Imagine this scenario: You’re an app developer, trying to create a small business in your free time. You push your app to the Apple iTunes store and the Android Marketplace and you start seeing some modest success. Then comes the patent troll threat: a dense 100-plus-page document, full of legalese and nearly impossible to understand, threatening a lawsuit for “patent infringement” in federal court if you don’t pay up, either in cash right away or by promising away a percentage of your future profits.
This actually does happen. Every day. In all 50 states. Thousands and thousands of times every year. Patent troll actions like this cost the economy at least $29 billion a year and, maybe even worse, primarily target small companies with revenues of less than $10 million per year. Patent trolls target anyone they think they can shake down, from startups to local coffee shops to non-profits and many more.
This explains why Congress, the Supreme Court, and others took such a hard look at patent trolls in 2014. Congress, of course, has thus far failed to pass meaningful legislation to combat the troll problem. The Supreme Court, on the other hand, issued some fairly important rulings to help clean up a broken patent system.
The Court’s actions, primarily in a case called Alice v. CLS Bank, have resulted in throwing out some really crappy software patents. This is good news. It is the first step in a long road of weeding out the worst patents. But Alice alone cannot do that job — there are more than 2 million valid patents out there and invalidating just one in court can cost well into the millions of dollars. And that’s if the case even ends up in court at all. Many, if not most, troll threats all happen pre-litigation, before a defendant can even challenge a patent’s validity under Alice.
And while we are encouraged to see early Patent Office actions denying patent applications in light of Alice, patents live for at least 20 years, and the backlog is staggering. We cannot afford even one more year — let alone 19 — of arming trolls with their favorite weapon: low-quality patents.
But even more importantly, the Court in Alice only dealt with one aspect of the trolling business model, low-quality patents. Despite a few additional good rulings, the high court did not really solve the problems at the root of the trolls’ other favorite weapon — a patent litigation system that makes patent trolling so lucrative and attractive. That broken system, of course, was the focus of the Innovation Act, a bill that passed the House in late 2013 with a 325-91 margin, and of a compromise bill in the Senate that was poised to move forward until it was yanked from the schedule at the last minute.
The House and Senate bills were both carefully crafted to shift the playing field just a bit — to make it easier for small companies and individuals to defend themselves against patent threats while holding patent holders accountable for the lawsuits they file. Despite loud complaints from the traditional patent holder community, the bills’ provisions were actually quite modest, such as a requirement that patent holders set forth the basic framework of their case — who owns the patent, what product allegedly infringes the patent, and what parts of the patent are at issue. Or reasonable limits on discovery, usually litigation’s most burdensome and expensive phase that hits an operating company much harder than a non-practicing entity who has little to no information about its so-called business practice to share.
To be honest, I didn’t think the proposed legislation went far enough. But it represented an important compromise to fix a very serious problem.
Perhaps, most importantly, there was nothing in either bill that would prohibit a patent holder with a strong patent and a legitimate claim of infringement from bringing a lawsuit. Ownership of a patent alone should not be a blank check to, as President Obama said, extort money out of an operating company. This is not to say that patents do not have a place in today’s economy or to condone infringement. It is to say, however, that the current system is skewed way too heavily in favor of patent owners and this has to change.
We will only see this change through legislation. Strong champions of real patent reform — President Barack Obama, Sens. John Cornyn, R-Texas, and Charles E. Schumer, D-N.Y., and Rep. Robert W. Goodlatte, R-Va. — know this. So do the countless victims of patent trolls. Which is why the prospects for reform look especially good in the 114th Congress. It can’t come soon enough.
Julie P. Samuels is the executive director of Engine, a research foundation and advocacy organization supporting tech entrepreneurship.