Ending the patent troll extortion racket
Patents are enshrined in the U.S. Constitution as a means to “promote the progress of science and useful arts.” Yet, in recent years, abusive and rent-seeking patent litigation has done just the opposite. In 2011, lawsuits brought by “non-practicing entities” – commonly known as “patent trolls” – led to $29 billion in direct costs, and $80 billion in lost wealth for publicly traded companies.
In an effort to address this growing problem, Reps. Darrell Issa, R-Calif., and Judy Chu, D-Calif., this week introduced legislation called the Stopping the Offensive Use of Patents Act (or STOP Act) – a companion bill to the Senate’s Patent Quality Improvement Act, sponsored by Sen. Chuck Schumer, D-N.Y. – that looks to streamline how patent infringement disputes are resolved and drastically reduce how much the process costs.
Patent trolls are individuals or firms that own patents but do not produce goods or services. Instead, they assert their patent rights against companies whose products they claim infringe on one or more patents. Colleen Chien of Santa Clara University Law School notes that in 2012, 62% of all patent litigation was brought by patent trolls, up from 19% in 2006. Moreover, the targets are disproportionately small and medium-sized businesses who have limited resources to fight back.
When these cases go to trial, defendants are successful 92% of the time. But because patent litigation is so expensive, it is almost always cheaper to settle with trolls, even if the infringement claim is spurious. The average cost of litigating a single case is more than $5 million.
Some groundwork for reform was laid down with 2011’s America Invents Act, which included a provision that allowed defendants to infringement lawsuits covering business method patents in the financial services industry to request a review of the patent’s legitimacy from the USPTO’s Patent Trial and Appeal Board. Unfortunately, the program is set to expire in 2020.
The legislation proposed by Issa and Chu would make the PTAB program permanent, while also expanding it to cover a whole range of business method patents, such as the notorious patent for online shopping carts. It has been endorsed by the White House and supported by many industries, including retailers, Internet technology firms, mobile app developers and grocery stores.
The bill won’t solve every problem in America’s patent system. But by giving troll targets a strong defense against patent trolls, this bill would take out frivolous lawsuits and allow businesses to return to their primary focus: innovating and developing new products and services to keep our economy running.
