The last few weeks have brought both good and bad news to supporters of patent reform looking to reduce system abuse.
Hopes for legislative action were dashed when a major bipartisan reform bill that enjoyed the endorsement of President Barack Obama was pulled from the Senate calendar.
Conversely, there are still opportunities for the Executive Branch to intervene directly, as well as courts, which have recently been tougher on plaintiffs pursuing patent claims based on suspected invalid patents or outright frivolous. It also provides an opportunity to expand the conversation to international trade.
A patent troll generally has one of two goals: to extract a dubious royalty payment or to block market entrance by a potential competitor.
In regard to the former, the troll often attacks a small business or start-up, claiming to hold the original patent on the product or process its target is selling. The start-up, lacking the resources for a long court fight, settles out of court because it’s the better of two bad options. The cost, nonetheless, is passed onto consumers in the form of higher prices.
This practice – albeit slightly different – has spilled over into international trade.
France Brevets, Taiwan’s Industrial Technology Research Institute, Innovation Network Corporation of Japan, and South Korea’s Intellectual Discovery are all examples of state-sponsored patent pools. Over time, they have all accumulated thousands of patents, many for products that never made it market. Their aim is to use weaknesses in patent law to favor companies within their own countries while taking legal action against foreign competitors.
Call this a latter day version of protectionism: If a product from a foreign company threatens your domestic player, sue, ideally in a place where there are legal weaknesses to exploit.
That results in convoluted litigation such as ITRI’s infringement suit against South Korea’s LG Corp. (and its U.S. subsidiaries) in a U.S. District Court for the Eastern District of Texas – a preferred venue among trolls because it ranks among the highest in the U.S. in upholding patent claims. This is a further inducement for defendants to settle, even if they have a strong case that the suit is frivolous. And, at the end of the day, consumers pay.
With legislative patent reform dead for the time being, it seems or now the movement to curb this abuse will have to rely on the courts. This means slower movement toward general reform as court cases often focus on one aspect of the wide range of patent law. But each new ruling in favor of defendants adds to the weight of case law and jurisprudence.
The U.S. Supreme Court dealt a setback to trolling in an early June ruling when it vacated an appeals court ruling of infringement brought by Biosig Instruments against Nautilus Inc., an exercise equipment maker, over heart rate monitors. The Supreme Court said the appeals court, by disallowing only patents that were “insolubly ambiguous,” still left the door open for claims based on vague or indefinite specifications.
For trolls, who in lawsuits often try to stretch broad definitions and descriptions as much as possible, this a setback because the Supreme Court essentially raises the standard for a judgment of infringement beyond mere ambiguity, and will force plaintiffs to be more specific about the definitions and functions of a product of device to make an infringement charge stick.
As these and other court decisions add up, the attractiveness of the U.S. as a venue for patent trolling suits may diminish.
At the same time, the White House can be more assertive in condemning state-sponsored patent pooling. The practice is questionable under current trade agreements, as it involves governments taking an ownership stake in commercial intellectual property. This creates a conflict of interest when the regulator has an interest in the jurisdiction over which it presides. The U.S. Trade Representative’s Office and the Department of Commerce need to be more vigilant in protesting these practices.
Legislation may be on hold for now, but that doesn’t mean pressure for patent law reform should stop. Otherwise trolls will continue to abuse weaknesses in patent law and be a drain on domestic and international economic growth.
Steven Titch is an independent policy analyst. He is the former managing editor of InfoTech & Telecom News and was a technology and telecommunications journalist for more than two decades.
Terri Henderson, 6, center, whose mother is El Salvador, attends a rally with members of Congress at Union Station's Columbus Circle to announce the Restore Opportunity, Strengthen, and Improve the Economy (ROSIE) Act on July 29, 2014. The legislation provides incentives for government contractors to pay a living wage and other benefits that would help low-income workers.