Why the Senate’s Pro-Business Agenda Should Club Patent Trolls | Commentary

Posted December 5, 2014 at 5:11pm

It has been one year since the House of Representatives passed legislation to protect businesses from the scourge of the digital age: patent trolls. Yet in that year, as the Senate allowed patent reform legislation to languish in committee, trolls have continued to extort legitimate businesses, collectively draining $80 billion from the U.S. economy.

Patent trolls are parasites on our innovation economy, producing or manufacturing nothing of value. Last December, the House stood up for U.S. business and innovation by overwhelmingly passing the Innovation Act with bipartisan support. Instead of going after the trolls themselves, the House bill closed loopholes in the patent system and required them to pay both parties’ legal fees if the trolls lost in court. Patent reform is such win for small business that President Barack Obama even included a plea for reform in his 2014 State of the Union address.

So why is this bill still sitting in the Senate Judiciary Committee? Because current Senate leadership is bowing to the pressure of trial lawyers, whose lobbyists are giving cover to the trolls and making millions exploiting a broken system. Fortunately, things are looking worse for trolls (and better for legitimate businesses) in 2015. House Judiciary Committee Chair Robert W. Goodlatte, R-Va., and incoming Senate Judiciary Committee Chairman Charles E. Grassley, R-Iowa, have committed to make fixing our patent system a priority and move strong anti-troll legislation in the New Year.

The trolls’ business model is simple. First, they gobble up broad and vaguely written patents, frequently from companies going out of business, paying as little as a dollar per patent. Next, they frame these patents as applying to commonly used technology like copiers that send faxes, scanners that can email files, and podcasting platforms. Then, they file thousands of lawsuits against businesses they claim are violating their patents, often small businesses that can’t afford to pay massive legal fees to fight back. Even though the claims are not meritorious, victims usually acquiesce and pay the trolls a licensing fee rather than subject themselves to the high costs of litigation.

These frivolous lawsuits add up quickly: patent trolls account for 67 percent of new patent lawsuits. And though a few larger companies with the resources to do so have successfully fought back against patent trolls — online retail giant Newegg spent millions to defeat a lawsuit over the “shopping cart” feature and California-based Vizio makes a point of not caving in to any troll — 90 percent of companies facing patent litigation are small- to mid-sized businesses.

For these businesses, the trolls’ effects can be crippling, forcing them to lay off employees or even shut down completely. Patent trolls compelled MCS Office Technologies to close an entire product line and lose five employees — fighting the lawsuit in court, MCS’ lawyers reasoned, would have been even more financially devastating.

Virtually no industry is safe from the trolls. Coffee shops and hotels are battling patent trolls over offering Wi-Fi to their customers. Podcasters are fighting trolls who claim they held the patent to podcasting technology before the technology even existed. And app makers that include hyperlinks in their programs and been served with legal notices to remove the links or pay up.

While the Senate stalls, we are seeing some progress. Last month, the Federal Trade Commission filed a complaint against MPHJ Technology Investments, a Texas company that bought patents claiming to cover the “scan-to-email” function used by thousands of businesses. MPHJ sent out more than 16,000 letters to small businesses threatening to sue for patent infringement, if the businesses didn’t hand over licensing fees of $1,000 or more — per worker! The FTC complaint resulted in a settlement that forced MPHJ to stop making deceptive claims. Along with actual financial penalties and the return of all funds to the businesses trolls deceive, this is a step in the right direction.

These efforts are helpful, but comprehensive reform is still needed. We must ensure our patent system is used to promote, and not suppress, innovation to create jobs and grow our economy. It’s time for Congress to act, by changing the economics of patent litigation. To do so, the Senate must bring a strong patent reform bill to the floor for a vote.

If outgoing Senate Majority Leader Harry Reid, D-Nev., fails to pass this common-sense legislation before Republicans take over in January, incoming Majority Leader Mitch McConnell should make it a top priority. Backed by the House and the president, the Innovation Act is an opportunity for the Senate to make quick, bipartisan, pro-business progress in the New Year – strengthening our economy and preserving U.S. jobs along the way. Let’s mark this one-year legislative anniversary by sending patent trolls back under the bridge for good.

Gary Shapiro is president and CEO of the Consumer Electronics Association.