Legislating to Fix Patents or to Bury Them?


Joseph Schuman
May 22, 2015

The patent debate in Congress is all about the “trolls,” except for when it’s not.

That’s one of the contradictions illustrating how much the legislative effort has been uncertain about the problems it aims to resolve – uncertainty that risks having all patent owners treated as “trolls” -- and why the apparent delay in mark-up of the Innovation Act in the House is not a bad thing.

Take the exchange between Sen. Sheldon Whitehouse and panelists at a May 7 hearing of the Senate Judiciary Committee.

With talk of “trolls” and the toll abusive patent suits allegedly take on businesses and the economy dominating the debate, Sen. Whitehouse asked if any of the panelists could define a troll. Despite the rhetoric that preceded the question, all declined to do so, including Julie Samuels, executive director of the lobbying firm Engine and the former Mark Cuban Chair to Eliminate Stupid Patents at the Electronic Frontier Foundation. 

No, she said when asked if there’s a way to define a troll, it’s about behavior.

This notion that abuse in the patent system can be defined by behavior rather than by a particular business model is one Patent Truth agrees with. Which makes it all the more perplexing to hear it coming from Samuels, whose earlier testimony included the assertion that “one recent study found that trolls cost the U.S. economy at least $29 billion.”

This is a reference – according to Samuels’ testimony -- to the 2011/2012 study by James Bessen and Michael Meurer, “The Direct Costs from NPE Disputes,” which Patent Truth examined in this post.

And here’s the thing: Putting aside the fact that this study purports to assess the direct cost of patent litigation from nonpracticing entities to businesses -- rather than the economy as Samuels says -- and putting aside the privately held and compromised nature of the data and methodology used for the study, the study and the widely quoted figure start with the premise that trolls are defined as entities that own patents for products they do not manufacture and market, including universities, small inventors, and even some manufacturing companies.

The label “troll” seems to be defined when it’s convenient to do so by people who support an omnibus overhaul of patent law, and pooh-poohed when doing so sounds like the name-calling it is.

But that’s just the most obvious contradiction found here.

Take the House’s main piece of legislation itself.

The Innovation Act, officially H.R. 9 in this Congress, is the same Innovation Act introduced by House Judiciary Chairman Bob Goodlatte two years ago in the last Congress, despite how significantly the patent landscape has changed since then.

The U.S. Patent and Trademark Office, the federal courts and even the Federal Trade Commission have all taken steps to reduce abuse in patent litigation – steps the House and Senate committees addressing patent issues haven’t devoted much hearing time to examine.

A series of Supreme Court decisions have made it easier for trial courts to find patent invalid for “indefiniteness” or other reasons, made it harder for patent owners to prove direct infringement, and gave judges significantly more discretion to award defendants attorney’s fees when a frivolous case is brought by patent owner.

The Judicial Conference of the United States worked on changes to the Federal Rules of Civil Procedure making it harder for plaintiffs to pursue frivolous patent claims, including stricter pleading requirements early in the case and less onerous discovery requirements – which can otherwise raise the costs for defendants and encourage them to settle even when they feel they haven’t infringed a patent.

The FTC has begun to use its existing consumer-protection authority to deal with abusive patent demand letters, most notably in the settlement it reached with MPHJ Technology Investments that bars the company from making deceptive representations of its patent rights.

And the USPTO has introduced an online “toolkit” aimed at helping what it calls “‘Main Street’ retailers and consumers that may have been threatened with a patent lawsuit or received a demand letter,” while fostering an increasingly active and aggressive process for challenging issued patents through the Patent Trial and Appeal Board. In the two years since PTAB work began, more than 2,500 patents have been challenged and made it through the process to a final decision, and more than 80 percent of these patents have been declared invalid.

Paul Michel, retired chief judge of U.S. Court of Appeals for the Federal Circuit, recently added his voice to the chorus of veteran patent system practitioners who say the PTAB process has gone too far, allowing infringers to prevent patent owners from enforcing their rights and raising the costs for patent owners who try to do so.

Already, he added during a panel discussion at the Heritage Foundation, many litigators he knows call patent enforcement the “sport of kings” because it has become so expensive to enforce IP rights in court.

Judge Michel called on legislators in the House and Senate to seek input from judges, litigators and inventors before advancing any bills.

"We should have smart patent reform so the incentive system will thrive and we have more R&D,” he said.