Industry Market Trends

Will a Change in Patent Law Help or Hurt Innovation?

Jun 13, 2013

In an effort to protect businesses from what some see as excessive and unecessary litigation, the Obama administration has introduced several executive orders to curb abuse of the patent system. As The New York Times reported in early June, President Barack Obama "ordered the Patent and Trademark Office to require companies to be more specific about exactly what their patent covers and how it is being infringed."

Significantly, "the administration also told the patent office to tighten scrutiny of overly broad patent claims." They also promised to help "curb patent-infringement lawsuits against consumers and small-business owners who are simply using off-the-shelf technology."

While typically there are about 3,000 patent infringement suits filed each year, that number spiked to about 4,500 in 2012.

The legislation specifically targets businesses that exist for the sole purpose of buying the rights to various patents and then filing infringement claims -- or, as they are more commonly known, "patent trolls."

A patent troll's modus operandi, according to former New Hampshire senator John Sununu, writing in the Boston Globe, is to create patent-holding firms "that don't employ engineers or manufacture products of their own -- but do file infringement cases against deep-pocketed tech giants."

It costs relatively little to file such claims, but it costs a lot to defend against them. That's part of the strategy -- in many cases it's cheaper for the targeted company to simply pay a settlement than to mount a legal defense, even if the company is certain it hasn't actually infringed on the patent.

"Even when these cases settle out of court, the legal bills and licensing fees add up," Sununu notes, adding that "the president argues that trolls 'leverage and hijack somebody else's idea.'"

Nobody's questioning whether the litigating companies legally own the rights to the patents. They do. But the bone of contention is how big of a problem patent-infringement lawsuits have become, and whether government action will ameliorate or exacerbate the problem.

According to IndustryWeek, White House economic aide Gene Sperling said in support of the administration's action that there has been "an explosion of abusive patent litigation" in recent years: "In the last two years, the number of lawsuits brought by patent trolls has nearly tripled. The victims of patent trolls paid $29 billion in 2011, a 400 percent increase from 2005 -- not to mention tens of billions dollars more in lost shareholder value."

"The current crackdown is misguided," said Robert A. Matthews, Jr., a lawyer involved in U.S. patent law and litigation and author of the Annotated Patent Digest and Patent Jury Instruction Handbook. Matthews told IMT, "The law in place currently can deal with the troll problems if it is used properly, and it should be left alone to deal with the troll problem."

Supporters of the administration's actions point to the fact that the number of lawsuits filed by patent-holding firms is skyrocketing -- a claim Matthews said is "misleading." He explained, "The law regarding joinder changed in 2012 so that where a troll would file one suit and name 30 different defendants pre-2012, it now has to file 30 different suits naming one defendant. So the true number of assertions of patents is probably the same in 2012 as it was in 2011."

So are trolls bad? There's evidence to the contrary. They legally own the patents, just as Michael Jackson bought and owned the copyrights to The Beatles' music from a legal transaction entitling him to the royalties. As Sununu writes, "The deeper problem begins with bad patents. When the U.S. Patent and Trademark Office issues a patent that is overly vague, broad, or trivial, it invites uncertainty and litigation."

Sununu asserts that the administration recognizes that this is part of the problem with its "instruction to require more clearly defined patent claims." The Patent and Trademark Office could also start issuing more specific patents.

And sprinkled amidst those businesses that are leveraging patents just to make money, as Sununu says, is the proverbial little guy looking to cash in on a good idea. These are "individual inventors... without the resources to pursue every company that may try to use their idea without authorization, selling patents to someone with deeper pockets" to get a return on their invention.

Matthews contends that, in a backhanded way, trolls could spur innovation. "As the trolls get more famous, their existence can spur more garage inventors and small companies to try to come up with something, hoping they can sell it to a troll and find commercial riches. So that could actually promote innovation," he said.