"Patent trolls" or patent-assertion entities (PAEs) impede innovation

What to do about the "patent troll" problem

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A new report titled An Overview of the "Patent Trolls" Debate [PDF] is a balanced but ultimately devastating indictment of "patent trolls." It was prepared by the Congressional Research Service for members of Congress, who could actually do something about the "troll" problem. It's a useful primer for those new to the area.

First, apologies to any who are offended by use of the word "trolls." As the report points out, the problem is that the term is not only pejorative, but also somewhat vague. It notes the common use of the more polite term "non-practicing entities" (NPEs), but favors using instead "patent-assertion entities" (PAEs). These are entities that speculate by buying patents with a view to asserting them against parties that usually have independently invented, produced, and marketed the technology at issue. I'm fine with "PAE," which really is clearer, and also points toward an irresistible pun: all a PAE does is make you pay.

The report recognizes the case that "PAEs impede innovation, undermine the patent system, and wreak havoc on businesses that play a vital role in the American economy." It also notes that PAEs contend they provide benefits by compensating small inventors and managing the risks of investments in research and invention. These benefits may exist, according to the report, but they "are significantly outweighed by the costs."

The Congressional Research Service report does a good job of quickly explaining the dynamics of ordinary PAE cases. "[P]atent litigation is expensive, and there is no quick or affordable way to get rid of a patent suit except to settle. Defendants frequently find settlement the most cost-effective option, even if they are certain that they are not infringing." In addition, "[u]nlike most patentee-plaintiffs, PAEs pursuing infringement suits ‘do not risk disruption to their core business' because ‘patent enforcement is their core business."

One fresh point of the report is research that indicates "that PAE activity could harm competition to the extent that operating companies use or ‘sponsor' PAEs as a means of imposing costs on rivals and achieving other anticompetitive ends." That is, real companies are promoting PAE attacks on rivals. In my view, the PAE model is basically coin-operated (think "show me the money!") and indifferent to any other social objective. The fundamental amorality of that model is disturbing, but the nascent expansion and corporatization of that model is even more so.

The report lists without endorsing various possible legislative options for addressing the PAE problem. Currently pending is the Saving High-Tech Innovators from Egregious Legal Disputes (SHIELD) Act, which would provide for the possibility of requiring that a losing plaintiff pay defendant's legal costs in cases involving computer hardware or software patents. This could discourage some PAE suits, although it could be criticized both for leaving some PAE lawsuits untouched and discouraging some non-PAE suits.

Among other potential reforms noted in the report is strengthening enforcement of the definiteness and disclosure requirements of Section 112 of the Patent Act. This could result in invalidation of abstract or ambiguous patents. Congress could also decrease the period for IT patents to less than the current 20-year period.

Another interesting idea is a rule that failure to practice a patent for a number of years could be treated as evidence of abandonment. In such cases, the plaintiff would be required to show efforts to undertake commercial activity in order to proceed. Because most PAE cases are based on older patents, this could stop many such cases.

As the report points out, the law could be changed to eliminate the presumption of validity applicable to existing patents. Under current law, this presumption is rebuttable only by clear and convincing evidence, rather than the more common preponderance of the evidence standard. This standard makes it difficult to invalidate the patents of patent aggressors.

Another possibility is changing the method for calculating damages in a patent case. Software products may involve hundreds of potentially patentable components. A reform could address the risk under that a finding of infringement relating to only one minor component could result in disproportionate damages.

What about a change in the law to eliminate patents for software? The report touches on this possibility, noting that the proposed SHIELD Act would treat software as a special category of invention. It also notes that the old argument that such an approach might be barred by international treaty (the TRIPS agreement) is not decisive. Although many consider this approach too radical to be viable, it's good to see that the Congressional Research Service is not prepared to rule it out.

These and other reform ideas are worth much more discussion. Given the impending election, it's unlikely we'll see any legislative activity addressing the PAE problem in the near future. But the report furnishes data that will be useful in future debates. In the meantime, we've got some presidential debates coming up. Maybe somebody can ask the candidates what they plan to do about the problems of software patents and PAEs.


About the author

Rob Tiller - Rob Tiller is vice president and assistant general counsel for Red Hat, where he manages patent, trademark, and copyright matters. He is a frequent speaker and writer on open source legal issues. Before coming to Red Hat, he was a partner with the law firm of Helms, Mulliss & Wicker, PLLC, where he specialized in commercial and IP litigation. He is a graduate of the University of Virginia School of Law, and a former clerk for Justice Antonin Scalia of the U.S. Supreme Court, and Judge...