Patent Trolling

The House of Representatives recently passed the Innovations Act, a bill aimed at curbing the behavior of patent trolls.  Patent trolls, for those unfamiliar with the term, are entities that own patents (that are often vague or dubious) and use those patents to sue a multitude of companies they believe infringe.  Usually the purpose of these suits is less to win, and more to extract a settlement from the companies being sued.  Patent suits are long and expensive, so there is a strong incentive to settle.

What does the Innovations Act do to curb or discourage patent trolls?  First, the bill requires the loser of the case to pay the fees.  The goal is to allow for smaller defendants to fight to the very end if they have a high degree of confidence in the final outcome.  Patent cases tend to involve a lot of discovery and supplemental investigation (prior art potentially includes all knowledge in the science, so sifting through all that prior art takes a lot of time), so the cost of going through patent litigation is very expensive.  This caused a number of smaller companies to settle, since the settlements were often cheaper than the legal fees.

There are a few other, more minor changes in the bill. The Innovations Act requires greater transparency in terms of patent ownership.  Entities filing the lawsuit have to disclose the assignee of the patent (the entity the original owner assigned the patent to), entities with a commercial stake in the patent, and the ultimate parent entity of the plaintiff.  Using shell companies to file suit had become relatively common, particularly in the tech world (mostly for public relations reasons).  There was even a recent, high-profile example of this trend when Rockstar Consortium (owned by Microsoft, Apple, RIM, and a few other mobile phone companies) sued Google over alleged violation of patents Rockstar acquired from Nortel (addressed in detail here).  The Innovations Act now requires Rockstar, for example, to disclose these larger companies’ interest in the patent suit.  Finally, the bill also creates a “customer suit” exception that allows for customers to get their case stayed if the manufacturer offers to take over the defense.  That section potentially allows for smaller companies to avoid dealing with the litigation, and potentially allows for the ultimate target of the suit to consolidate the case.

This bill still has some disappointing omissions.  The major one was not allowing for the US Patent and Trademark Office (USPTO) to review the patent prior to the case.  Currently, the USPTO can only conduct a review for a very small number of patents (basically, just business method patents) before going through a trial.  Allowing for more patents to undergo review before a trial potentially avoids expensive litigation, saving the parties involved time and money.  Since patent trolling relies on the length and expense of litigation to successfully extract settlements, such a review process potentially reduces the incentive to sue when the patent troll possesses a questionable patent.  Still, the Innovations Act provides a strong foundation for making our patent system function in a more equitable manner.  Now, on to the Senate.  

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