Global Trade

Putting a stop to patent trolls

Putting a stop to patent trolls

Congress can’t seem to agree on anything beyond naming post offices these days, but one rare area of common ground is the need to address patent trolls—companies that hold patents for the sole purpose of extracting money from creators and inventors through frivolous lawsuits. Many patents taken out by trolls are so vague or broad they shouldn’t have been issued in the first place.

This week, the U.S. House of Representatives is slated to vote on the Innovation Act, H.R. 3309, introduced by Rep. Bob Goodlatte, R-Va. The bill would rein in patent trolls by changing how patent disputes are litigated in court and strengthening America’s patent laws by making it harder to abuse them.

Protecting entrepreneurs from frivolous lawsuits is especially important in the technology sector, where bogus patent lawsuits and legal threats have become commonplace. Currently, a software developer must evaluate whether a particular chunk of code might violate any of millions of patents in force worldwide. No matter how many patent lawyers a firm retains, it’s nearly impossible to determine whether a new product might infringe a pre-existing invention.

When a patent owner sues, it isn’t required to identify from the outset which patent claim the defendant supposedly violated or which of the defendant’s products is infringing. Therefore, it can take months—and hundreds of thousands of dollars in attorneys’ fees—before companies being sued can be cleared of even the most frivolous charges.

Trolls often target companies that lack the resources or inclination to defend against frivolous patent lawsuits. Many small firms employ no lawyers, let alone any with enough patent experience to recognize a bogus patent infringement complaint. So they often settle for a few thousand dollars—before trial or even discovery commences. If a firm fights back, a troll likely will drop its suit before its patent can be found invalid.

This problem isn’t limited to the high-tech sector. A company called Innovatio IP Ventures began suing hotels and coffee shops in 2011 over alleged violations of 17 of its patents. The supposed infringement? Offering free Wi-Fi to customers. Several Wi-Fi device manufacturers, including Cisco and Netgear, have since intervened on behalf of the business sued by Innovatio.

Not everyone believes patent trolling is a serious problem. Bowdoin College economic historian Zorina Khan observes that the patent litigation rate—the number of suits filed divided by the number of patents—only amounted to 1.5 percent during the past decade. Yet even if the incidence of patent trolls has been overblown, there’s no disputing that trolls exist and pose a threat to innovation.

The Innovation Act makes modest but meaningful changes to the Patent Act to tilt the legal scales away from patent troll plaintiffs. It enables the winner in a patent lawsuit to recover attorneys’ fees and other litigation expenses from the loser if the court finds the loser’s conduct was unjustified. Companies that blatantly infringe valid patents or file dubious patent lawsuits may think twice if the other side has a shot at recovering attorneys’ fees.

The bill also requires a patent owner filing suit to explain how the defendant has infringed the owner’s patent and identify which aspects of the patent are affected by the infringement. This provision should deter trolls from filing vague complaints that don’t even inform defendants as to what they’ve allegedly done wrong.

Moreover, the Innovation Act limits discovery in the early stages of litigation, curbing the expensive and time-consuming process whereby parties exchange and review reams of documents. It requires plaintiffs to identify which, if any, other parties have a significant stake in the suit. And it requires patent lawsuits against purchasers of allegedly infringing products to be delayed if the product manufacturer intervenes in the lawsuit.

Some companies in the biotechnology and pharmaceutical industries claim the bill will curtail inventors’ ability to seek legal redress for infringement of their patent rights. But holders of valid patents have little to fear from the Innovation Act. Judges may err from time to time, to be sure, but errors are inevitable so long as we entrust humans to adjudicate disputes.

Balancing the rights of defendants and plaintiffs requires weighing tradeoffs, which is precisely what Congress has done with the Innovation Act. It is not a perfect bill, but it takes a major step toward a more effective patent system that protects inventors and innovators and alleviates unnecessary and abusive litigation.

Coley Jackson is president of Freedom Action, a 501-c-4 grassroots organization that promotes economic freedom and individual liberty.

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