Despite Senate inaction, progress on patent trolls
In May, Senate Democrats — led by Judiciary Committee Chairman Patrick Leahy, D-Vt. – tabled the patent reform bill on which his panel had worked for months. The bill was designed to curtail “patent trolls,” non-practicing entities whose business model is founded on extracting settlements in legal suits brought against alleged infringers of low-quality patents.
Patent trolls pose a threat to legitimate inventors and startups, stifling innovation with threats of litigation. However, in the months since Leahy sidelined the reform effort, major developments in both the courts and the executive branch have made the patent troll business model much more difficult.
In June, the U.S. Supreme Court upheld and expanded the precedent that abstract ideas could not be patented in the case of Alice Corp vs CLS Bank International. The ruling invalidated a patent held by Alice Corp. on how computers can settle financial transactions through a third party. The concept is called “escrow” and has been around since the beginning of finance, but Alice’s patent is one of thousands, possibly tens of thousands of patents that have been granted for taking such abstract concepts and adding the phrase “on a computer.”
Since Alice, federal courts have wiped out at least 11 software patents for functions that have been commonly performed by humans, in same cases since ancient times, when they are performed instead by a computer program. Some of the software patents that have been wiped out include patents for upselling customers , using surety bonds to guarantee transactions and even managing a bingo game. The courts increasingly are finding these “inventions” are not novel.
The courts are not the only place where it’s becoming harder to make a living as a patent troll. On Monday, the U.S. Patent and Trademark Office killed a company’s patent on screen displays that rotate when a device rotates, as it does on most smartphones. Cloud-computing pioneer Rackspace was threatened by a patent troll called Rotatable Technologies and instead of settling, Rackspace decided to take the case to the PTO. Rackspace successfully challenged the patent in a new inter partes review appeals process and it resulted in Rotatable’s patent being invalidated.
The expanded inter partes review system was created by the America Invents Act of 2012 and was designed to allow companies to challenge patents without the expense of a drawn-out court battle through the administrative law system. Instead of spending years fighting patent trolls, some low-quality patents now can be addressed within 12 to 18 months by the Patent Trial and Appeal Board. One of the first early tests of the board resulted in the crushing of a patent troll by Google and Apple over a lawsuit filed over the use of Google Maps “Street View” in the iPhone and iPad. The victories of Apple, Google and Rackspace are testament to the Patent Trial and Appeal Board’s ability to weed out patents that shouldn’t have been issued in the first place.
The combination of the Supreme Court’s decision in Alice and the expansion of inter partes review and creation of the Patent Trial and Appeal Board is threatening the patent troll model of doing business. This is a victory both for those who support innovation in the technology industry and for those who support an updated intellectual property system to protect legitimate creators and innovators.
While this is no substitute for legislative action, the developments in the courts and at the Patent Board are very good news for those of us who see patent trolls as innovation-killing parasites.
