Patent Reform Bill Introduced in U.S. House

By: Zachary I. Gold

Though much has been made of the negative effects of non-practicing entities (NPEs), or, more commonly, patent trolls, on the economy, the problem has yet to be solved. Recently, Rep. Bob Goodlatte (R-V.A.) took a first step towards the goal of neutering patent trolls. He introduced a bipartisan reform bill, the Innovation Act, H.R. 3309.

Patent trolls extract large costs from the economy. One study found that patent trolls cost $29 billion annually in legal and licensing fees. The researchers surveyed two hundred fifty companies, hearing back from eighty two. These eighty two companies reported defending themselves against a total of 1,184 patent troll lawsuits. The most expensive cases, defended by large companies, cost $22 million each, and small and medium sized companies spent $420,000 on each case. Another study, conducted by the same researchers measuring the effect of trolls on stock prices found the cost to be $83 billion annually. U.S. businesses spend only $247 billion a year on research and development (R&D), making the tolls extracted by NPEs a significant drain on the economy and on innovation.

Some trolls also threaten end users for using every day products and functions they have already paid for. One company sues hotels and coffee shops for allegedly infringing Wi-Fi routers. Another company sends letters to businesses that use scan to e-mail functions asking for payments starting at about $9,000 in lieu of a lawsuit. One of the lawyers who works for this company claims that everyone, even home users, who scan to e-mail have violated a patent and owe his company money.

The new reform bill is not the first time Congress has attempted to reform the patent system. In early 2013, the America Invests Act (AIA), signed in 2011 by President Obama, went into effect. The major reform of that act was to change a rule for filing a patent; stressing not when something was invented but when a patent was filed.

The new Innovation Act is “designed to eliminate the abuses of [the] patent system” through a variety of reforms. The bill does this in multiple ways: first, the Act “would make it easier for a victorious patent defendant to collect litigation costs from the plaintiff.” This increases the cost of bringing frivolous lawsuits and makes it easier to defend against lawsuits filed by patent trolls. Second, the bill would protect end users by allowing vendors to step in and defend these suits on behalf of their clients. Third, upon filing a lawsuit, a patent holder would have to disclose everyone who has a financial interest in the patent. Last, it would extend the covered business method program and protect the Patent Office’s power to review patents to determine if they are invalid.

Rep. Goodlatte called the AIA “a prospective bill,” and says the Innovation Act addresses “more immediate” concerns. Various groups have endorsed the bill. The Electronic Frontier Foundation (EFF) said the reforms in the bill “will help stop the abusive patent litigation that has targeted everyone from grocery stores to podcasters.” An editorial in The Hill noted that the “end result [of the bill] will be a boost for businesses across the country, and ultimately our economy.” An article in Slate said that “the broad effects of the bill would do a lot of damage to patent trolls’ bottom lines.” Few groups, if any, besides patent trolls themselves, seem to be against the bill.

Often, patent trolls often target those least able to defend themselves; small businesses and individuals. Worries about weakening patent protections are not unjustified, but the number of lawsuits filed by trolls has become too large a wave to ignore.

The AIA is a step in the right direction to ensuring that businesses are able and incentivized to invest in R&D, that small businesses are protected from frivolous lawsuits, and that individuals can rest assured that they will not be subject to threats and lawsuits for using the products they purchased the way they were intended to be used.

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