Will this be the year Congress finally passes reform that stops patent trolls from sucking billions of dollars from the economy? The House and Senate have each introduced bipartisan legislation offering fixes that have garnered broad support from technology companies and public interest groups. But the bills' prospect for passage is not a slam dunk.
Patent trolls, which are often shell companies that accumulate patents with the intent only to threaten litigation and extort settlements from defendants, have been called everything from "litigious leeches" to "the scum of the earth." However, their practices are entirely legal.
Abusive patent litigation has mushroomed in the United States and is estimated to cost defendants $29 billion per year in direct out-of-pocket costs -- time and money that could have been spent on actual innovation. (Patent trolling is less of a problem in Europe, where the losing party pays costs.)
"Patents are now not an asset to innovation and industry so much as they have become an industry in themselves," says David Koepsell, adjunct associate professor at the State University of New York in Buffalo.
Senate staffers were briefed this week on S1137, the Protecting American Talent and Entrepreneurship (PATENT) Act, which despite its name has nothing to do with talent and entrepreneurship and everything to do with trolls. It is also something of a compromise, which waters down the more aggressive House version, HR9 Innovation Act. The patent reform aims to:
- Increase transparency. Lack of transparency has become a competitive tool, with trolls frequently filing lawsuits that don't actually explain how their patents are being infringed -- those details don't emerge until after an expensive discovery process. Defendants, left guessing what the case is actually about, are forced to spend time and money trying to make sense of the claims, and many simply opt to settle rather than pay a fortune in fees. Both bills require patent owners to supply specific information when filing suit about which patents are being infringed, what product is infringing -- in other words, no more bare-bones complaints.
- Limit discovery. The cost of discovery -- finding, reviewing, and producing e-documents -- is part of what makes litigating patent cases so expensive. Both bills delay discovery until after pre-trial motions are resolved, reducing the economic pressure many defendants are under to settle early on. However, the Innovation Act would limit discovery to "core documents" and force patent holders to bear the costs of discovery for any request beyond that. As the Electronic Frontier Foundation notes: "Patent trolls, who are often shell companies with few employees and documents, face a much lower discovery burden. The trolls know this. Some will even openly threaten to make litigation as expensive as possible in order extort a payment." The Senate bill waters down discovery reform found in the Innovation Act by merely suggesting the Judicial Conference "consider" certain changes to discovery procedures, rather than mandating the changes. It also introduces a loophole by allowing "interrogatories," or questions into pretty much everything, that require long-form responses.
- Reduce the number of suits by shifting fees. Trolls triumph because many defendants opt to settle rather than engage in expensive legal battles. Both bills would let the judge shift attorney fees to the losing party, giving small defendants a chance to fight back against weak troll cases. However, the PATENT Act waters down the Innovation Act's provision making that the default and says costs may be shifted only if the winning party shows the losing party's suit was unreasonable.
- Protect users. Trolls have targeted customers -- small businesses, startups, and even individuals -- and made lawsuit threats and licensing demands against those who use everyday products like Wi-Fi routers and scanners. Both bills would allow for lawsuits against users to be put on hold, at least until litigation against the manufacturer or supplier of the products is decided.
- Prevent abusive demand letters. To reduce the instances of exceedingly vague payment demand letters, the PATENT Act requires clarity in the letters and stipulates that parties engaged in the widespread sending of abusive demand letters and deceptive trade practices can be subject to civil penalties.
Microsoft, Yahoo, Verizon, and several trade groups, including BSA and the Software and Information Industry Association, have voiced support for Congress' patent reform. Even with its weaker protections, both Public Knowledge and the EFF support the Senate bill. "While the PATENT Act does not go as far as the Innovation Act on some provisions, it is a welcome step in the right direction…[and] is worth backing," the EFF says.
Charles Duan, director of the Patent Reform Project at Public Knowledge, says that "abusive patent assertion harms the entire public.... By leveling the playing field of patent litigation in several areas, this bill should protect the technology-consuming public from the harms that patent trolls and other abusers cause."
However, last month a group of leading conservatives released a memo calling for rejection of the reforms. "Strong patent protections ... have been critical to the creation of wealth and jobs and to the U.S.'s role in the world. For that reason, Conservatives should be wary when elected officials start talking about reforming the patent system," the memo states.
Both the House and Senate bills passed committee in June but have yet to be brought to the floor, although Rep. Bob Goodlatte (R-Va.), lead author of the House bill, said he "remains confident" the Innovation Act will get a vote soon.
Rep. Peter DeFazio (D-Ore.), a co-sponsor of the House bill, said in a statement. "[Patent trolls] don't build things, provide services, or keep our country moving -- rather, they prey on our small businesses and innovators by manipulating patent laws and extorting billions of dollars each year from them. It's time for Congress to drive these bottom-feeding patent trolls to extinction."