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ICYMI- Congress Eyeing Fix To Stop Patent Trolls

Investors Business Daily, Yahoo! Finance
Congress Eyeing Fix To Stop Patent Trolls
Posted February 6, 2014 1:05 PM

Two years after passing the biggest patent change in decades, Congress is grappling with the issue again.

Lawmakers are pondering bills designed to combat frivolous lawsuits by patent trolls, which describes those who buy patents and sue to enforce them but don’t use the control to make anything.  Some critics say proposed legislation could unfairly benefit technology companies.  Giants such as Microsoft, Google  and Apple  — as well as startup tech companies, restaurants, hotels and retailers — have been hit in recent years with demand letters or lawsuits alleging patent infringement. The firms want Congress to help fight back.

Certain nonpracticing entities (NPEs) buy up patents and sue businesses for alleged illegal infringement. The patent infringement lawsuits cost the U.S. economy $29 billion in 2011, imposing a “significant tax on investment in innovation,” according to a Boston University study.  In response, the House in late 2013 voted 325-91 to pass the Innovation Act. But the bill has stalled in the Senate, which some say won’t pass it in its present form.

The bill, which President Obama supports, requires plaintiffs in patent lawsuits to make more specific allegations about why they’re suing, thwarts shell companies by requiring anyone who has a financial interest in the patent to be named, makes it easier for victorious defendants to force plaintiffs to pay their legal costs, and tries to keep litigation costs down.

One NPE, Innovatio IP Ventures, sent 8,000 letters to coffee shops, retailers and hotels seeking payment for offering free Wi-Fi, a June 2013 White House report states. Innovatio claims to hold Wi-Fi-related patents.  It frequently is cheaper to settle any lawsuit rather than take a case to trial where jurors, often lacking scientific credentials, decide.

The latest push for a patent overhaul comes two years after Congress passed the America Invents Act, the biggest change to the patent system since the 1950s, but which didn’t clearly define what particular patents do.

“What businesses hate more than anything else is uncertainty,” said Polk Wagner, a professor at University of Pennsylvania Law School. “The (U.S.) patent system is a huge morass of uncertainty.  What’s certain is that paperwork is piling up in federal courts. Patent litigation has grown dramatically, from 2,800 lawsuits in 2009 to 6,500 last year.  Another certainty is that major companies are using big patent purchases for lawsuit protection instead of spending it on research, development and innovation.

Google’s $12.5 billion buy of Motorola in 2012 included 17,000 patents. The search giant recently agreed to sell a slimmed-down Motorola to Lenovo for $2.9 billion — but it’s keeping the patents.  Also in 2012, AOL sold 925 patents to Microsoft for $1.05 billion.

In 2011, a group of tech titans, including Apple and Microsoft, paid $4.5 billion for Nortel’s patent portfolio. Apple contributed $2.6 billion — more than the $2.4 billion it spent on R&D that year, according to SEC documents.

Whether the trolls are really to blame for the litigation surge is up for debate. The Government Accountability Office issued a report in August casting doubt on whether “patent assertion entities” were responsible, saying they constituted only 20% of such lawsuits.

Regardless, Google and IBM (IBM) as well as the National Retail Federation and the National Restaurant Association are arguing for patent lawsuit limits. Last summer they launched a radio and print campaign in 17 states against NPEs. State attorneys general in Virginia and Nebraska also are taking legal action against trolls.

“The problem is so deep here that we really need Congress to act,” said Michael Beckerman, CEO of the Internet Association, which represents global companies and backs the Innovation Act.

The Senate is mulling its own patent bill, likely to be narrower in scope than the Innovation Act.

The dilemma before Congress is how to “cure the disease without killing the patient,” said Todd Dickinson, executive director of the American Intellectual Property Law Association and a former director of the government’s Patent and Trademark Office. AIPLA members include lawyers of both plaintiffs and defendants in patent infringement cases.

Especially in the tech sector, companies can find themselves on both sides of the litigation divide.

Apple and Samsung have been fighting a two-year battle around the world accusing each other of ripping off designs and technology for tablets and smartphones.  The Supreme Court has taken on several patent cases this year. The patent system may be better off with the courts deciding the issue as opposed to politicians, Dickinson says.

And a crackdown on lawsuits could leave small inventors with limited access to the courts to defend their rights, critics say.  “Many of the large multinational corporations won’t pay a license if they can steal the patent and be reasonably certain they’re not going to get sued,” said Carl Cooper, a Nevada-based inventor who holds more than 75 patents.

Besides small-time inventors, the Innovation Act’s critics include the drug and biotech industries as well as universities, which have expressed concerns that their licensing income could be hurt.

The explosion in patent lawsuits isn’t due to trolls but the America Invents Act, says Matthew Vella, president of Acacia Research, a Newport Beach, Calif., licensing firm. The 2011 law changed joinder rules, requiring fewer defendants named in complaints.

As a result, instead of one big lawsuit against multiple companies, several smaller suits vs. individual companies get filed.

A study from this past November by three law professors said that although the number of patent infringement lawsuits soared from 2010 to 2012, the unique patentees filing suits barely grew, from 1,610 to 1,696. The number of parties dipped from 11,671 in 2010 to 11,604 two years later.

Then there’s the matter of defining a patent troll or a frivolous lawsuit. Universities often create patents and can sue to protect them, but don’t have the wherewithal to manufacture the products.

“Lawsuits happen,” Vella said. “They’re not always frivolous.  Some are.  Many aren’t.  The real problem isn’t so much the litigation, but that the U.S. patent system has aspects — namely, the hazy definition of what patent rights cover — that create space for strategic litigious behavior, says Penn’s Wagner.

He contends that’s the real issue Congress isn’t addressing.  “We’d be much better off trying to reform the way we get patents . .. rather than making patents harder or easier to get,” he said. “There’s not a thing in any of those bills that will make patents more certain, more clear or make them more amenable for courts to deal with them.”