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Home > Blogs > Anthony Harrington > Patent trolling: is the patent system killing innovation?

Patent trolling: is the patent system killing innovation?

Patent trolling: is the patent system killing innovation? Anthony Harrington

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Picture the following. You are a small start up with a wonderful new gizmo which  brings significant efficiencies and cost savings to Industry X. No sooner do you open your doors when you get a letter from a "patent troll" saying you are infringing their patent (unspecified) and you need to pay them a license fee or be sued. You "know" the claim is spurious, but to prove it in court could cost you anything from a few hundred thousand pounds to a few million. You don't have the money, so your options are a) withdraw and go get a job, or b) pay the license fee. When you investigate the company suing you what you find is that they don't actually make anything. They've bought a collection of fuzzy patents and they are mining them by hitting on large numbers of companies for license fees - which is the working definition of the term "patent troll".

In other words, the very system that was designed to encourage innovation, by protecting the intellectual property of innovative people and organizations, is now stifling those very same companies it was designed to help - and has created a fistful of parasitic operations who do nothing but use litigation as a cash flow mechanism.

So, what to do?  Scrap the patent system? If we did, start-ups would have their products copied by companies with many times the small player's marketing muscle and they would probably go broke while others profited from their innovation. Not good. Stop the patent trolls? Nice idea, but how exactly? If I buy a clutch of patents on the open market - and this is a capitalist system we are talking about, which means I have the freedom to buy whatever is available if I have the requisite cash - then surely I have the right to defend those patents? Otherwise what did I buy?

A third answer might be to encourage the courts to reject spurious litigation, but that begs the question of what is and is not spurious. This is precisely the sort of thing that frequently needs to be tested in court and is, in fact, the nub of the case. Nevertheless, patent trolls have become such a manifest nuisance that this is exactly the route that a US House of Representatives committee has decided to go down in order to make it more difficult for the trolls to use infringement litigation to extort license fees from a wide range of businesses.

An article in PC World points out that, in late November 2013, the House Judiciary Committee voted 33-5 to pass the Innovation Act to the full House. The targets of the Innovation Act are the patent assertion entities (PAEs) - trolls by any other name - who are readily identified by having patent licensing and lawsuits as their main revenue earner. One of the major tactics used by the trolls is to frame their claim against a target company in vague, catch-all terms. Eventually, if the target company has the deep pockets to fight a case all the way through the courts, the PAE has to provide a much higher level of detail to support its claim. However, the trolls play on the fact that most companies cannot afford to put up the cash required.

The Committee has tried to combat this broad brush approach by forcing plaintiffs to provide a much higher level of detail about the infringement at the outset, in initial court filings. It is also trying to build in incentives against frivolous or gold digging claims by allowing judges to require losing plaintiffs to pay defendants' costs. Of course, this judgement would only be given at the end of the case, so this recommendation does nothing for companies who do not have the resources to fight the claim in the first place. However, this higher level of detail, assuming the bar is set high enough, could make it much more difficult and much less attractive for a PAE to launch an action in the first place.

A third and more technical point is that, as the system now stands, the plaintiff can make very onerous "discovery" claims, forcing the target company to disclose large amounts of information and potentially tying up staff and resources providing answers to an endless series of queries. The bill as it stands aims to prevent such discovery claims until the courts have had a chance to examine the validity of the plaintiff's case. The PC World article quotes a comment from Gary Shapiro, president and CEO of the Consumer Electronics Association, a vigorous supporter of the House Committee bill:

"Every day that the patent troll issue is not addressed is another day that bad actors can abuse our patent system to extort money from legitimate companies."

That puts it in a nutshell!

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Further reading on patents

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Tags: extortion , innovation , intellectual property , license , PAE , patent assertion entities , patent litigation , patent trolls , patents , PC World , US House Judiciary Committee
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