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Legislation Limiting Certain Design Patents Hits the House: The PARTS Act

I recently wrote on the power of design patents but now they are under attack, at least in one industry. Reps. Darrell Issa (R-CA) and Zoe Lofgren (D-CA) introduced a bill to be known as the PARTS Act to the House on February 2, 2012 and it had a subcommittee hearing on August 1. Gene Quinn of ipwatchdog.com does a good job of connecting the dots from the witnesses at the subcommittee hearing to vehicle insurance trade groups. The bill would retroactively remove design patent protection for automotive replacement parts. This isn’t about engine components, but rather body panels and interior components that are designed for not just a function but an aesthetic.

With respect to a design patent that claims a component part of a motor vehicle as originally manufactured —

(A) it shall not be an act of infringement of such design patent to make or offer to sell within the United States, or import into the United States, any article of manufacture that is similar or the same in appearance to the component part that is claimed in such design patent if the purpose of such article of manufacture is for the repair of a motor vehicle so as to restore such vehicle to its appearance as originally manufactured; and

(B) after the expiration of a period of 30 months beginning on the first day on which any such component part is first offered to the public for sale as part of a motor vehicle in any country, it shall not be an act of infringement of such design patent to use or sell within the United States any article of manufacture that is similar or the same in appearance to the component part that is claimed in such design patent if the purpose of such article of manufacture is for the repair of a motor vehicle so as to restore such vehicle to its appearance as originally manufactured.

While these patents can protect the appearance of a particular model, automotive companies and their suppliers also pursue design patents on these components to protect their position in the replacement part market. While they could pursue protection on the entire vehicle appearance, typical body repairs involve only one or two body panels. Accordingly, it’s advantageous to obtain a design patent on each new panel design independent of the others.

Under current law, a design patent may be obtained that will have a 14 year term from the date of issue. That effectively covers the life of many cars. The result of the bill would be a wholesale devaluing (really an elimination of value) for design patents already issued in this area. Replacement parts manufacturers would be able to immediately start producing and marketing exact copies of the OEM panels. Two and a half years after the first offer for sale of a vehicle having the patented part, anyone could sell or use the copies.

While this could conceivably reduce repair costs (a boon to car insurance companies) it will also reduce the return on investments in new vehicle design and body styles. There are pros and cons to the concept of trying to increase competition in a particular market, but immediately devaluing design patents is not the way to promote competition in the area.

Like the SHIELD Act, the PARTS Act targets a specific industry and aims to weaken patents in those industries. It seems that efforts to weaken intellectual property protection in the United States are moving away from comprehensive changes and are instead being applied to specific industries.

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Bill in the House Would Make Losing Patent Owners Pay Some Litigation Costs

Reps. Peter DeFazio (D-OR) and Jason Chaffetz (R-UT), have introduced the “Saving High-Tech Innovators from Egregious Legal Disputes (SHIELD) Act.” The bill, if passed, would award attorney’s fees and costs to the winning putative infringer if the judge finds that the patent owner “did not have a reasonable likelihood of succeeding…” The bill is limited to patents related to computer hardware and software.

There are a few things I want to point out. First, despite the statement (reported by arstechnica.com) from Rep. Chaffetz that “A single lawsuit, which may easily cost over $1 million if it goes to trial, can spell the end of a tech startup and the jobs that it could have created,” this bill will likely not affect cases that go to trial. While not congruent with the standard for summary judgement or a Rule 12(b)(6) motion, I don’t think many cases that make it to trial would fit the standard set out in the SHIELD Act.

Second, the bill does not address the situation of an accused infringer who loses a case in which they did not have a reasonable likelihood of succeeding. This puts a disincentive on patent owners, especially small business patent owners (many of whom are technology startups), who would otherwise want to defend their intellectual property. At the same time, it encourages infringers to drag their feet, avoid settlement, and force the patent owner to rack up legal fees even if the infringer has a strong feeling they may lose on summary judgement.

Many technology startups chose to use patents to protect their ideas. Those patents are only useful if they can be enforced and this one-sided legislation will make it harder for small businesses to do so. It may also impact their value to potential suitors who may chose to emulate the technology rather than acquire it.

A better approach would be to impose a “loser pays” system across all patent cases (or even all cases brought in federal court). Whatever is done, it should be done across the board to apply to all technology areas.

As the bill stands, I doubt it will impact the behavior of patent trolls. Defendants will still settle because the mere hope of recovering their defense costs won’t offset the potential downside of not settling. The suits that will be deterred are those brought by innovative startups who now will have to fear paying the accused infringer’s costs should the startup lose. Those costs could break a small company and the fear of paying them will keep small businesses from asserting valid patents.