Reflections on Unintended Consequences of Proposed Patent Law Amendments

No defense or damages limitation has ever turned on the niceties of recordation of ownership at the USPTO. This would be a sea change in patent law.

AnalysisSenators Leahy and Tillis have proposed another patent law amendment for the Endless Frontiers Act (SA 2060). SA 2060 rewrites and broadens a prior amendment that, in its old form, at least had something to do with the topic of the EFA (strengthening our competitiveness with China). The old version would have put an onus on foreign patent owners to become “transparent” in their ownership interests, by penalizing failure to record their ownership transfers at the USPTO. The new version evidently reflects a realization that such a carve out would violate international law. It now puts the same onus on everybody. Since it would affect everyone, this new amendment has evolved outside the original purpose of the EFA.

SA 2060 would also be a breathtaking expansion of the power of adjudged willful infringers to avoid responsibility for their trespasses against patent owners. The most likely patent owners to fall prey to SA 2060 are individual inventors and small companies. SA 2060 essentially says that if the paperwork for an ownership transfer is not handled properly within a short 90-day time frame from the date of a transfer (i.e., if it is not “recorded” with the USPTO) then every infringer that our judicial system has determined is the “worst of the worst” will get away with it. As a penalty for nonrecordation, a jury’s finding of willfulness could never lead to enhancement of damages to punish that willfulness. The words of SA 2060 put it this way: for the period when the paperwork is not perfect, “no party may recover, for the infringement of that patent in any action, increased damages under section 284.”

It has been said that transparency in rights ownership is a good thing, and who could oppose a little nudge to increase transparency when it comes to patent ownership? Yes, transparency is a good thing. So is punishment of intentional and willful infringement. The problem with SA 2060 is it fails to realize that the true need for transparency is already met in existing law.

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First, in such rare cases that a patent owner has not recorded a transfer to itself at the USPTO, that patent owner will always have to prove its standing whenever it brings a patent infringement lawsuit. The plaintiff does so by producing the transfer documents. When it really counts—at the filing of a lawsuit—ownership interests are always transparent. They have to be, to satisfy federal court standing requirements.

Second, the law already encourages transparency. The big irony of SA 2060 is that recordation has a long tradition as an action taken to protect the transferee, not to create traps for an unwary transferee. Just like in real estate law, recording ownership of the intangible property embodied in a patent protects the new owner by putting the world on notice of the transfer, preventing another (through fraud or otherwise) from ever becoming “a holder in good faith without notice.” Recordation avoids the nightmare scenario of the same owner selling the same property twice, resulting in the second transferee possessing quiet title. As such, incentives already exist for patentees to take advantage of no-cost recording of transfers at the USPTO. The general law of property already encourages the same “transparency” sought by SA 2060—just without bewildering windfalls and rewards for adjudged-unethical infringers.

No defense or damages limitation has ever turned on the niceties of recordation of ownership at the USPTO. This would be a sea change in patent law. Something so radical at least should rise or fall based on thorough and thoughtful legislative debate, investigation and committee work, including testimony by experts in real estate law and patent practice.

Imagine if you owned a home and every time you called the police about a trespasser on your lawn or in your property, the police checked the county records. And then imagine the police and prosecutors were forced to give a windfall to the trespasser if property-transfer records were not absolutely flawless—let’s say allowing only misdemeanor tickets and fines when the law would otherwise permit felony charges and imprisonment. It beggars the imagination why anyone would think this is a good idea.

The Author

Robert P. Greenspoon

Robert P. Greenspoon is a founding member of Flachsbart & Greenspoon, LLC. He is a registered patent attorney who concentrates his practice in the trial and appeal of patent cases involving computer and electronic technologies. He is also a former federal district court law clerk. The opinions presented above are his own, and not necessarily those of his firm or his firm’s clients.

Mr. Greenspoon represents both NPEs and operating companies, and both rights holders and accused infringers. He holds a winning appellate record, having argued numerous cases before the Court of Appeals for the Federal Circuit, as well as cases before the Fourth and Eighth Circuits.

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Discuss this

There are currently 5 Comments comments.

  1. mike May 28, 2021 10:06 am

    Tillis and Leahy are off the rails. Everyone in Congress needs to read this article.

  2. Pro Say May 28, 2021 10:21 am

    Bingo Robert.

    Bingo.

  3. Herb Wamsley May 28, 2021 2:20 pm

    It’s troubling to see this amendment surface on the floor of the Senate without having been subject to a hearing and markup in the Senate Intellectual Property Subcommittee and full Senate Judiciary Committee. I could be wrong, but I don’t recall any proposal similar to this in earlier congresses either.

  4. Randy Landreneau May 28, 2021 2:39 pm

    So, here we have something that appears sensible, but upon analysis, shows unquestionable negative consequences for American inventors. Surely those pushing this weren’t aware of the potential negative consequences. But since they’ve made previous mistakes of this nature, like creating the poster child for unintended consequences (PTAB), why are they still avoiding input from real American inventors who could help avert another disaster?

  5. Anon May 28, 2021 8:42 pm

    Yet another Trojan Horse.

    But doesn’t this one look pretty in how it is painted?