Battle Against Patent Trolls Heating Up
The political world is taking aim at entities whose business model is to generate licensing and settlement revenue by threatening companies with frivolous patent infringement lawsuits. Such entities are formally referred to as “patent assertion entities” (PAEs) but more commonly known as “patent trolls.”
PAEs tend to assert claims against startups and other small companies that cannot afford the extensive legal costs, time and energy diverted from their business to defend against patent lawsuits. In the technology sector, such costs have become a normal part of doing business — often described as a tax on innovation. In recent years, PAEs have broadened their reach to additional economic sectors, targeting not just the designer and manufacturer of the allegedly infringing technology, but also the customers who are merely end-users of the technology. In some cases, the patent troll’s assertion of the patent comes after the patented technology has become widely used in the industry, challenging such common practices as scanning a PDF to email, offering free Wi-Fi in a coffee shop, podcasting aggregated news articles, or using a shopping cart on a website.
The White House, Congress, the FTC and state government officials are all showing a heightened interest in tackling the issue. President Obama announced in June executive actions and a proposed legislative agenda “designed to protect American innovators from frivolous litigation and ensure the highest-quality patents in our system.” Nebraska Attorney General Jon Bruning recently sent a cease and desist letter to a Texas law firm representing PAEs threatening patent infringement lawsuits against Nebraska businesses. At least seven bills targeting the issue have been introduced in Congress in 2013, including the Saving High-Tech Innovators from Egregious Legal Disputes (SHIELD) Act (H.R. 845), the Patent Quality Improvement Act of 2013 (S. 866), the End Anonymous Patents Act (H.R. 2024), the Patent Abuse Reduction Act of 2013 (S. 1013), the Patent Litigation and Innovation Act of 2013 (H.R. 2639), and the STOP Act (H.R. 2766). Another proposed bill jointly supported by Representative Bob Goodlatte, Chairman of the House Judiciary Committee, and Senator Patrick Leahy, Chairman of the Senate Judiciary Committee, has been circulated as a discussion draft. While the proposals differ in the details, they include a mixture of measures designed to raise the cost of lawsuits for PAEs, increase transparency by exposing the “real party in interest,” invalidate the types of patents likely to be asserted by PAEs, impose stricter pleading requirements and limited discovery in patent cases, and protect end-users purchasing off-the-shelf products.
While the goal of deterring frivolous patent litigation appears to have bipartisan support, there is significant debate over the scope of the legislation and particularly the definition of “PAE”. Although the terms “patent troll”, PAE, and “non-practicing entities” (NPE) are sometimes used interchangeably, there are important differences. NPEs are broadly defined as companies that own patents but do not design or manufacture actual products using those patents, which could include universities and technology companies focusing on research and development. PAEs are generally recognized as a subset of NPEs that engage in abusive litigation tactics, yet drafting a definition of a PAE that properly excludes legitimate NPEs may prove challenging. For example, under the proposed SHIELD Act, the prevailing defendant would be awarded attorneys’ fees only if the plaintiff (the PAE) was not: (1) the original inventor, (2) an exploiter of the patent through sale of an item covered by the patent, or (3) a university or technology transfer organization. Critics of the bill argue that its scope is too broad and would disincentivize legitimate litigation from patent owners that do not produce or manufacture products but nevertheless contribute to innovation.
With numerous bills on the table, and the Goodlate/Leahy “discussion draft” expected to be introduced, it is not yet clear what form the final bill will take when it emerges from Committee. The discussion may continue for some time, and no bill appears likely to pass in the near future. With bi-partisan Congressional support and executive and judicial interest, momentum is clearly in favor of a multi-faceted approach to addressing frivolous patent litigation.