Slaying the Troll: How The Innovation Act of 2013 Could Help Combat Patent Trolling

The Innovation Act of 2013, if passed by both chambers of Congress and signed by President Obama, could beget important and much-needed change for the patent litigation industry, especially as it pertains to so-called patent trolling.

Patent trolling is a practice in which a group, typically a large corporation, procures an impressive portfolio of patents with little to no intent of using those patents to provide a service or create a product. Rather, patent trolls target companies, often small businesses, or purchasers of a product, claiming the business or individual has infringed on their patent rights granted by the United States Patent and Trademark Office (USPTO). Trolls have traditionally relied upon the difficulty of small businesses and consumers to weather the legal cost of patent infringement lawsuits as a means of collecting smaller settlements from the alleged infringer, irrespective of the baselessness many of these lawsuits possess.

However, the aforementioned piece of legislation is attracting bipartisan support in Congress and has a strong chance at becoming enacted, if chatter on Capitol Hill is to be believed. But what exactly does the Innovation Act do and how can it help combat the economic drain caused by patent trolling?

For starters, the Innovation Act attempts to shift legal fees onto the losing party, which in approximately 92% of patent litigations reaching the trial phase is the aptly named patent troll. This would give businesses and individuals a better chance at withstanding the financial difficulties brought about by costly litigation. And while cost shifting is certainly a step in the right direction, still a heavy majority of patent litigations will likely end in settlement because the risks of losing a trial greatly exceed the smaller monetary sacrifice associated with a settlement, especially if the settlement results in a licensing contract which allows the alleged infringer to continue providing their product or service.

Moreover, a patent troll may intentionally drag out litigation for a number of years so as to incite bankruptcy or financial catastrophe in the alleged infringer before a trial can even be reached, essentially securing a favorable settlement. Still, fee shifting to the losing party is a mild deterrent to overly frivolous patent trolling, and is thus a much needed change to the patenting world.

Second, the Innovation Act puts a more definitive face to the all-too-amorphous patent troll by promoting transparency in patent litigation. As it stands, patent trolls can and very often do, hide behind small shell companies (their metaphorical bridges) to obfuscate the brains behind the operation, that is, the actual name-recognized company frivolously pulling the legal strings. The proposed legislation requires, upon declaration of the lawsuit, a disclosure of those entities with a vested financial interest in the outcome of the litigation, a bit reminiscent of the “I’m [insert politician], and I approve this message” phrasing at the end of advertisements originating from official political campaigns. As a result, it should become significantly easier to identify and publicize patent trolls, giving rise to negative publicity as a defense against trolling.

Third, the proposed legislation would make it possible for a business or individual embroiled in patent litigation or under license to request a reexamination of the patent or patents they are licensed or alleged to have infringed upon. This is a very important piece of the puzzle that is combating patent trolls. Many patents held by these trolls are weak or low-quality, and may not stand up to the scrutiny of a second, potentially more skeptical look at their portfolio. However, some companies referred to as non-practicing entities (NPE’s) which do not produce or provide a product or service, but seek to license their patent rights to companies instead of pursuing litigation, oppose this aspect of the Innovation Act. They worry an onslaught of patent invalidation requests will ensue and severely compromise the money they receive in the form of patent licensing. But if a patent cannot withstand a review of its validity, many would argue that perhaps the patent should not have been issued in the first place.

Lastly, the Innovation Act provides an avenue for manufacturers of a product to defend consumers of that product who are being sued for infringement. Patent trolls sometimes target consumers of a supposedly infringing product (or service) instead of the manufacturer because they identify that individuals are often far less capable of defending themselves (financially and legally) from an infringement lawsuit than is the manufacturer. Consumers who are fearful of an impending lawsuit will understandably be averse to purchasing the corresponding product, hurting the manufacturer. But with this new capability, manufacturers will be better able to shield themselves from declining sales as a result of threats on consumers by patent trolls.

So while not without its flaws and points of contention, the Innovation Act of 2013 is a promising means with which to begin combating the science-impeding, parasitic nature of the patent troll.

Remick Stahl Law Clerk at JAFARI LAW GROUP®, INC.