The patent troll debate has officially heated up and the nation’s businesses are paying close attention to the proceedings. The FTC got things started on December 10, 2012 at the Patent Assertion Activities Workshop. This meeting featured several of the country’s leading experts on PAEs, as well as representatives of PAE firms and their defendants, many of which have been sued multiple times by PAEs. The public comments filed in connection with the workshop are like a patent troll encyclopedia, featuring scholarly articles by respected law professors, missives from PAEs, and even simple emails from small town citizens looking for relief from this serious problem.
FTC Chairman Jon Leibowitz deserves kudos for making the patent troll issue a priority. The public deserves no less than a full investigation of the problem, and apparently the FTC is seriously considering using its subpoena powers to gather information about PAEs and how their business model impacts commerce. No matter what the FTC ultimately decides to do, Congress should use the workshop comments as a resource as they consider measures designed to reform patent litigation abuses.
The House Judiciary Committee’s Subcommittee on Courts, Intellectual Property and the Internet has held two Congressional hearings on the issue. The first hearing held March 14, 2013, “Abusive Patent Litigation: The Impact on American Innovation & Jobs, and Potential Solutions” addressed the larger problem and how to solve it. The second hearing held April 16, 2013, “Abusive Patent Litigation: The Issues Impacting American Competitiveness and Job Creation at the International Trade Commission and Beyond” was more narrowly focused on abuses by PAEs in seeking ITC Exclusion Orders, however much of the hearing dealt generally with patent troll litigation abuse and possible solutions.
The subcommittee members who participated in the hearings are searching for answers. Because of the problem’s complexity, however, there is no silver bullet. It will take a number of complementary reforms to balance the one-sided advantage that PAE’s currently enjoy. Several ideas have been floated at the Congressional hearings, some of which are simple, viable, and would not hinder legitimate patent holders from enforcing their rights.
Here are some examples of legislative solutions that would help curb abusive patent litigation:
- Immunize end users from patent suits. PAEs sue end users, including very small businesses, because it is not cost effective for these defendants to hire lawyers. Protecting end users from suit will limit the options for PAEs, forcing them to pursue the manufacturers or providers of common products or services, rather than their customers. This proposal will eliminate the scanner troll for good.
- Fee shifting. Several fee-shifting proposals are worth considering. Here are three of the best:
1. SHIELD Act. Simply stated, the SHIELD Act would require PAEs to pay the defendant’s fees and expenses if the PAE loses.
2. Offer of Judgment. Under this approach, if a party makes a settlement offer, which is not accepted, and the party which doesn’t take the offer is awarded less than what is offered, the offering party can recover the legal fees incurred after the offer is made. This would make PAEs think long and hard about not accepting a reasonable settlement offer at the early stages of litigation.
3. Core discovery. A party would be allowed certain core documents in discovery, but if it wants more it has to pay for it. This would help defendants keep costs down while still giving plaintiffs adequate information.
Again, several complementary changes will be required to adequately address the problem. There are many promising ideas that could make things better. These are just a few of the many creative solutions that Congress could pass to solve the patent troll epidemic that is plaguing American businesses and hindering innovation, at great cost to our economy.
The cost is actually staggering. According to a recent study out of Boston University School of Law, “The Direct Costs from NPE Disputes,” patent trolls cost the American economy $29 billion in 2011. Further, a huge number of patent lawsuits were brought by PAEs against small businesses. Patent law professor Colleen Chien of Santa Clara University noted in her FTC Workshop presentation that in the first 11 months of 2012, PAEs brought 61% of all patent litigation cases. Further, in her paper “Startups and Patent Trolls” Professor Chien reported that “companies with less than $100M annual revenue represent at least 66% of unique defendants in troll suits and at least 55% of unique defendants in troll suits make $10M per year or less.”
These statistics demonstrate that a small number of professional litigants are targeting small businesses and taking unfair advantage of federal laws that were designed for resolving legitimate disputes. The federal judicial system should not be a weapon that patent trolls get to use at taxpayer expense to bully legitimate businesses into paying settlements on dubious patent claims.