Patent Troll Week in DC, NYC

February 25, 2013

The toll of patent trolls is a focus this week with the PTO hosting a software patent roundtable in New York and CCIA hosting a panel discussion on patent trolls on Capitol Hill Thursday.

Earlier this month, President Obama held a Google+ hangout in which he was asked about limiting the abuse of software patents by non-practicing entities. President Obama stated that, while recent legislation has made progress on patent reform, it has left unresolved issues. Among these issues is the vulnerability of entrepreneurs, small businesses, and startups to extortionate patent litigation.

The America Invents Act of 2011 included a provision that restricted the number of unrelated defendants that could be sued for patent infringement in a single lawsuit. Since trolls or “non-practicing entities” would frequently attempt to sue broad segments of industry in a single suit, this provision made that practice much more difficult.

This provision has had unintended consequences, however. The total number of lawsuits themselves are on the rise (61% of all patent litigation last year, up from 45% the previous year), and they are targeting more vulnerable entities—small businesses and startups.

The cost of defending an infringement case is unbearable for most small entities. At the low end, defense litigation can cost an average of $650,000, while a defense with more at stake can exceed $5 million in costs alone. This is to say nothing of time and resources lost due to litigation, or to the risk of a judgment of infringement.

Moreover, because troll entities do not practice the patented technology themselves, they cannot be held liable for infringement on others’ patents.  Having no product in the marketplace, and thus no business to enjoin, trolls are thus functionally immune from any counterattack and face few consequences for launching dubious litigation.  This immunity has also made it difficult for infringement defendants to put teeth to their defense.

This has not stopped some from trying. In the In re Innovatio IP Ventures Litigation, wireless internet providers Cisco, Motorola, and Netgear alleged that Innovatio violated the RICO Act by enforcing patents it (allegedly) knew to be invalid. Innovatio is notorious for its wanton enforcement of patents on wireless internet, targeting supermarkets, coffee shops, hotels, and anyone using wi-fi. (Consumers are said to be off the table for now.)

But as the law currently stands, non-practicing entities that extort money by leveraging others’ ideas do not break the law by doing so. Claims of fraud and racketeering based on patent enforcement have thus been of no avail.

As President Obama stated, further reform is needed to address the remaining issues. Patent applications should be more rigorously scrutinized so that frivolous ones are rejected. And small businesses, now vulnerable targets of troll litigation, need the ability to fight back.

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