Patent News

Dec. 17, 2013

Ars Technica: Patent troll bill taken up by Senate, but some say “slow down,” by Joe Mullin

This article originally appeared in Ars Technica on December 17, 2013.

Earlier this month, the Innovation Act, meant to curb abusive patent litigation, passed in the US House of Representatives on a 321-95 vote—just two months after the debate began in earnest in mid-October. The process was almost lightning-quick by legislative standards.

Today the Senate took up the debate, and there are strong indications that it won’t be speeding ahead at quite that rate. While there are some powerful senators who are committed to action on this issue, there are others whose message can best be summarized as “slow down.”

Committee Chairman Patrick Leahy (D-VT) opened the hearing by reciting some of the best-known offenders that Congress is looking to stop. “In Vermont, businesses have received $1,000-per-worker demand letters” for using scanners, he noted. “Thousands of coffee shops and retail stores have received demand letters for simply using an off-the-shelf Wi-Fi router.”

The patent owners cloaked their ownership behind thousands of differently named shell companies. “It’s as close to robbery as you can think,” said Leahy.

Leahy’s bill was introduced last month and contains many of the same key provisions as the House bill, including fee-shifting provisions and a system that would allow stays in lawsuits against customers and end users.

Leahy’s concerns were echoed by the ranking Republican on the committee, Sen. Chuck Grassley (R-IA). “Rather than focusing on innovation and job creation, entrepreneurs and business owners are… defending expensive and unnecessary legal threats by patent trolls,” said Grassley.

Small businesses, big costs

The hearing again showcased smaller businesses slapped with patent demands. The New England Federal Credit Union received a demand letter in June from a company “whose only asset is a portfolio of highly questionable patents,” said NEFCU’s president, Jim Dwyer. The dispute centers on automated teller machines, of which NEFCU has 23, all used for “traditional banking transactions.” Other Vermont credit unions got letters as well, including one without a single ATM.

“Patent trolls know for a small credit union, an early settlement is much cheaper than a fight,” said Dwyer. “Just to pick up the phone to evaluate the demand costs tens of thousands of dollars.”

A printer in Kansas with 40 workers was sent an “extortive letter” demanding $75,000 in patent license fees, explained Michael Makin, president of the Printer Industries of America. If it wasn’t paid in two weeks, the demand would go up to $95,000.

“They are astounded by the thuggish actions of these enterprises,” said Makin. “Patent trolls do not create jobs. They intimidate hard-working Americans who are standing up for their rights… Senator, Tony Soprano has nothing on these patent trolls.”

Printers have been sued over “Web-to-print” systems and other “ubiquitous” technologies used in printing plants for years.

Senator Charles Schumer (D-NY) vociferously argued that attacks on small businesses call for more dramatic change, including expanding the “covered business method” review program that was stripped out in the House. He took a shot at those companies—including IBM, based in his home state—that argued against a review program.

“It’s really wrong to say, ‘I want our protection to be so big and so great that it will allow the patent trolls to continue,'” he said. “If we don’t address the fundamental issue of patent quality, trolls will continue to abuse poor quality patents.”

Concerns about universities, fee-shifting

Small businesses want the House reforms to be protected and perhaps even expanded. Not everyone is enthusiastic about a big reform effort, however. A witness speaking on behalf of the 21st Century Patent Reform group, which includes big manufacturers, urged restraint, as did the American Intellectual Property Law Association and a VP from a small pharmaceutical company.

Some Senators want to slow down what they see as a speeding train as well—and more than one evoked growing opposition from the university community.

“This is such a difficult, complicated arena,” said Feinstein. “Universities want an opportunity to come to the table.”

Sen. Richard Durbin (D-IL) said he had just received letters from Northwestern University, the University of Chicago, and the University of Illinois—certainly not trolls, in his view—denouncing the bill. They said it creates “a powerful disincentive… for universities to enforce their patent rights,” said Durbin.

Durbin was one of a few senators who expressed discomfort with the idea of fee-shifting—in other words, making the loser of patent suits pay for legal fees. It’s likely that most of the 95 “no” votes in the House—especially the 68 Democratic “no” votes—were motivated by concerns about fee-shifting.

But Durbin was really uncomfortable with the fee-shifting provisions, and he wasn’t the only one. “I start with skepticism when the premise is to reduce access to the judicial system,” said Durbin.

“Frivolous is often in the eye of the beholder,” said Sen. Richard Blumenthal (D-CT). “I am wary of overkill… of limiting rights without knowing what the end results are going to be.”

But without some reforms, “we’re going to continue to see innocent players hurt” said Makin, of the Printers Association.

“I understand innocent players are hurt by the costs of what they see as frivolous lawsuits,” said Blumenthal. “Our system has also trusted in the discretion of courts to dismiss cases. I’m just looking for a limited solution to a limited problem, which you have very well outlined here.”

One witness, Dana Rao of Adobe Systems, pointed out that the fee-shifting in the bill applies to both sides—that could actually enable lawyers on the plaintiff’s side to take more small-damage cases, because if they win, they get fees in addition to damages.

Also, the bill as it stands wouldn’t create a total “loser pays” system. If a case was “substantially justified,” the loser wouldn’t have to pay fees, which would protect serious litigants like universities, noted Rao.

That didn’t seem to mollify some Senators, who seemed concerned that patent reform would be just one more way for companies to dodge the courtroom.

“There are very strong interests that have ulterior motives to knock down the civil justice system as much as they can,” said Sen. Sheldon Whitehouse (D-RI). “Because frankly, corporations don’t like being sued! They don’t like being in front of a jury, where if they tamper with it, it’s a crime, and they have to stand there as ordinary mortals.”

A bill should be crafted to protect “the innocent garage inventor who is at the heart of all of your concerns,” said Whitehouse.