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Throw (Patent) Trolls Under the Bridge

August 06, 2013

By James R. Copland

When America’s system of patent litigation has gotten so dysfunctional that President Barack Obama and Republican Judiciary Chairman Bob Goodlatte agree on the need for reform, something is amiss. Make no mistake: Patents are important. Inventors’ ability to protect and exploit their discoveries has long been an essential driver of American prosperity — deemed so vital by the founding fathers that granting patents was one of the new federal government’s few enumerated legislative powers.

Of late, however, litigation over software patents has emerged as a drag, not a boon, to technological innovation. According to a study by Boston University law professors Mike Meurer and Jim Bessen, the “patent tax” adds 20 percent to software and electronic research and development costs, and in 2011, Google and Apple spent more on patent litigation and acquisition than on research and development. Little wonder: In June, for instance, the International Trade Commission (ITC) responded to a Samsung patent-infringement claim with a ruling that would have blocked the importation of certain Apple iPhones and iPads, had President Obama not taken the extraordinary step of vetoing the decision last Saturday in the first such presidential override of an ITC decision since 1987.

Unlike pharmaceutical patents, software patents are hard to define and have often been improvidently granted. And multiple software patents tend to be embedded within products, such as smartphones, cars, and printers — which can open up the manufacturers and even the users of such products to exploitative litigation.

Thus, the nation’s most aggressive plaintiffs’ lawyers — whom we at the Manhattan Institute have dubbed Trial Lawyers, Inc. — have begun to manipulate U.S. legal rules to extract wealth from the nation’s most innovative companies. Most such litigation today is not filed by companies holding patents, such as Samsung, but by “patent trolls” — people or companies that produce no goods or services themselves but exist to acquire patent rights and seek to enforce them against businesses that are producing goods or services using related technologies. Over the last six years, the number of lawsuits filed by such patent-assertion entities has increased 526 percent, according to research by Santa Clara law professor Colleen Chien, examining data from the patent risk-management company RPX Corporation.

And the businesses and individuals being hurt by patent-troll litigation abuses are not merely technology companies and manufacturers. In February 2011, a patent troll named Innovatio IP Ventures, LLC, acquired a portfolio of 31 patents related to Wireless Fidelity (Wi-Fi) technology. Instead of suing manufacturers employing Wi-Fi technologies that allegedly infringed on the patents, attorneys working with Innovatio mailed more than 8,000 letters seeking $2,500 to $3,000 each from retail businesses — including hotels, coffee shops, and restaurants — that offered customers Wi-Fi services.

Late last year, another patent troll, MPHJ Technology Investments LLC, acquired a patent covering scanner technologies that employed a one-button scan and send-to-e-mail function, which had been granted to Israeli resident Laurence Klein in 1997 but never used in a manufacturing setting. Rather than suing scanner and printer manufacturers, attorneys working with MPHJ mailed demand letters to hundreds of small and medium-size U.S. businesses that were end users of printers and scanners — seeking roughly $1,000 per worker in licensing royalties.

Apart from the fact that the U.S. Patent and Trademarks Office has issued many patents it shouldn’t, such patent-lawsuit shenanigans are enabled by idiosyncratic features of the American legal system that have made the United States far more litigious than any other nation in the developed world. The U.S., unlike every country in Western Europe, does not require the losers of a civil lawsuit to reimburse the winner’s expenses. A company facing a $3,000 demand letter might very well settle up rather than risking the need to mount a legal defense — which in a patent suit typically costs hundreds of thousands or millions of dollars if the case goes to trial, successful or not.

“Forum shopping” is another useful and much-abused tool for patent trolls. Under U.S. law, patent lawsuits can be asserted wherever a product is sold, which has led plaintiffs’ lawyers to seek out jurisdictions particularly likely to expedite their claims and award them hefty jury verdicts — places like the Eastern District of Texas, where the number of patent lawsuits filed skyrocketed from 32 in 2002 to 1,266 in 2012, according to filing data compiled by Perkins Coie patent attorney James Pistorino. And in addition to federal court, patent lawyers can file suit at the ITC, which has broad powers, as in the Samsung-Apple case, to keep products at the border on the basis of an alleged patent infringement involving a single software program.

The president and certain congressional leaders have advanced various approaches to fixing patent-litigation abuse, but there seems to be a growing consensus that something must be done. Let’s hope that our elected officials put aside the normal partisan bickering on this one and get to work: The nation’s economic growth and technological leadership depend on it.

Original Source: http://www.politico.com/story/2013/08/throw-patent-trolls-under-the-bridge-95188.html

 

 
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