U.S. House Representatives Darrell Issa and Judy Chu today introduced legislation aimed at protecting companies against so-called patent trolls. As you probably know, patent trolls are outfits that generate revenue by threatening patent lawsuits to get settlements rather than creating anything of value – a subject that will be discussed at length in the upcoming SUITS Conference in Las Vegas, August 27-29.

President Obama has recently voiced his concern about patent trolls, which reports indicate cost businesses tens of billions of dollars in litigation annually. And Sen. Chuck Schumer recently introduced similar legislation in the Senate.

The STOP Act (H.R. 2766), which Chu and Issa are sponsoring, “makes improvements to the Transitional Business Method Program by broadening the definition beyond ‘a financial product’ to include ‘an enterprise’ or ‘a product,’” according to a press release posted to Issa’s website. “This change will allow the U.S. Patent and Trademark Office to determine the extent of the validity of a number of patents, particularly those related to software and computers, where litigation abuse has run rampant.”


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Responding to this new legislative effort, Internet Infrastructure Coalition co-founder and board chair Christian Dawson commented, “i2Coalition applauds Representatives Issa and Chu for their leadership fighting patent troll abuse and improving patent quality.  Patent trolls now account for a majority of all patent litigation in the United States, with litigation costs for small and medium-sized businesses averaging $1.75 million per lawsuit. These trolls threaten to stifle the Internet infrastructure industry – an industry which generates an estimated $46 billion in annual direct and indirect revenue. Litigation from patent trolls often drags on for years, costs millions, and impacts innovation that is so important to the viability of our industry.”  

While the legislation introduced today is widely lauded as a step in the right direction, a June 4 piece in The Washington Post suggests that rather than focusing solely on patent trolls, the government should reform the entire patent system.

Timothy B. Lee, who authored The Washington Post piece, explains that various federal circuit appeals court rulings in the 1980s and 1990s made it easier to get and enforce patents, which in turn created a patent filing rush, during which time hundreds of thousands of patents were doled out that probably shouldn’t have been granted.

“Trolls have taken advantage of these rules, but so has everyone else with a patent portfolio,” writes Lee. “For example, Microsoft (News - Alert) has struggled to gain traction for its smartphone products. But the firm has tens of thousands of patents – so many patents that it’s effectively impossible to build a smartphone OS without accidentally infringing numerous Microsoft patents. And Microsoft has used its ‘patent thicket’ to force most firms selling Android (News - Alert) phones to pay licensing fees.

“The vast patent portfolios of incumbent technology companies such as Microsoft acts as a tax on innovation,” Lee continues. “The most innovative start-ups are increasingly being forced to make payments to their more established competitors, whether or not the latter continue innovating. That actually discourages innovation, the opposite of the effect the patent system is supposed to have.”

What companies often do these days is file a patent and then appear at an industry standards committee, Tony Dutra, an author, inventor, lawyer and software industry veteran, recently told TMCnet. If that technology is accepted, he says, the company holding the patent signs something saying that it will license the solution to others in the industry at a fair price. But it often doesn’t work that way in the long run, says Dutra, who writes and co-hosts an intellectual property law podcast for Bloomberg BNA.

For example, Motorola (News - Alert) Mobility had patents on standards and sued Microsoft, requesting more than $2 on every Xbox Microsoft sold, he says. The judge said it should’ve been more like 12 cents, Dutra explains, adding the case is ongoing but that Motorola is now in a difficult position because it asked for more money than it probably deserved.

Dutra adds that companies used to be able go to district court and file a patent lawsuit, and those challenged were so scared they agreed to pay as part of a settlement. Now the court makes it difficult for companies that have a patent but not a product to do that, he adds, so more organizations now approach the International Trade Commission, which has authority to bar a company from importing articles that infringe a patent.

The total number of patents granted in 2000 was 175,979. That jumped to 247,713 in 2011 and to 276,788 in 2012. And, according to the Boston Business Journal, the number of new patent applications increased fivefold in early March, just before a new patent rule went into effect. Before March 16, U.S. patent law favored the first person who can prove he or she invented a product. Now it favors the first inventor who submits a patent application.