trial lawyers' lobby that reportedly delivered the death blow suggests that the rift only got wider as debate dragged on. Conservatives have long backed various kinds of reforms that would limit the power of plaintiffs in court. They've succeeded in many states, creating damage caps in injury, malpractice, and other types of litigation. Democrats typically oppose such changes, fearing that they would close off court access to individuals deserving of compensation.

Even though the bill had prominent supporters like Schumer, Rep. Zoe Lofgren (D-CA), House Minority Leader Nancy Pelosi (D-CA), and even President Obama—all Democrats who would be unlikely to support court reforms that harmed plaintiffs generally—the framing of the patent reform bill as a type of generalized tort reform remained. The fact that some Republican supporters sold it that way to their conservative colleagues didn't do anything to dispel the perception, either.

"We should not skew the scales of justice to the big and the wealthy," said Rep. Sheila Jackson-Lee (D-TX), during the House floor debate. "This [bill] gives a gift to big guys, conglomerates that can already hammer you down if you challenge their use of an invention."

"I start with skepticism when the premise is to reduce access to the judicial system," said Sen. Dick Durbin (D-IL) when the bill first moved to the Senate in December.

"There are very strong interests that have ulterior motives to knock down the civil justice system as much as they can," said Sen. Sheldon Whitehouse (D-RI) at the December hearing. "Frankly, corporations don't like being sued! They don't like being in front of a jury where... they have to stand there as ordinary mortals."

Sources close to the negotiations say that Durbin remained in the "no" column the whole time. Reformers saw Whitehouse as one of several Democratic votes that could go either way. But it never got that far. Reid shut the process down from on high, making sure patent trolling will continue to flourish.

Entrenched interests

The issue is sure to come back in the next Congress. Still, this week is a big setback for the many companies and groups that were seeking help in the fight against trolls. Samuels saw some silver lining in that the opponents of reform weren't able to get their own bill passed, which they were seeking to do. If Congress had passed a bill that was reform in name only, it would have made future change even harder. "This was really close," she said. "As far as a movement for reform goes, we've had a lot of victories. The FTC is looking into this, the Supreme Court has five cases, and district courts are giving trolls a harder time." While things might be changing, it clearly isn't happening fast enough for those who have to deal with patent threats. "There's a long history in this country of entrenched interests writing our patent laws," said Samuels. "They haven't included the public interest, or the tech community, or small businesses that get hit by patent troll threats."

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