Government wheels are in motion, but no easy fix for patent troll problem

Pay up or else!

With increasing frequency, businesses have been receiving notices stating that they are violating patents and owe money for seemingly innocuous actions such as using office equipment. Companies that make such demands are commonly referred to as “patent trolls.” Businesses often agree to pay settlements in order to avoid expensive litigation.

Ars Technica reports that in one instance, a company sent notices to businesses saying they owed $1,000 per employee for using modern office scanners to scan documents to e-mail. Lawsuits have also been filed against users of wireless networks and other off-the-shelf technology.

A patent troll is loosely defined as a company that doesn’t create products, but buys patents and uses them to make money by threatening lawsuits. The companies that are sometimes called patent trolls are also referred to as Patent Assertion Entities (PAE’s) or Non-Producing Entities (NPE’s).

A June 2013 White House report, Patent Assertion and U.S. Innovation (pdf), states that “Suits brought by PAEs have tripled in just the last two years, rising from 29 percent of all infringement suits to 62 percent of all infringement suits. Estimates suggest that PAEs may have threatened over 100,000 companies with patent infringement last year alone.”

Not every company that owns patents for products it doesn’t make is a “troll,” however. The White House Report states that such firms play an important role in U.S. innovation by connecting manufacturers with inventors, allowing inventors to focus on their work. There are also those who defend the actions of so-called trolls. Still, there is enough concern among businesses and government officials that change could be on the way.

On June 4, President Obama issued executive orders designed to rein in abuses by “patent trolls,” as well as recommendations for Congress. The US Patent and Trademark Office (PTO) was ordered to require companies to be more specific about what their patents cover and how they are being infringed. The White House ordered the PTO to

  1. begin a rulemaking process to restrict use of shell companies and make it clear who owns patents
  2. more closely scrutinize patent claims
  3. publish new education and outreach materials to inform end users of their rights before entering litigation or settlements
  4. expand outreach and study, including six months of events to develop ideas and consensus
  5. strengthen enforcement of exclusion orders by the International Trade Commission (ITC)

The President also made the following legislative recommendations to Congress:

  1. Require patentees and applicants to disclose the “Real Party-in-Interest,” by requiring that any party sending demand letters, filing an infringement suit or seeking PTO review of a patent to file updated ownership information, and enabling the PTO or district courts to impose sanctions for non-compliance.
  2. Permit more discretion in awarding fees to prevailing parties in patent cases, providing district courts with more discretion to award attorney’s fees under 35 USC 285 as a sanction for abusive court filings.
  3. Expand the PTO’s transitional program for covered business method patents to include a broader category of computer-enabled patents and permit a wider range of challengers to petition for review of issued patents before the Patent Trial and Appeals Board (PTAB).
  4. Protect off-the-shelf use by consumers and businesses by providing them with better legal protection against liability for a product being used off-the-shelf and solely for its intended use.  Also, stay judicial proceedings against such consumers when an infringement suit has also been brought against a vendor, retailer, or manufacturer.
  5. Change the ITC standard for obtaining an injunction to better align it with the traditional four-factor test in eBay Inc. v. MercExchange, to enhance consistency in the standards applied at the ITC and district courts.
  6. Use demand letter transparency to help curb abusive suitsincentivizing public filing of demand letters in a way that makes them accessible and searchable to the public.
  7. Ensure the ITC has adequate flexibility in hiring qualified Administrative Law Judges.

On June 20, Federal Trade Commission Chairwoman Edith Ramirez announced that her agency would conduct a probe of PAE’s. The FTC will issue subpoenas to targeted companies, requiring them to answer questions about how and whether they coordinate lawsuits with other companies and whether they compensate original patent owners.

Although efforts are under way to regulate the practice, patent trolling isn’t actually illegal, which makes it difficult to offer advice to businesses that receive such demands. Strategies companies have used include: budgeting money for settlements just in case, settling out of court, ignoring the notices hoping the patent company will give up (sometimes they have), speaking out online or to the press, using common technologies in order to share lawsuit risk with others.

None of those strategies are a sure bet. It basically comes down to being aware of the problem, hoping the government takes effective action and hiring good legal counsel when necessary.