The 2013-14 Congress heard testimony from tech startups, businesses small and large, retailers, manufacturers, and bipartisan state attorneys general — just to name a few — and made a strong effort to address patent troll abuse that is vexing thousands of companies. House Judiciary Committee Chairman Robert W. Goodlatte heard the outcry, and his Innovation Act targeted those who exploit meritless patents to extort companies, oftentimes forcing them to pay settlements only because settling is cheaper than paying for a meritorious defense. The bill passed the House by a wide, bipartisan margin, and two Senate Committees had strong patent reform hearings before efforts to finalize a bill were shelved in late Spring.
In the usual course of business, Congress would return to the issue in January 2015 and focus on pushing a bill over the finish line. Some, however, are claiming that the need for patent reform legislation has passed, claiming that recent U.S. Supreme Court decisions addressed stakeholders’ concerns and will effectively eliminate patent abuse. That is simply not true. To be certain, it is critically important that in 2015 Congress enact significant and comprehensive legislation, as patent troll litigation continues to grievously injure innovators, bankrupt small companies, and waste judicial resources.
The U.S. Supreme Court did issue important patent law decisions in 2014, and at least two may provide relief to some victims of troll abuse. In one case the Court improved the probability of judges awarding legal fees and sanctions in “extraordinary” cases of patent litigation abuse. In the second, the Court narrowed the definition of when a product or service is sufficiently new and different to qualify for a patent. While both rulings were encouraging, neither addresses the hundreds of thousands of existing patents that can be used at a moment’s notice by a patent troll. Even more, these decisions help only the very small subset of patent troll victims that can afford to pay for a full and lengthy legal defense. Most start-ups and small businesses cannot afford those fights so these cases, while helpful, do not eliminate the need for or the urgency of comprehensive legislative reform.
Patent trolls harm businesses the moment they send unjustified demand letters — well before litigation commences. Small and mid-sized businesses that do not have patent lawyers on staff are forced to immediately shell out several thousand dollars in legal fees to review the demand letter, analyze the business and technical situation, and make important and expensive decisions about how to proceed.
The costs to patent troll victims grow dramatically when the troll sues, because for the next two years the victim is stuck in the expensive world of litigation discovery. Pre-trial document demands, depositions, and legal and technical experts can easily cost more than a million dollars — enough to persuade most small companies to pay unjustified settlements to trolls simply to stop the financial bleeding.
It is particularly important that Congress not be fooled by headlines celebrating recent judicial invalidation of 17 software patents, or by the expectation that the Supreme Court’s guidance will substantially improve the PTO process of reviewing pending and future patent applications. Thousands of cases initiated by patent trolls are already pending in the courts and dozens more are threatened daily. These trolls are utilizing a treasure trove of previously issued patents, gleeful that most companies cannot afford to fight.
The Supreme Court’s 9-0 rulings on fee-shifting and meritless patents demonstrate how badly our patent system is out of balance. Incremental court-imposed improvements are helpful, but only Congress can pass comprehensive legislation that includes effective relief against meritless demand letters; increased transparency surrounding patent litigation; less expensive administrative alternatives to review and invalidate previously-issued patents; and more efficient litigation discovery that focuses on core technology documents to expeditiously determine validity and infringement.
Since the U.S. Senate shelved patent reform legislation last Spring, hundreds more troll cases have been filed and countless more threatened. Innovators and startups cannot afford further delay or inaction. In 2015 Congress must finish the job that the Supreme Court has only started.
Jon Potter is president of the Application Developers Alliance, a global membership association of 40,000 individual developers and 175 companies. Julie Samuels is executive director and president of the Board of Engine, an advocacy and research organization and foundation that supports the growth of technology entrepreneurship.