Patent News

Dec. 7, 2013

The Economist: Patent reform in America: Trolls on the Hill

This article originally appeared in The Economist online on December 7, 2013.

IN SCANDINAVIAN folklore trolls were dumpy with grotesque faces and uncontrollable hair. These horrifying creatures have given their name to patent trolls, who buy up lots of vaguely worded patents and then use them to extract cash from unsuspecting victims—who pay them off rather than risk a pricey lawsuit. It is not hard to identify the obvious ones, but writing laws to catch them without endangering everyone else is. Having tried once with the America Invents Act of 2011, Congress is having another go. The Innovation Act looks set to become law by the end of the year, after attracting an unusual amount of support from both parties.

Over the past few decades there has been a rapid increase in the number of lawsuits over intellectual-property infringements. According to Jim Bessen of Boston University, since the early 1980s the number has increased sixfold. That might merely be a sign that there has been lots of innovation, but the threefold increase in the number of lawsuits per patent filed over the same period suggests that something else is going on.

Many patent cases involve companies defending real innovations from copycats. But a large number are “pure shakedowns”, says Josh Mendelsohn of Engine Advocacy, a lobby group for startups. He says some venture capitalists have to give extra cash to the firms they have backed just to fight off trolls. Since patent lawsuits can be filed against the end users of new technologies, startups can find that customers will only deal with them if they are indemnified against future infringements. It is often cheaper and quicker to pay up.

Though the patent system touches all areas of business, the problem is concentrated in software. Such patents are often abstract, dealing in descriptions of what the software does rather than in lines of code. Timothy Holbrook of Emory University in Atlanta doubts that fixing the problems caused by these abstract patents requires a new law. Todd Dickinson, of the American Intellectual Property Law Association, says that the 2011 law has provisions to deal with such problems and just needs time to settle in.

Those arguments have been brushed aside, for two reasons. First, the troll problem faced by tech investors is not getting better. Second, the sending of threatening patent-infringement letters has become speculative. Even restaurants and grocery shops have received letters threatening them with a patent lawsuit, over such things as offering Wi-Fi to customers or mapping their locations online. Not all congressmen have tech startups in their districts, but most have constituents who have had letters telling them to pay $500.

Those threatened with lawsuits must pay just to find out about their alleged infringement and can run up large legal bills even when they win. By shifting the costs of litigation on to the loser and forcing patent holder to disclose what the infringement is, the Innovation Act hopes to change this. There is probably no perfect equilibrium that protects inventors without stifling new inventions. At the moment the scales are weighted in one direction. The new act would add some balance.