Leadership

The Problem with Patent Trolls

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As the world of technology grows, so do the companies looking to make a quick buck at the expense of the ever-expanding tech market. While the patent system was originally created to protect and promote innovation, more recently businesses and individuals known as “patent trolls” have marred the intended use by using the system as a means to bully businesses into paying large sums of money under the threat of prolonged and expensive patent litigation.  

A patent troll (more traditionally referred to as a “non-practicing entity” or an NPE) is a company that does not create new ideas or products. Instead, a patent troll purchases patents from individuals or companies and earns its revenue by licensing use of the patent and/or suing or threatening to sue for damages based upon patent infringement. 

Patent trolling has become a serious problem for unsuspecting tech companies, in part because of the United States Patent and Trademark Office’s (USPTO) issuance of overbroad and overreaching patents.

Indeed, a recent study from Patent Freedom showed that patent trolls brought 18 percent more lawsuits in 2013 than in 2012, which represented over half of all patent lawsuits filed in that year. In addition, a June 2013 report issued by the White House entitled “Patent Assertion and U.S. Innovation” found that “defendants and licensees paid [NPE]’s $29 billion in 2011, a 400 percent increase from 2005” and “they estimate that less than 25 percent of this money flowed back to innovation.” 

Given the gravity of the problem, Congress has attempted to pass anti-patent troll litigation, with varying success. In 2011, in order to curb the widespread abuse of patent litigation by these entities, Congress enacted the America Invents Act. Although the intent of this law was to provide sweeping reform to patent litigation and address issues specifically facing patent troll cases, due to pressure from various interest groups, the law as passed failed to do so. 

The most significant effect the America Invents Act had on patent troll litigation was to limit the ability of plaintiffs to file one lawsuit against multiple unrelated defendants for violations of the same patent. Plaintiffs are now required to file multiple lawsuits, thereby increasing their cost and theoretically deterring patent trolls from resulting in litigation for their infringement claims. 

Subsequently, in December 2013, the U.S. House of Representatives passed the “Patent Litigation and Innovation Act of 2013.” Passed with bipartisan support, the Innovation Act would have had wide-ranging effects on patent troll litigation. Most significantly, it would have required: 1) specificity in pleadings relating to the alleged infringement by the defendant of the plaintiff’s patent; 2) a cost-shifting provision requiring losing plaintiffs to pay for the cost of litigation; 3) a delay in the discovery process until after rulings on initial dispositive motions; and 4) an end-user protection allowing technology vendors to fight infringement lawsuits on their customers’ behalf. 

Unfortunately, a similar piece of legislation failed to make it to the Senate floor in 2014, thereby stalling the implantation of the widespread reform outlined in the Innovation Act. Whether the Senate will ultimately take up the issue in 2015 remains to be seen. 

Although the Senate has stalled on passing reform, the courts have been working to limit the power patent trolls have over the businesses they target. Specifically, rulings in two Supreme Court cases, Nautilus v. Biosig Instruments and Alice v. CLS Bank, have effectively made it more difficult for patent trolls to rely on vague and overbroad patents in their infringement actions.  

In Nautilus, the Court held that “a patent is invalid for indefiniteness if its claims, read in light of the specification delineating the patent, and the prosecution history, fail to inform, with reasonable certainty, those skilled in the art about the scope of the invention.” Previously, the District Court had relied on an “insolubly ambiguous” standard that, according to the Supreme Court, did not meet the definiteness standard and “can leave courts and the patent bar at sea without a reliable compass.” Based on this ruling, patent trolls will find it more difficult to succeed in infringement actions based upon indefinite patents. 

In another loss for patent trolls, the Court in Alice held that “method claims requiring generic computer implementation failed to transform the abstract idea into a patent-eligible invention.” While the effects of this ruling are far reaching and won’t be fully understood until implemented by the lower courts and by the patent office, its effect on software-based patents related infringement actions will be definite. 

In conclusion, while the courts and legislature attempt to curb the effect of patent trolls, businesses themselves can take affirmative actions to avoid possible patent infringement. As a rule of thumb, any business putting forth an idea should first search the USPTO website to determine possible infringement of an existing patent. If there is any concern about potential infringement, contact an attorney with intellectual property experience to help you better determine your risk and liability in relation to said infringement. 

Lisa Allen is an associate attorney at the Lotus Law Center, where she specializes in helping small business clients with their legal needs. The Lotus Law Center was founded as a way to make legal services affordable for all sizes of businesses. Focusing on the practice of privacy, business and technology law, the Lotus Law Center provides premium personal and professional responses to the legal needs of business clients at an affordable fixed or hourly rate. 

 

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