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Just two years since the enactment of the America Invents Act, the Obama administration and Republicans and Democrats in Congress are calling for further reforms of the patent system. These calls reflect growing bipartisan recognition that innovators are being increasingly harmed by the abusive behavior of patent trolls, also known as “patent assertion entities” or PAEs.
The patent troll “business model” involves amassing portfolios of patents and then threatening litigation based on vague and unsubstantiated allegations of infringement. Patent assertion entities, which now account for more than 60 percent of all patent litigation, typically file blanket demand letters against hundreds of businesses and inventors. The majority of patents asserted are software patents, whose boundaries are often so unclear that it is very hard to discern what the patent actually covers. Patents for business methods are a subset of software patents with particular potential for litigation abuse.
Patent trolls often sue small businesses and startups that lack the resources to defend themselves in a patent litigation proceeding. Therefore, even though many of the patents asserted by trolls end up either being deemed invalid or not infringed, businesses too often fork over hefty settlement or “licensing” fees in what President Barack Obama called an attempt to “extort some money” from actual inventors.
Politicians in both parties recognize that patent troll litigation serves as a tax on innovation and a drain on our economy. That’s why members in the House and Senate have introduced legislation with certain common features: all seek to curb trolls’ ability to engage in abusive litigation by requiring transparency about who really owns the patent at issue, requiring parties to clearly claim what their patent allegedly covers, placing limits on abusive legal tactics and enabling a prevailing party to recover costs, including attorney fees. These proposals, which enjoy broad support in the intellectual property community, correct imbalances in the patent litigation system that have enabled such practices, and Congress is to be commended for moving forward with additional reform legislation.
The administration has also been a key driver of this effort. The White House issued a report and a set of recommendations in June. Many of these recommendations are reflected in the legislative proposals under consideration. The White House report highlighted concerns about the quality of software patents in particular and directed the Patent & Trademark Office to review its practices in issuing them. It also proposed legislation that would enable the PTO to weed out a broader range of business method patents than is currently authorized by the AIA.