The Legislative Response to Patent Trolls

Patent litigation could reach an all-time high in 2015. Sixty-eight percent of patent lawsuits filed this year were filed by patent trolls, defined by one law professor as “patent owners who do not provide end products or services themselves, but who do demand royalties as a price for authorizing the work of others.”[1] Recently, legislation has been introduced in Congress to stop the trolls—also known as non-practicing entities (NPEs), patent assertion entities (PAEs), or patent monetization entities (PMEs)[2]—from abusing U.S. patent law and harming legitimate businesses.

Patent trolls have particularly affected the tech industry. According to statistics compiled by Unified Patents, a patent reform watchdog, 90% of all patent suits filed against tech companies in the first half of the year were filed by trolls. Giants Apple and Amazon were among those hit the hardest, facing 25 and 21 patent suits respectively. Accordingly, petitions filed at the Patent Trial and Appeal Board (PTAB) to invalidate patents are up by 31% since the the first half of last year. Apple, Samsung, and Google are the three top filers of PTAB petitions.

The Supreme Court first handled the issue of patent trolls in Ebay v. MercExchange, 547 U.S. 388 (2006) where the Court found that permanent injunctive relief is not the appropriate remedy for every patent infringement suit. The decision benefitted corporations defending the suits because they can more easily pay damages than cease using patented technology. After MercExchange, lower courts responded by denying permanent injunctions in most cases where the plaintiff and defendant were not competitors.[3] This past May, the Court acknowledged the problem explicitly when Justice Antonin Scalia, writing in dissent, used the term “patent troll” for the first time in the Court’s history.

Congress has also weighed in on the patent reform debate, generating a number of patent reform efforts in the past few years. Six such bills have been introduced in Congress so far this year; thirteen such bills were introduced from 2013 to 2014. One of the most comprehensive House bills is the bipartisan-backed Innovation Act, (H.R. 9), a package of reforms including heightened pleading requirements, a fee-shifting provision, and a consumer protection provision that would allow manufacturers to intervene when NPEs sue customers for using products that allegedly infringe a patent. The Senate’s answer to the Innovation Act is the Protecting American Talent and Entrepreneurship Act (PATENT Act). The bills are similar, though the Senate bill contains both an added provision that would postpone the majority of discovery until after the resolution of pretrial motions and a different fee-shifting provision.

One of the most significant differences between the Innovation Act and the PATENT Act is their varied approach to fee-shifting. Both chambers’ bills hold the losing party responsible for the prevailing party’s attorneys’ fees under certain circumstances in order to disincentivize patent trolls from filing frivolous lawsuits; however, they differ on what those circumstances ought to be. The Senate bill would require the prevailing party to show that the losing party’s position in the legislation was not “objectively reasonable.” The House bill, on the other hand, would put the burden on the losing party to show that its position was objectively reasonable.

The House bill’s strong fee-shifting provision is one of the most powerful tools against patent trolls and the Senate would be wise to adopt it as well. The high cost of litigation—especially attorneys’ fees—encourages settlement before trial, meaning that patent trolling has low risk and high reward when filing non-meritorious claims. Fee shifting would encourage defendants with strong claims to go to trial. More importantly, it would make trolling a less lucrative venture for the NPEs that regularly file such suits.

In a statement before the Senate Judiciary committee on May 7, 2015, Senator Patrick Leahy (D-Vt.), one of the sponsors of the PATENT Act, stated that the bill’s relaxed fee-shifting provision was an improvement on the House bill because “[i]t promotes judicial discretion and ensures the burden is on the party seeking fees to show that fees should be awarded.” He argued that the Senate bill “allows the court to refrain from awarding fees if such an award would be unjust,” such as when it might “caus[e] undue financial harm to an individual inventor or a public institution of higher education.” However, the House’s Innovation Act does not remove judicial discretion from deciding who will pay; it only shifts the burden of proof. While the Senate bill should be sufficient to protect the interests of large tech companies like Apple and Amazon, the extra burden of showing that a plaintiff’s position was not objectively reasonable after successfully defending a case would be a heavy burden for small businesses like start-ups or the “individual inventors” Leahy mentions. Senator Leahy names protecting small businesses as one goal of patent reform efforts, and the Innovation Act’s default “loser-pays” provision gives that bill the teeth to do so.

A vote on the PATENT Act is likely happening this fall. While the package of reforms could have some positive effect on the tech sector, the bill’s weak fee-shifting provision will significantly limit its impact.

[1] John M. Golden, “Patent Trolls” and Patent Remedies, 85 Tex. L. Rev. 2111, 2112 (2007).

[2] Thomas H. Kramer, Proposed Legislative Solutions to the Non-Practicing Entity Patent Assertion Problem: The Risks for Biotechnology and Pharmaceuticals, 39 Del. J. Corp. L. 467, 472-73 (2014).

[3] Golden, supra at 2113.

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