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Patent Trolls

The U.S. Patent System is supposed to represent a bargain between inventors and the public. In theory, it is simple: in exchange for dedicating a novel invention to society, along with a clear explanation of how to practice that invention, a patent applicant gets a 20-year monopoly.

But, lately, we’ve watched as the system appears to fall apart, harming innovation, the very thing it was designed to foster. Many factors contribute to the problems we’ve seen with the patent system, but perhaps none so much as the rise of the patent troll. To be sure, the patent troll problem is not a new one (remember the infamous RIM v NTP case?), but recently, we’ve followed a troubling new trend: more and more small developers and companies targeted by trolls.

What is a patent troll?

A patent troll uses patents as legal weapons, instead of actually creating any new products or coming up with new ideas. Instead, trolls are in the business of litigation (or even just threatening litigation). They often buy up patents cheaply from companies down on their luck who are looking to monetize what resources they have left, such as patents. Unfortunately, the Patent Office has a habit of issuing patents for ideas that are neither new nor revolutionary, and these patents can be very broad, covering everyday or commonsense types of computing – things that should never have been patented in the first place. Armed with these overbroad and vague patents, the troll will then send out threatening letters to those they argue infringe their patent(s). These letters threaten legal action unless the alleged infringer agrees to pay a licensing fee, which can often range to the tens of thousands or even hundreds of thousands of dollars.

Many who receive infringement letters will choose to pay the licensing fee, even if they believe the patent is bogus or their product did not infringe. That’s because patent litigation is extremely expensive — often millions of dollars per suit — and can take years of court battles. It’s faster and easier for companies to settle.

Lodsys

In particular, we’ve watched with dismay as Lodsys, a company that neither makes nor sells a product, targets small app developers, claiming the use of in-app purchasing technology (usually provided by Apple or Google) infringes Lodsys’ patents.

It’s impossible to know how many app developers Lodsys has actually threatened, but we do know that it has sued at least 11. Apple has moved to intervene in that suit, claiming that the license it took from the patents’ former owner covers its app developer’s uses of that technology, and Google has filed a Notice of Reexamination with the Patent Office challenging the validity of Lodsys’ patents. But Apple’s and Google’s actions — while noteworthy — will take years to reach resolution. In the meantime, app developers are faced with an unenviable choice: either take a license from Lodsys or live with the fear that they could be the next party facing a lawsuit.

Good News, America. We're One Giant Step Closer to Patent Reform!

Good news! Today, the House of Representatives voted 325-91 in favor of the Innovation Act, the best troll-killing bill we've seen yet. And earlier this week the White House put out a strong statement in support of the legislation. All that's left is the Senate, which has promised to take up the issue before the end of this year.

The Innovation Act isn't perfect. It doesn't go nearly far enough to reform the demand letter problem. Its provisions protecting consumers and end-users, while present, aren't as robust as we would hope. And it dropped expanded covered business method review, a provision that would have helped ensure that the Patent Office issues fewer patents for "inventions" that aren't particularly inventive.

But the Innovation Act is nonetheless a huge step in the right direction. It gives defendants tools to fight back, makes ligitation cheaper and includes an important fee-shifting provision, so companies that stand up to the trolls have a chance to recover their fees and costs at the end of litigation. It requires trolls to make their case up front by providing basic information about their patents and the supposed infringement. And it prohibits trolls from hiding behind shell companies.

Today's vote makes clear that policymakers understand that patent trolls impose an unacceptable tax on innovation and that their conduct, which often amounts to little more than run-of-the mill extortion, must be stopped. We got here in no small part because of those of you who helped by making calls, emailing your members of Congress, and using social networks to get the word out. Thank you! And stay tuned: now we head to the Senate.