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(Click the image above for audio/video of Hatch’s speech)

U.S. Senator Orrin Hatch (R-Utah), a current member and former Chairman of the Senate Judiciary Committee and Chairman of the Senate Republican High-Tech Task Force, spoke last night on the Senate Floor about the urgency to pass legislation to curb the growing threat of so-called “patent trolls.”  Patent trolls acquire and use broad patents to threaten businesses with an infringement action, seeking a financial settlement or litigation.  Hatch introduced the Patent Litigation Integrity Act last fall and worked earlier this year to achieve a bipartisan agreement to stop this drain on the economy.

“We must ensure that our patent system is as strong and vibrant as possible, not only to protect our country’s premier position as a world leader in innovation, but also to secure our own economic future,” Hatch said.  “Legislation to combat abusive patent litigation will be among my top priorities in the next Congress. And I intend to do everything in my power to get such legislation passed—for the good of the economy and the good of the country.” 

Hatch’s full remarks as prepared for delivery are below: 

Mr. President: I rise to speak about the importance of our patent system and how it continues to be abused by patent trolls. 

Most members in this body are fully aware of the crippling effect patent trolls are having on innovation and growth across all sectors of our economy – ranging from main street businesses to America’s largest technology companies.  

Through abusive and meritless litigation, patent trolls—often shell companies that do not make or sell anything—extort settlements from innovators throughout the country. 

How do they do it? 

Take for example the small coffee shop down the street that provides Wi-Fi service to its customers. The shop owners are using a technology exactly as it is intended to be used. But thousands of miles away, a patent troll purchases broad patents previously issued to someone else. Next, the patent troll sends vague and hostile demand letters to the coffee shop and thousands of similar businesses accusing them, often improperly, of infringing their questionable patents. 

Many trolls target small businesses that they hope will agree to settle, even though they have done nothing wrong, simply because they do not have the resources to defend themselves in court. These settlements divert capital that could otherwise be used for research and development or to create jobs. But the sad reality is many businesses often have little choice other than to settle rather than expend the far greater resources required to fight in court. And those who do fight back are forced to spend millions in litigation costs—often with no chance of enforcing a court-ordered award against a judgment-proof plaintiff. 

How big of a problem is this? Mr. James Bessen, writing in the Harvard Business Review, confirms, “The economic burden of today’s patent lawsuits is, in fact, historically unprecedented. Research shows that patent trolls cost defendant firms $29 billion per year in direct out-of-pocket costs; in aggregate, patent litigation destroys over $60 billion in firm wealth each year.” 

Mr. Bessen further cites three studies on patent lawsuits currently in the works by researchers from the Massachusetts Institute of Technology, Rutgers, Harvard, and the University of Texas. Based upon preliminary findings, Mr. Bessen states, “A consistent picture is emerging about the effects of patent litigation: it costs innovators money; many innovators and venture capitalists report that it significantly impacts their businesses; innovators respond by investing less in R&D; and venture capitalists respond by investing less in startups.” 

Mr. President, I agree with Mr. Bessen. The evidence from these studies cannot be ignored: patent trolls do hurt innovation and it is past time for Congress to do something about it. 

For the better part of a year Congress worked toward a legislative solution to combat patent trolls. In December we overcame the first legislative hurdle when the House of Representatives passed the Innovation Act by a vote of 325 to 91. The White House endorsed the bipartisan legislation by stating, “The bill would improve incentives for future innovation while protecting the overall integrity of the patent system.” 

Here in the Senate, I worked closely with a bipartisan group of senators to craft a compromise bill that could pass the Senate. Countless hours of negotiations yielded encouraging results on key litigation reform provisions including: fee shifting, heightened pleading and discovery standards, and a mechanism to ensure that recovery of fees will be possible against shell companies. 

In the spirt of bipartisanship my Republican colleagues and I were willing – albeit very reluctantly – to lower the bar on fee shifting if we maintained strong litigation reforms elsewhere. But I continue to believe that mandatory fee shifting is the best way to discourage patent litigation in cases where a plaintiff’s or defendant’s case is so weak it should have never been brought or defended in the first instance. That is why I included mandatory fee shifting in the Hatch-Leahy Patent Reform Act of 2006, and why I will insist on its inclusion in future legislation. 

Fee shifting alone gives a prevailing party little relief against patent trolls who litigate in the name of shell companies while their financial backers – or interested parties – purposely remain beyond the court’s jurisdiction. 

Thus, there must be a mechanism to ensure that recovery of fees will be possible even against judgment-proof shell companies. The recovery of award provision that I drafted is intended to ensure that shell companies primarily in the business of asserting and enforcing patents in litigation cannot escape potential liability for attorney’s fees if they are found to have pursued an unreasonable case.  Those deemed interested parties may either voluntarily submit to the court’s jurisdiction and become liable for any unsatisfied fees awarded in the case, or opt-out by renouncing sufficient interest related to the litigation, or do nothing.

In my view, fee shifting without such a recovery provision is like writing a check on an empty account. You’re purporting to convey something that isn’t there. Fee shifting coupled with this recovery provision would stop patent trolls from litigating-and-dashing. 

Mr. President, there is no question that America’s ingenuity fuels our economy. We must ensure that our patent system is as strong and vibrant as possible, not only to protect our country’s premier position as a world leader in innovation, but also to secure our own economic future. Patents encourage technological advancement by providing incentives to invent, invest in, and develop new technology. 

It bears repeating that the governance of patents and copyrights is one of the essential, specifically enumerated powers given to the federal government at our nation’s founding.  In my view, it is one of the most visionary, forward-looking provisions in the entire U.S. Constitution. 

Unfortunately, at least in the 113th Congress, it is unlikely that this body will act to end the abuses by patent trolls. It’s shameful that even intellectual property bills are now the latest casualties of our current partisan gridlock. 

Mr. President, as senators prepare to return to their home states for the August recess, I hope they will hear from people who represent the hotel, restaurant, retail, real estate, financial services, and high-tech industries about the urgent need to pass patent troll legislation. 

I hope senators will be reminded about the opportunity the Senate abandoned to pass bipartisan, bicameral legislation that was supported by the White House, but pulled from the Senate’s agenda by the Majority Leader. 

I hope senators will recognize we must end the multi-billion dollar assault on American businesses and workers. Because that’s what it is. 

Through common-sense reforms to our patent laws, we can ensure that American resources are used to innovate and create jobs – not wasted to settle or litigate frivolous claims. 

I am disappointed that during the 113th Congress the Senate has failed to act to address this critical challenge. Legislation to combat abusive patent litigation will be among my top priorities in the next Congress. And I intend to do everything in my power to get such legislation passed—for the good of the economy and the good of the country.

I yield the floor.