Patent trolls are on the run, but not vanquished yet

running runner road track

Strong legislation that will weaken the ability of the trolls to shake down innovators is likely to pass Congress, but more should be done

There's finally light at the end of the dark, troll-invested tunnel, and it isn't an oncoming train. Congress is likely to pass a bill that will take money out of the pockets of innovation-sucking patent trolls (aka "nonpracticing entities") despite opposition from lawyers, the pharmaceutical industry, and a few tech companies that hold large numbers of patents.

The Innovation Act isn't an ideal fix for the program patent system. "It's largely a measure to reform patent litigation, but it doesn't do enough to improve the quality of patents," says Daniel Nazer, an attorney with the Electronic Frontier Foundation, which would prefer to see software patents abolished.

But provisions in the proposed law, like one that will make trolls pay legal costs if their claims are rejected, will remove a good deal of the risk that smaller companies face when they decide to resist a spurious lawsuit.

The patent trolls' last stand?

There's no way to know if trolls are ramping up their activity in hopes of big paydays before the Innovation Act becomes law, but startups and others have been bombarded with ill-founded claims recently.

Samsung, for example, was recently ordered to pay $16 million for using Bluetooth -- though the “inventor” admitted Bluetooth had been on the market for years before he patented it. Another “nonpracticing entity,” AlphaCap Ventures, has sued at least nine companies engaged in some form of crowdfunding, according to the Crowd Funding Insider.

As is typical in cases like this, the suits contain little or no technical details and were filed in federal court in East Texas, a plaintiff-friendly venue favored by trolls.

Should the Innovation Act pass, those suits could still be filed, but they'd have to be more specific in their claims. That raises a much larger point: Although most people assume software patents are needed to protect innovators, there's evidence that they don't. If that's the case, why not abolish them once and for all?

Patents and innovation may not go together

If you looked at the Bluetooth patent claim I mentioned earlier, you'll notice it contains no code. It's not in there, and not only because it's a spurious claim. It turns out the patent doesn't protect the actual code -- copyright and trade secrets do so (in the case of commercial software), Nazer says. In fact, software is one of the few, maybe the only, work products protected by both patents and copyright law, he adds.

"The idea that you can't build software without patent protection is false. Microsoft became a $1 billion company before it had been granted any patents,” Nazer says.

Even so, most of us assume that "tech transfer" from inventors to the marketplace wouldn't happen without patent protection, which enables innovations to be disseminated to other companies through licensing and in return reward the inventor. But a new study suggests patent licensing does little or nothing to promote research or new products.

That study, titled “Does Patent Licensing Promote Innovation?,” is by Mark Lemley of Stanford Law School and Robin Feldman of the University of California's Hastings College of Law. It is based on a survey of 188 people whose job involves negotiating patent licenses at major companies and elsewhere.

"We find that very few patent licenses from assertion result in any innovation, whether we measure that directly by looking for new products and features, or indirectly by looking for proxies such as the transfer of technology, sharing of personnel, or the development of joint ventures," they wrote. Patent licensing, they say, "seems to be an activity almost entirely divorced from innovation."

Lemley and Felman note that the study was not based on enough people to be definitive, but other serious people have reached similar conclusions.

First-mover advantage is decisive for tech success

In 2012, two economists at the Federal Reserve Bank in St. Louis called for the abolition of patents. Patents, they said, "have a negative effect on innovation" and are not necessary to the creation of successful products.

What creates success in the market: getting there first with a great product or a patent? It's the former, argue Boldrin and Levine. Apple, for example, launched the first iPhone in June 2007, and no serious competitor emerged until the HTC Dream came to market in October 2008.

Apple's patent portfolio didn't lead to its success; it was innovation and the advantage of being first to market. It's not at all clear, the fed economists argue, that Apple's patent portfolio slowed the competition very much.

Richard Posner, the federal judge who presided over the patent fight between Apple and Motorola Mobility, makes a similar argument: "When you are dealing with products that have very short lives, you often don't need patents because by the time competitors wise up, you've moved on," he told the New York Times.

For software patents, we need reform, not revolution

You'd have to be wildly optimistic to think that software patents will be abolished. Although the EFF's proposals call for the idea to be studied, Nazer doesn't expect it to happen; he instead advocates several reforms not contained in the Innovation Act.

One important reform would be the abolition of "forum shopping." Right now, plaintiffs can choose to file suits in federal courts known to be sympathetic to them, which is why so many patent suits are heard in East Texas. The EFF also calls for a limitation on damages, so a patent owner can't collect millions if the patent represents only a tiny fraction of a defendant's product.

Most of the reforms suggested by the EFF are probably good. But one recommendation -- arguing that "patent applicants should be required to provide an example of running software code for each claim in the patent" -- is problematic. The EFF's notion seems to be that claims of infringement shouldn't be only theoretical but instead based on patents the originator has actually used in its own products. I worry that this standard would this discourage universities and other pure researchers from seeking patents. As a colleague remarked to me, “What's wrong with being an idea factory?”

Still, the EFF's proposal, the product of several years of work and consultation with many Silicon Valley innovators, is worth reading and considering if you care about this issue.

The first step to reining in the patent trolls looks imminent

The Innovation Act seems likely to pass; it has bipartisan support in the Senate, where last year's version died.

That's not to say the lobbyists won't buy crippling amendments or find a few senators with the power to block it. Last time around, then Senate Majority Leader Harry Reid and Sen. Patrick Leahy, both Democrats, were reportedly the main actors responsible for the bill's death. But now that Republicans control the Senate, Reid has less clout and there's a broader coalition, including retailers and tech companies, in place to support it.

Assuming it passes, even relatively intact, we won't have seen the last of the trolls. But the deck will no longer be completely stacked against the real innovators.

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