10/07/2013 12:26 pm ET

New Proposal to Slay Patent Trolls Would Be a Boon to the Digital Economy

Following a slew of other bills introduced this year to address America’s broken patent system, House Judiciary Committee Chairman Bob Goodlatte, R-Va., released a second draft of a proposal to extend and amend the America Invents Act of 2011, the last serious attempt by Congress to address American intellectual property law.

The updated draft looks very promising overall, with changes that look to address everything from fee shifting to heightened pleading. Many of the changes aim not only to foster innovation, but also to protect legitimate patent holders, making this a vast improvement on the AIA.

Daniel Nazer at the Electronic Frontier Foundation does an excellent job summing up Goodlatte’s reform package:

  • Heightened Pleading: Requiring a patent holder to provide basic details (such as which patents and claims are at issue, as well as exactly what products allegedly infringe and how) when it files a lawsuit.
  • Fee shifting: Requiring the loser in a patent case to pay attorney’s fees and costs. This would make it harder for trolls to use the extraordinary expense of patent litigation to force a settlement.
  • Transparency: The draft includes strong language requiring patent trolls to reveal the parties that would actually benefit from the litigation (called the real party in interest).
  • Joinder: If the plaintiff is a shell-company patent troll, the defendant could require the real party in interest to join the litigation. Even better, a prevailing defendant could collect attorney’s fees from the real party in interest if the patent troll can’t or won’t pay.  
  • Staying customer suits: Requiring courts to stay patent litigation against customers when there is parallel litigation against the manufacturer.
  • Discovery reform: Shutting down expensive and often harassing discovery until the court has interpreted the patent. This should make it easier for defendants to dispose of frivolous cases early before the legal fees and court costs really add up.
  • Post-grant review: The bill expands an important avenue to challenge a patent's validity at the Patent Office (known as the transitional program for covered business method patents). While this procedure is still too expensive for many of the trolls’ smaller targets, we support efforts to make it easier to knock out bad patents.

By restricting the tools patent trolls use to abuse the system, Goodlatte’s proposal would do a lot to kill off the troll problem. But trolls are only half of the problem. There’s also the issue of lots of bad, overly broad patents coming out of the backlogged and underfunded patent office.

The Mercatus Center’s Eli Dourado argues, with software patents making up the vast majority of the troll problem, Congress should exclude software from the set of patentable subject matter. I’m sympathetic to Dourado’s argument, but also skeptical this could be politically achievable in the near future.

Much closer to the realm of political reality is something Goodlatte’s proposal could improve on: expanding the scope of the covered business method program.

Outlined in the AIA, the CBM program allows those who are sued for infringing on certain types of financial business method patents to request a review of the patent’s legitimacy from the USPTO’s Patent Trial and Appeal Board, rather than going through the extortion racket of litigation and settlement. Expanding this program (as Sen. Chuck Schumer, D-N.Y., and Rep. Darrell Issa, R-C.A., have both proposed earlier this year) would create a much needed invalidation process for spurious patent claims.

But all things considered, Goodlatte’s draft appears to be a great vehicle to make the patent office more functional and overthrow the trolls gumming up one of the most innovative parts of our economy.