Technology users -- retailers, in particular -- are being snared in patent infringement lawsuits for offering drop down menus, displaying catalog images or having search engines and other common online services. As a result, pressure is growing on Congress to reform the patent process.
The Nov. 20 House committee vote to send a patent reform measure, The Innovation Act., to the floor on a 33-5 vote is evidence of reform's bipartisan support. What the vote didn't show is the deep divide in the tech industry over it.
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Stricken from the final version of the Innovation Act was a rule allowing a defendant in a business method infringement suit to challenge a patent's validity before the U.S. Patent and Trademark Office (USPTO). That administrative challenge, which deals with covered business methods (CBMs), can stop a lawsuit for up to 18 months and lead to the invalidation of low-quality patents if they're found to be too broad, vague or abstract.
Established as a pilot program in 2011, the challenge is limited for now to some financial applications. But proponents of patent reform want it expanded to cover most business software.
The CBM challenge has the potential to be a potent tool since it could invalidate problematic patents used by trolls. But it coud also be used to attack revenue-producing patents held by mainstream technology firms.
Without the challenge, the Innovation Act still has some weapons to help curtail infringement suits over commonly used processes. One provision could leave plaintiffs vulnerable to legal costs, another requires them to do more work upfront before bringing their demand. That would help defendants better understand what they're really up against.
But it's the CBM expansion that has been getting a lot of the attention. Small businesses and start-ups, in particular, might gain from a CBM process because 55 percent of companies fighting patent troll cases have annual revenues of $10 million or less, according to a recent New American Foundation study. These are infringement lawsuits brought by non-practicing entities (NPEs) or patent assertion entities (PAEs), firms that do little more than defend patents.
Other potential beneficiaries include retailers, grocers, airlines -- just about any business with a website. Groups representing these industries support the CBM expansion.
There is no upside for a defendant in a patent litigation suit, which has an average cost of $1.75 million, according to proponents of reform. Settling is often cheaper than fighting the lawsuit -- and that's what patent assertion entities count on. By contrast, the cost of a CBM administrative appeal could be about $350,000, according to one study.
CBM expansion opponents include IBM, Microsoft, General Electric, Adobe and many other firms. They have argued in a letter to lawmakers that an expansion would discourage investment, and give "infringers a new procedural loophole to delay enforcement." Companies with large patent holdings also appear more likely to oppose the CBM expansion.