How the Tech Lobby Got Beat
Silicon Valley regroups after being outmaneuvered by more established lobbyists in the Senate.
The tech lobby reportedly was unable to get past Senate Majority Leader Harry Reid on patent reform.
Congress seemed fated to accomplish just a short list of things during this divisive election year, but the failure of patent reform this spring despite bipartisan support has lobbyists of the growing technology industry frustrated – and planning a comeback on the issue in 2015.
The push for a new law was fueled by cases of small businesses and tech innovators being drained of their limited budgets by "patent trolls" – entities using patents not to build or improve inventions, but to threaten people with infringement lawsuits to extort settlements as an alternative to expensive litigation. Patent trolls sometimes use poorly defined or expired patents on consumer technology to extort out-of-court settlements from small businesses.
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The tech industry is hit particularly hard by these tactics because a program or device can each consist of many patents for the software or the parts. Patent trolls have elicited settlements from businesses like coffee shops, supermarkets and hotels because they used Wi-Fi devices allegedly protected by a patent. Web entrepreneurs are also sent threatening letters by trolls accusing them of infringing on a software patent.
President Barack Obama called for action to prevent abusive patent lawsuits in his State of the Union address, two months after House Republicans spearheaded a 325-91 vote passing a bill aiming to protecting small businesses from being harassed by such lawsuits.
The House bill, known as the Innovation Act, sought to discourage such poorly founded lawsuits by requiring the loser of a patent case to pay the legal fees, with certain exceptions. The bipartisan bill sailed through the Republican-controlled House in December, shortly after partisan gridlock shut down the government. The momentum stalled in May when Sen. Patrick Leahy, D-Vt., withdrew his Senate version of the bill.
Leahy said he was forced to drop the bill by Senate Majority Leader Harry Reid, D-Nev., according to an interview with the Vermont-based Burlington Free Press.
"I am furious with what happened," Leahy told the Free Press. "We worked so hard to get a coalition. Harry Reid and a couple of others said, 'We won't let it come to the floor.' I think that's wrong, but I'm not going to give up."
Accusations that Reid blocked Leahy’s bill also came from Sen. John Cornyn, R-Texas, who this spring coordinated on a patent reform proposal with Sen. Chuck Schumer, D-N.Y.
“The majority leader basically killed that bill before it could even be acted on in the judiciary committee,” Cornyn said on the Senate floor in May. “And in the process he shut out not just Republicans but Democrats, too."
Reid's office did not respond to requests for comment.
[ALSO: Bipartisan Innovation Act Clears House]
The technology industry accounted for only part of the hundreds of millions of dollars spent hoping to influence Congress on patent reform in 2013 and 2014. Some groups opposed Silicon Valley, hoping to maintain stronger lawsuit rights for patent owners. The tech lobby’s failure was likely the work of such competing interests pressuring Senate leaders to block the bill, says Robert King, a patent attorney with the law firm of Hunton and Williams.
“There could be plaintiff attorneys who could make money off a contingency case that trolls might bring,” says King, a partner at the law firm. “I would imagine that not much happens in Congress without lobbying.”
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A Republican Senate aide, speaking on background, also says, "It is my understanding the trial lawyers were the primary force pressuring Reid on this."
The drug industry, like trial lawyers, could benefit as well from retaining existing standards to protect patent assertion rights, since that health sector relies on patents for inventions. The top campaign contributors to Reid since 2009 have come from the legal sector, with health professionals listed as the fourth-largest contributing group and the computer and Internet industry trailing at 13 th place, according to the Center for Responsive Politics, which researches money in politics.
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The number of groups lobbying on patent and copyright issues during the first few months of 2014 has already exceeded that of 2013, according to the money-tracking center, which details tech and health care interests as the top competitors. Google was the top lobbyist on patents in 2013 and so far during 2014, followed by the trade group Pharmaceutical Research and Manufacturers of America, which has jumped from the fourth-most active lobbyist on the issue in 2013 to second place this year, according to the research group.
Despite being beaten in the Senate by more established players, Silicon Valley lobbyists flexed their growing political muscle by running a strong public relations campaign to support the bipartisan Innovation Act. Computer and Internet companies reported spending nearly $72 million to lobby on issues including patents during the first few months of 2014, according to the Center for Responsive Politics. The year isn’t even over yet, so the tech industry may surpass its 2013 lobbying record of $141 million, according to reports compiled by the center.
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The tech sector's failure was a learning experience for the industry’s growing lobbyist presence, which plans to push for patent reform again next year. The last major change to patent law – the America Invents Act signed by Obama in 2011 – took six years to clear Congress, so lobbying money spent so far ”was definitely worth it” to raise awareness about the issue, says Gina Woodworth, vice president for public policy and government at advocacy group The Internet Association.
“We never went into this thinking it was a short-term strategy,” says Woodworth, whose group was founded in 2012 and represents companies including Google and Facebook. “Since our inception less than two years ago, this has been a high priority.”
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The upcoming 2014 elections could unseat Democrats – and Reid – from Senate leadership posts, but The Internet Association is ready for any outcome, Woodworth says. Internet Association members Google, eBay and Facebook have contributed about equally to the campaigns of both Republicans and Democrats since 2013, according to an analysis of their campaign finance reports by the Center for Responsive Politics.
“Getting pieces of legislation to move in the Senate is a complicated matter,” Woodworth says. “It doesn’t matter who is in the majority.”
The Senate patent bill may face less resistance in 2015, when members are less cautious about the November elections, says King, the patent attorney. If Republicans gain a Senate majority, they may have an easier time coordinating on patent reform with leadership in the House and the Obama administration, he says.
“Maybe people wanted to keep a low profile during an election year,” he says. “President Obama wants to address this and he’s a big proponent of patent reform.”
The Internet Association plans to step up efforts to educate Congress and businesses about the need to protect small companies from abusive lawsuits, which may reassure lawmakers uncertain about the possible consequences of revising patent law, Woodworth says.
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Some Democrats were fearful that the Innovation Act would have caused fees to be shifted onto the shoulders of people who lost cases but had a solid right to assert their patents, according to critics like Rep. John Conyers, D-Mich., the top Democrat serving on the House Judiciary Committee.
To ease those fears in the Senate, advocates for the technology industry did their part to compromise during negotiations, says Peter Pappas, a senior adviser for Engine, an advocacy group for tech startup entrepreneurs. Those compromises in the Senate included agreeing to provisions that would have “given more discretion to judges” in lawsuits, and including in the bill when to require more details about patent ownership before a case is allowed in court and when to shift legal fees to the losing party of a case, Pappas says.
“I think tech did most of the compromising,” says Pappas, a former chief of staff at the U.S. Patent and Trademark Office.
If enacted, the bill would have caused some unintended consequences for patent defendants, but overall the legislation created room to prevent unfair rulings, King says.
“My take on it is that it doesn’t really restrict anything that should not be restricted,” King says. “In some local [court] districts you have to do some of this stuff anyway.”
Despite its defeat, Silicon Valley is growing influence in Washington and will definitely live to lobby another day, says Viveca Novak, communications director for the Center for Responsive Politics.
"They are coming along," she says. "A lot of tech companies now spend a good deal of money compared with others who have been around longer."
