By Jeffrey D. Feldman
In response to overwhelming frustration expressed up and down supply chains at every level of industry, from small business owners to America’s largest corporations and retailers, two bills were introduced in Congress this May in an effort to diminish the strength of “patent assertion entities” (PAEs), or “patent trolls” as they are pejoratively known. Background
According to an April report published by the Congressional Research Service, patent trolls, entities that gather and hold patents with no intention of putting them into production, collected $29 billion in direct costs from defendants and licensees in 2011, a 400 percent increase over $7 billion in 2005. Using patents containing broad and vague language, patent trolls have brought major corporations to the brink of collapse (Research in Motion), drained countless startups, and have even squeezed small business owners for using the scan-to-email function on their office copy machine. In a collaborative effort between Google, Blackberry, Earthlink, and Red Hat, the private sector generated its own report on the growth of PAEs last month as well. The report found PAE litigation now accounts for 62 percent of all patent litigation in the United States, with patent trolls filing four times as many cases today as they did in 2005.
Legislation
The two bills introduced in Congress in May, one in the Senate, one in the House, address two different tactics patent trolls currently heavily rely upon to intimidate targets. The “Patent Quality Improvement Act”, introduced by Senator Charles E. Schumer (D-NY), seeks to diminish the threat of frivolous patent troll lawsuits by extending the post grant review process implemented by the recently enacted America Invents Act (AIA). Post grant review only allows an infringer to challenge the validity of a patent that was first-to-file under the new AIA system. Furthermore, a challenge is only acceptable within the first nine-months of a patent’s issuance.
The AIA does provide another special review provision though for “Covered Business Method” (CBM) patents, which has no time limitation. Senator Schumer’s bill would expand this provision, if the bill passes CBM review, which currently only allows challenges of business methods for financial products (albeit with widely defined parameters), instead will apply to any patent covering “operations used in the practice, administration, or other operations of an enterprise, product or service.” In addition, Senator Schumer’s bill will also delete the eight-year sunset provision prescribed by the AIA for CBM review, making it a permanent opportunity for accused infringers.
To file a CBM review costs $30,000, a small percentage compared to the cost of the average patent troll settlement ($1.3 million), or in-court litigation ($1.7 million). Litigation won’t necessarily invalidate a patent either. When the Patent and Trademark Office invalidates a troll patent, though, not only can the accused infringer breathe a sigh of relief, but in some cases, an entire industry.
The companion bill to Senator Schumer’s patent troll legislation is the “End Anonymous Patents Act”, which was introduced in the House of Representatives by Rep. Ted Deutch (D-FL) on May 17. The shell companies patent trolls operate in order to hide their identity from litigants and licensees has proved one of their most burdensome tactics. This short bill would require patent owners to notify the Patent and Trademark Office of all patent sales or transfers, as well as include the name of the real party in interest who is making the purchase. The same disclosure requirements would apply for any new patents granted, as well as for any current patents held on the date maintenance fees are due.
Growth Met With Resistance
In 2012, 55 percent of all patent troll defendants made $10 million or less in annual revenue and for the first time, more non-tech companies were sued than those within the historically troll-plagued tech industry. As trolls continue to extend their borders in search of profit, though, they are being met with increasingly louder and more organized resistance. In the past year, pools that both large and small companies contribute resources to in order to defend against trolls have formed. Industry complaints, government hearings, academic articles, and even local news reports have all addressed the harm patent trolls are inflicting on the economy and have demanded change. The May legislation could be the beginning.
Jeffrey D. Feldman, is a founding member of Feldman Gale, an AV Rated trial lawyer with more than 30 years of state and federal jury trial experience, Feldman has litigated patent, trade secret, trademark, copyright, false advertising, and unfair competition cases. Feldman enjoys complex litigation and particularly welcomes the opportunity and challenge of appearing as trial counsel late in a case. www.feldmangale.com
South Florida Legal Guide Midyear 2013 Edition