Patent trolls are a significant and growing threat to America’s businesses. Also known as “nonpracticing entities,” patent trolls are firms that acquire old — often invalid — patents with the sole purpose of using them to sue and extort settlements. Unlike typical inventors, they have no intention of further developing, manufacturing or marketing the patents. Not satisfied by attacking producers of products, patent trolls have begun to target end users of widely adopted technology, including retailers and small businesses.
The Food Marketing Institute represents the supermarket industry, from the largest chains to operators of a single store, and our members are increasingly the target of these patent trolls.
Retailers and other end users are particularly vulnerable to the abusive litigation of patent trolls. They are in the business of delivering value to consumers in highly competitive markets. They are not in the business of defending intellectual property lawsuits. A retailer usually first hears of a troll via a letter that accuses the supermarket of violating one or two vague patents for using some widely adopted technology. The letter asks the retailer for a “licensing fee” of tens of thousands or hundreds of thousands of dollars to make the troll go away. These letters threaten litigation if the retailer fails to pay. Because litigation costs on average well more than $1 million, often substantially more, the retailer has limited options.
Recently, FMI members have been sued, threatened with litigation and sent demand letters by trolls for employing widely adopted technology such as text messages, as well as store locator functions and clickable menus on their websites. Retailers have even been sued or sent demand letters for offering Wi-Fi in their stores and using QR codes in their business.
Patent trolls have become an enormous — and costly — headache for retailers. It has been estimated that patent trolls cost our nation’s economy $80 billion each year. Each dollar spent dealing with a troll is a resource not spent on job creation, lowering costs of goods, capital investment and innovation. In a highly competitive market such as food retailing, with industry profit margins of less than 1 percent, nearly every dollar paid to a troll ultimately comes from the consumer’s pocket.
The FMI applauds the efforts of Sen. Charles E. Schumer, D-N.Y., to constrain the unsustainable trend in patent litigation by nonpracticing entities and strongly supports enactment of the Patent Quality Improvement Act (S 866). The Patent Quality Improvement Act represents a well-crafted and easily implemented response to the escalation of patent litigation by firms that neither manufacture nor innovate, but rather exploit the high-cost and uncertain nature of patent litigation to demand exorbitant royalties on patents that are often invalid, uninfringed or already subject to a licensing agreement. We also commend the Federal Trade Commission and Department of Justice for having opened a public docket on the issue of trolls.
In concert with our nation’s food retailers, the FMI believes the Patent Quality Improvement Act strikes an appropriate balance between protecting commerce from meritless, aggressive litigation and promoting innovation as patents are intended. Passing this legislation should be a priority for the 113th Congress. In addition, the DOJ and the FTC should continue their work on patent troll issues and use their powers under the antitrust laws to combat this growing menace to our nation’s businesses.
Erik R. Lieberman is the regulatory counsel at the Food Marketing Institute, which represents food retailers and wholesalers before Congress and the regulatory agencies.