Abusive patent litigation is one of the biggest threats to the growth and well-being of the U.S. tech industry and other innovative sectors of the U.S. economy. And Congress may finally be taking action to control it. Last week Rep. Bob Goodlatte (R-Va.), Chairman of the House Judiciary Committee, introduced the Innovation Act of 2015. He was joined by Representatives Peter DeFazio (D-Ore.), Darrell Issa (R-Calif.), Jerrold Nadler (D-N.Y.), Lamar Smith (R-Texas), Zoe Lofgren (D-Calif.), Anna Eshoo (D-Calif.), and others. The bill takes strong and effective steps to reduce abusive patent litigation.
Tech companies, their customers and any businesses that rely on innovation have a significant stake in this fight. Patent trolls are a drag on the economy—they are often shell companies that produce nothing, invent nothing and employ no one except lawyers. A patent troll’s only source of revenue is the money it can extort using baseless patent infringement claims against productive companies and their customers. For years, loopholes have existed in patent litigation law that make it cheaper for companies to pay this form of legal blackmail rather than to defend themselves in court. Rep. Jerry Nadler (D-NY) recently called them “litigious leeches.”
Software companies are often lucrative patent troll targets. In the U.S., software is a $425 billion industry that directly employs 2.5 million U.S. workers and supports millions of other jobs by driving American productivity, innovation, and trade. When companies face frivolous patent troll suits, they are forced to take money normally spent on research and development, next-generation IT projects, the latest advances in cloud computing, or big data analytics and the Internet of Things, and divert it to paying legal expenses, document production, court costs and defensive legal maneuverings.
The Innovation Act takes several positive steps to stop these abusive tactics.
First, the legislation demands transparency. Trolls often file suits against a large number of companies without even explaining the basis for their infringement claims. The defendant often has no real understanding of what the troll is claiming.
Any company filing a patent suit should be required to outline the specific structures, features, and/or functions of an allegedly infringing product and the patent alleged to be infringed. And since trolls are often shell companies that are acting on behalf of someone else, they should be required to identify the real party of interest in the case.
Another troll trick, which would be curbed by the Innovation Act, is to ask for prohibitively expensive discovery from the company they are suing. This often increases the company’s costs enough to coerce a settlement regardless of the merits of the allegations. This legislation would force patent litigants to bear the costs of discovery for any request beyond core documents.
The losing party should also pay for the costs of a frivolous patent suit. The devious strategy of driving up legal costs to force a settlement won’t work as well if the trolls know that they will have to pay their targets’ court costs if they lose. And since trolls are often shell companies with no assets, this requirement should be enforced by requiring that bond be posted at the outset of each case.
Perhaps most importantly, the Innovation Act would streamline the patent litigation process, increasing the chances that baseless claims will be thrown out before incurring significant time and expense. The legislation reforms the patent litigation process by requiring pretrial hearings and a process of re-examination. In many cases, a judge can examine the meaning and scope of a patent and dismiss a case as without merit before it leads to an extensive trial. Administrative re-examination processes could weed out patents of poor quality, preventing both companies and taxpayers from having to foot a large and unnecessary bill.
The last step to effective patent reform is to protect customers and end users of technology. In the hope of extracting quick settlements from bewildered third parties, trolls have begun to target retailers, hotels and other end users that use proprietary software or solutions. As a result, technology companies, whose products are the real target of these suits, then face customer complaints and diminished demand for their products. To stop this, courts should stay proceedings brought by a troll against customers and end users until the troll’s patent claims against the manufacturer are resolved.
Now is the time to put a stop to patent trolls and their shadowy shakedown campaigns. Congress should pass the Innovation Act and ensure that patent litigation abuse is no longer able to sap the resources of law-abiding companies that produce jobs and drive our economy.