In his State of the Union address, President Obama called for a patent reform bill to keep businesses focused on innovation. This reflects the broad recognition that patent trolls are a multibillion-dollar drain on the economy. It's time for the Senate to take up and complete its passage of meaningful patent reform legislation, like the House did late last year.
Over the past few years, more and more American businesses, large and small, have found themselves tied up in senseless litigation or threatened with extortive threats as patent trolls exploit flaws in the patent litigation system. Because of this, businesses have been forced to spend valuable time and money on pointless lawsuits instead of on hiring new employees and creating new products.
These lawsuits are the product of patent trolls. Trolls' sole business model is to sue or threaten to sue businesses using vague and overly broad patents, alleging that the patents they own have been infringed. They claim these patents cover common business practices such as online shopping carts found on nearly every ecommerce website, simple shipment tracking technology, and the basic WiFi technology used by a range of businesses from coffee shops and supermarkets to hotels and casinos.
Trolls exist for no other purpose than to buy thousands of patents and prey on companies who don't understand or lack the resources to fairly participate in our complex patent legal system. Such frivolous lawsuits have cost companies billions in legal fees and payouts; one study found that companies paid out more than $29 billion to settle these suits in 2011 alone.
The targets of these lawsuits are no longer just large high-tech companies, as used to be the case. Increasingly, patent trolls are targeting small and medium-sized businesses. More than 50 percent of patent troll lawsuits are against defendants with less than $10 million in annual revenue. These businesses are not prepared and lack the resources to protect themselves from such suits. They are often faced with the choice between expensive lawyers' fees or settling the suits and writing large checks to the trolls to cut their losses. Many choose to settle even though they believe it is wrong, rather than face bankruptcy.
The larger question is simple: Why should it cost businesses millions of dollars to prove that a patent should never have been issued by the US Patent and Trademark Office?
Businesses -- small and large -- from all sectors need help. Fortunately the U.S. House of Representatives passed a bill to reform the patent system and help fight patent trolls in December. Supported by an overwhelmingly bipartisan vote, the bill offers a host of solutions to the growing patent troll problem. Now it is the Senate's turn to act.
Titled the Innovation Act, the bill passed by the House would reduce the number of meritless troll suits by requiring a patent holder to provide certain obvious and essential details (such as what the defendant is actually accused of doing) when it files a lawsuit. The bill also includes a fee-shifting provision, which would allow companies to recover fees if they prevail against a frivolous troll suit -- a patent statute that in its current state has been employed by the courts sparingly. And by putting limits on discovery, the Innovation Act can prevent the trollish tactic of driving up discovery costs as a way to bully defendants into negotiation and settlement. These provisions work together to disincentivize the troll business model of manipulating patent litigation.
As the Senate works on its own version of patent reform legislation, it should look to adopt similar solutions. But it should also seek to disarm trolls by improving patent quality and providing a less expensive way than full-blown litigation to question the overly broad, low-quality patents that trolls favor.
The Innovation Act is a step in the right direction. It would make it easier to challenge broad, low-quality patents, and this would take away one of the main tools patent trolls are using in their attacks.
President Obama has made it clear that patent reform is key to creating a strong economy. In a rare show of bipartisanship, politicians from both parties strongly support patent reform. Now, in this period of rapid innovation, people and businesses need to be rewarded for taking risks and investing, rather than fearing trolls taking advantage of their success.