House Democrats, Republicans agree to end patent trolls
If you had to use one word to describe the current Congress, that word would be disagreement. Healthcare, budgets, foreign policy, you name it, they'll disagree on it — except when it comes to patent reform.
But in a surprising move, the House of Representatives passed Representative Bob Goodlatte's (R-VA) Innovation Act (PDF Link) by a vote of 325 to 91 that crossed party lines. Goodlatte introduced the bill in October saying that, "Abusive patent litigation is a drag on our economy. Everyone from independent inventors, to startups, to mid- and large-sized businesses face this constant threat. The tens of billions of dollars spent on settlements and litigation expenses associated with abusive patent suits represent truly wasted capital — wasted capital that could have been used to create new jobs, fund R&D, and create new innovations and technologies."
Fighting patent trolls
Patent trolls, aka patent assertion entities (PAEs), are businesses that search for companies that create devices or services which might be covered by the troll's patents — and then threaten them with lawsuits to gain licensing fees. The troll itself makes no effort to use its patented "inventions" to create commercial products.
Most technology companies agree with Goodlatte that patent troll lawsuits have hurt the economy and innovation. Such diverse groups and businesses as the Electronic Frontier Foundation, Microsoft, Google, and Cisco all support the bill. It's easy to see why. For all that the companies may use patents against each other, ala Apple vs. Samsung, patent trolls cost all of them more money.
The evidence shows that patent trolls have become an ever greater drag to the innovation economy. Lex Machina recently found that 56 percent of all patent lawsuits are from patent trolls. That's only part of the story. The patent problem is actually far bigger than the number of filed patent lawsuits.
That's because most patent troll lawsuit shakedowns never get to trial. "Much monetization behavior, such as bargaining, posturing and payment, concludes without any party filing a lawsuit." As a result, the authors conclude that "increasing anecdotal evidence suggests that patent litigation represents only the tip of the iceberg, and that the vast majority of patent monetization activity never progresses to the point at which a patent infringement lawsuit is filed."
And, why do businesses pay off? Easy. It's cheaper than fighting.
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The American Intellectual Property Law Association reported in 2011 that if a company defended itself against a less than $1 million patent lawsuit, its total legal bill would average $650,000. If you're facing a patent troll lawsuit of more than $25 million you're looking at median legal costs of $5 million.
That was two years ago. Legal fees have only gone up since then. Matthew Bye, Google's senior competition counsel, wrote on April 5 that patent trolls cost the U.S. economy nearly $30 billion a year. I can well believe it.
The Innovation Act is meant to both cut these bills and the sheer number of these lawsuits. To do this its major provisions:
Require lawsuit specificity: Today in a patent lawsuit it can be unclear about exactly what it is in your service or product that infringes their patents. Under the new law the troll will be required to spell out why you're being sued rather than rely upon vague claims. Today, with some boilerplate lawsuits, it really is impossible to tell what exactly you're being sued for.
Reveal patent ownership: Patent trolls often use shell companies to hide who really owns the patent and thus who's really suing you. Under the new law plaintiffs will be required to name everyone with financial interests in the lawsuits.
Make losing trolls pay: Today, even if you win a patent lawsuit getting your legal fees paid can be difficult because the shell company that sued you may have no assets. No wonder patent trolling has become so popular, almost all you need is a shell company, a patent, a paralegal, and a post-office box, then you can start suing for patent profit without any consequences! With the Innovation Act, if the shell company can't pay up, others who might have profited from the suit may be ordered by the court to pay your bills.
Delay discovery procedures: If you're unlucky enough to be sued today, you'll often find that you must delivery your internal documents and e-mails to the defendant so they go on a fishing expedition through your business to find something they can use against you. Besides being incredibly annoying, it's also extremely expensive. With this law, the patent claims themselves must be cleaned up in court and only then would discovery start.
Protect the innocent: It used to be that only vendors got suited for patent violations. That was then. This is now. Today patent trolls, such as Innovatio, make money from suing end-user businesses such as hotels and coffee shops that offer Wi-Fi. No, I'm not kidding, and neither are they. With this new law, the technology vendors can more easily get involved in the case so Ma and Pa's Coffee and Tea Shoppe won't be forced to pay a patent licensing fee to avoid the cost of a lawsuit.
The passage of the bill through the House has its supporters hopeful that it will soon become the law of the land. In a statement Horacio Gutierrez, Microsoft's Deputy General Counsel and Corporate Vice President of Legal and Corporate Affairs, said, "Today's overwhelming, bipartisan House vote to pass the Innovation Act (H.R. 3309) marks a significant milestone toward enactment of common-sense reforms to curb abusive patent litigation. Abusive patent lawsuits create a heavy burden on the US economy — slowing innovation, undermining competitiveness, and stunting economic growth."
Next up the Senate must come up with a companion bill and, if it passes there, a House and Senate conference committee must then reconcile two bills. After that, if all goes well, the final bill will be sent to President Obama to be signed into law. Obama has already indicated that he'd sign a patent reform bill and that he hopes it will happen this year. At this rate, even after years of delays in most governmental issues, it looks like it might happen.
Democrats and Republicans may disagree on almost everything, but it seems they can agree on one thing: They all hate patent trolls.
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