Three years after passing the Leahy-Smith America Invents Act which overhauled the U.S. patent system, Congress and state legislatures have been introducing bills that primarily seek to reform the process by clamping down on so-called patent trolls.
These trolls are easy to disparage. They allegedly engage in abusive behavior by laying claim to a portfolio of patents, then demanding large and small businesses pay licensing fees or face a federal infringement lawsuit. Their actions can place unnecessary costs on businesses and stifle innovation.
However, separating the trolls from the other non-practicing entities like universities and research institutions can be difficult. Legislation that does not distinguish between the good and bad parties can also hamper an inventor’s willingness to put in the time and effort to create something new.
Attorneys offer different solutions that range from having Congress act to waiting for the courts to giving the AIA and new consumer protections time to work.
Capitol Hill and statehouses do not seem willing to be patient.
A patent reform bill could be passed during the next Congress, especially since the troll-targeting Goodlatte Innovation Act of 2013 gained traction during this recent session. Many believe another reform measure could be introduced since it would likely attract bipartisan support.
Closer to home, Indiana is poised to join a growing number of states in enacting its own anti-patent-troll legislation. To date, 27 state legislatures have at least considered bills aimed at curbing the abuses of non-practicing entities, with 10 states signing the measures into law and another five states waiting for their governors’ signatures.
Bennett Berson, partner at Quarles & Brady’s Wisconsin office, said the unanswered question is whether these state laws will prevail when challenged in court. In addition, crafting patent regulation at the state level can get sticky.
“There’s a will there, there’s a desire there, but the details are vexing,” Berson said.
Congress or courts
Holiday Banta, partner at Ice Miller LLP, described the letters from patent trolls as scary. These non-practicing entities have been known to send out hundreds of threatening dispatches to mom-and-pop shops as well as major companies, claiming infringement.
Typically, the letters do not contain any facts that the recipients are actually violating the patent. Nevertheless, the messages demand the alleged infringers pay a licensing fee or face a lawsuit.
“I think it has been a drag on innovation simply because any dollar you have to give to a troll is a dollar from your research and development budget,” Banta said.
Many of her clients have received infringement letters from these non-practicing entities but frequently, after she writes a reply, the patent trolls just go away, she said. Yet, even if a lawsuit is never filed, companies have to invest the time and money in getting legal help to respond to the infringement complaint.
To solo practitioner John Roberts, the letters from abusive non-practicing entities are the equivalent of holding up a business at gunpoint. However, because the high number of patents currently active in the marketplace has created what he called the “patent thicket,” Roberts regularly advises his clients to be prepared to get sued for infringement.
A remedy to the patent troll abuses, Roberts maintained, needs to come from Congress.
He pointed to the decision from the Supreme Court of the United States in Alice Corp. Pty. Ltd. v. CLS Bank International et al., 134 S. Ct. 2347 (2014), which has had the effect of limiting the activity of patent trolls but also has thrown software patents into upheaval. The ruling found that the patents Alice Corp. held on financial transaction software were invalid because they claimed an abstract idea which cannot, by law, be patented.
Since that opinion was issued, most rulings by lower courts have found software to be ineligible for patent protection. Now, Roberts said, attorneys are unsure what to tell clients. Although anyone who has developed a computer program or operational system can still shell out the $10,000 to $20,000 patent application fee and hope the law will change, he said that is like buying a lottery ticket.
Roberts believes if inventors cannot enforce their patents, they will likely keep their technology in the shadows rather than spotlight the details in a patent application. And that could stall the work of other inventors.
“People can’t stand on the shoulders of giants if those giants are hidden,” Roberts said.
Banta also sees a role for Congress in light of Alice Corp. but only to clarify what is eligible for a patent. Still, she advocates for patience because she believes the AIA along with new consumer protections are likely to curb the activity of patent trolls.
She pointed to the recent crackdown on MPHJ Technology Investments LLC by the U.S. Federal Trade Commission. The federal agency used its consumer protection authority to ban MPHJ from making misleading or unsubstantiated claims in patent infringement letters.
Mark Janis, director of the Center for Intellectual Property Research at Indiana University Maurer School of Law, also counseled for patience. Despite what he sees as some pretty inept rulings from the Supreme Court, he thinks the issues of patent law should be addressed by the judiciary rather than Congress.
“I’m skeptical about any reform package,” he said. “I think by and large this problem needs to be handled by the courts.”
He is leery of reforms that shift the responsibility for paying all attorney fees to the losing party in an infringement lawsuit. This could chill innovation by making inventors hesitant to enforce their patent claims. Faced with the high cost of losing, inventors could opt not to invent or patent.
At the Statehouse
Janis noted the debate over patent trolls is not settled. While one side sees these entities as needlessly adding to the cost of doing business, the other side argues they help the garage inventor who has little resources get a return on the innovation by enforcing the patent.
Even though many attorneys argue states’ patent legislation will be pre-empted by federal law, a number of states have moved forward with patent bills. In Indiana, Rep. Eric Koch, R-Bedford, has circulated a copy of his measure with the Intellectual Property Section of the Indiana State Bar Association and asked for their input.
The proposed bill focuses on the demand letters which Koch, an attorney, believes is an area in patent law where states have room to navigate. He said the issue of patent trolls has been brewing for a couple of years, and that the construction and banking industries in Indiana are among those being hard hit by these letters.
“Our hope is what this legislation will be is a deterrent and that the number of these kinds of threats will be reduced in Indiana,” he said.
IP section chair David Lockman, attorney at Maginot Moore & Beck LLP, said members of the section were not opposed to the bill, but they did note a few things for the state representative to consider.
The IP section pointed out rule changes in the District Court may avert some of the patent behavior Koch is trying to curb in his bill. Under the revised patent case management plan, plaintiffs will have to identify the basis for their infringement claim and provide a detailed explanation for the damages being sought.
The section members questioned if state regulation was appropriate since infringement claims are a type of commercial speech which is protected by the First Amendment. Finally, some proposed that Koch include copyright claims in his bill because these protections are starting to be asserted in an abusive manner similar to some patents.•