Patent News

Mar. 4, 2014

Honolulu Civil Beat: Obama-backed patent reform could hurt innovation at UH, by Adrienne LaFrance

This piece originally appeared in Honolulu Civil Beat on March 4, 2014.

Patent reform legislation that is backed by the Obama Administration and a coalition of Hawaii hotels and restaurants could hurt individual inventors and stymie innovation at the University of Hawaii, local patent lawyers say.

The Innovation Act, which is up for consideration in the U.S. Senate just two years after the last major patent reform passed in Congress, is aimed at eradicating so-called patent trolls.

Here’s what we know so far.

What’s a patent troll?

The term “patent troll” is usually used to describe people or shell corporations who obtain patents just so they can sue others for infringement. The classic patent troll move is to scoop up a bunch of broadly written patents, wait for a legitimate inventor to come up with a somewhat similar idea and then sue them. Often, trolls go after big companies who have enough money to pay away the nuisance of these kinds of lawsuits with settlements.

So how would this proposed law deter patent trolls?
The Innovation Act would do a couple of things: It would require the use of real names in patent litigation, instead of letting trolls continue to sue people under the names of shell corporations. The bill would also discourage frivolous lawsuits by requiring the losing plaintiff in a patent case to pay the defendant’s costs. The proposal would make some other key changes, all aimed at thwarting patent trolls. (The Washington Post has a solid explainer on the ins and outs of the bill.)

So why does this matter to Hawaii hotels and restaurants?
There’s a national coalition of associations that represent big hotel and restaurant chains, airlines, grocers, etc. The group is called — counter-intuitively — the Main Street Patent Coalition, and it’s pushing for passage of the Innovation Act. The national coalition has enlisted the support of local groups like the Hawaii Restaurant Association, which supports the bill.

Are patent trolls going after Hawaii restaurants?
Hawaii Restaurant Association Roger Morey told Civil Beat he doesn’t know of any local examples of restaurants that have been burned by patent trolls. But there are clear national examples. For instance, the mainland fast-food chain White Castle got saddled with patent infringement lawsuits for the way it was marketing. White Castle says it got sued for the kinds of practices that don’t seem like they can be covered by a patent, including for the way the company used scannable QR codes in promoting its brand, and for linking to news stories in an email to customers. (Read more about that case here.)

“They were sued two or three times,” Morey said. “These people who are patent trolls do that sort of thing. It’s legal but it’s certainly not fair. And because it’s not fair, it should be changed.”

Morey said the Hawaii hospitality industry is too important to the state for Hawaii to ignore the issue of patent trolls, which stifle innovation because businesses decide not to try new things if they fear getting sued.

What about the university? Why wouldn’t UH want to stop patent trolls?
This is where it gets complicated. Here’s the problem with the term “patent troll:” When people use it, they’re typically referring to shell companies or other individuals who acquire patents for products they never intend to build, just so they can sue the people who do. But universities often have a no-build strategy, too.

Wait, wait, wait. The University of Hawaii is a patent troll?
Not in the way people typically mean when they talk about a “patent troll.” But universities routinely patent ideas even though they never intend to manufacture their inventions as products — especially in Hawaii, where manufacturing is costly and rare. Instead, universities make money by licensing their inventions to manufacturers who want to be involved. For a school like UH, leveraging patents this way is a legitimate business model, not a scam. (This is true for individuals, too, who may have great ideas but lack the resources to implement them on a large scale.)

Last time we checked in with UH’s licensing office, the school told us it files about 70 patents a year.

Still, if a university patents something it never intends to make, it might legally be considered a troll. (And that’s a problem because, as Martin Hsia, a patent lawyer at Honolulu law firm Cades Schutte, notes the very term “patent troll” is pejorative.)

Under the proposed Innovation Act, the original vendor — a licensing university, for instance — would be targeted in litigation instead of the entities that use the invention. That measure, known as the “customer suit exception” could be helpful when trying to protect small businesses from legitimate patent trolls, but the exception is broad enough that critics of the act say it could hurt individuals and universities. Driving up costs of litigation is another strategy meant to curb real trolls, but it could discourage universities and individual inventors from protecting their inventions.

So are there any actual patent trolls in Hawaii?
Patent litigation of any kind is relatively unusual in Hawaii — there aren’t even very many patent lawyers in the state! But Hsia says he has at least three clients who have encountered trouble with patent trolls. (“Two of them are huge businesses in Hawaii and you know them, you see them advertised all the time, but I cannot disclose who they are, he said.)

So how can we stop the real patent trolls without hurting universities and individual inventors?
Patent attorneys like Honolulu-based Leighton Chong say a more measured approach is best.

“I personally favor the middle path,” Chong told me. “Neither cutting off trolls from helping small inventors and universities, nor failing to curb their abuses. A more reasoned approach is not likely with high-powered lobbyists influencing Congressional sausage-making.”

But at least one Hawaii delegate has been similarly skeptical of patent reform ideas in Washington. Last time Civil Beat talked to Sen. Mazie Hirono about patent reform, she cited concerns about aiming for trolls but actually hurting the little guy. (Both Reps. Tulsi Gabbard and Colleen Hanabusa voted in favor of the Innovation Act when it passed in the House late last year.)

There are other patent reform ideas circulating in Congress. Hsia suspects that a pair of cases that are slated to go before the Supreme Court could make it more difficult for actual patent trolls to continue engaging in their tactics.

Then again, he says patents have been weakening since the 1990s, and that’s because there are economic incentives from industry leaders to keep them weak. Here’s how Hsia explains it: “The people who are making money nowadays are not the people who are coming up with the invention but the people stealing the invention. And those are the people who pay off Congress now… Facebook doesn’t create anything new. Google doesn’t create anything new. They use what other people have created before and make it easier for other people to use.”

Is the Innovation Act going to pass?
We don’t know yet. The bill passed in the House and it’s still in the early stages of consideration in the Senate. President Barack Obama supports it. Given some of the bipartisan support for the bill, the attitude on Capitol Hill seems to be that this kind of legislation has a pretty good chance of moving along.