A Bit of Background on Patent Trolls
If you follow our Twitter account, you are no doubt aware that our company has absolutely no love for patent trolls. For years, the United States Patent and Trademark Office (USPTO) has been in the habit of essentially rubber-stamping vague, overly broad patent applications for “inventions” that fall far short of meeting the stated requirements for being granted a patent. There are a of number of reasons why this is the case (examiners who lack domain expertise, too little resources, etc) and that makes it a complex problem to deal with.
The ease of which these bad patents are granted has given rise to the patent troll, who uses such patents as the basis for what amounts to a legal extortion racket to extract money from legitimate businesses over common practices. The scheme starts with the troll sending a demand letter to a business claiming the business has violated one or more of their patents. The business is then given the “opportunity” to pay off the troll or risk being sued. This is so close to a mob-style protection racket that you can almost hear the troll saying, “That sure is a nice software company you have there. Would hate to see something happen to it.”
The cost of litigation is another weapon in the patent troll’s arsenal. Patent infringement lawsuits are ridiculously expensive to litigate for defendants. The discovery process alone can cost hundreds of thousands of dollars with a full jury trial running in the low seven figures. Patent trolls know this so they make sure the settlement offer is for an amount significantly less than the cost of a trial. Paying off the troll makes sense from a business perspective because it will end up costing more to go to trial, even if the defendant wins on the merits. For small companies like ours, paying off the trolls is the only option. The cost of litigation puts the justice system well out of our reach.
Software and business method patents have been the favored weapon of trolls. The USPTO has never been capable of properly assessing these types of patents, making it easy to obtain the kind of vague, overly-broad patents the trolls need to pursue their legalized extortion schemes. This has resulted in shakedowns of companies over common practices such as providing WiFi access to customers, emailing scanned documents, shopping carts on e-commerce sites, and having a form users can fill out on your website.
Enter the Innovation Act
Many in the tech industry, myself included, have been complaining about patent trolls and the problem with bad patens to our representatives in D.C. for years. And for years these complaints have fallen on deaf ears. You don’t need very many fingers to count the number of Senators and Representatives with engineering and technology backgrounds. As a whole they cannot relate to us and what we do. To them, we’re just a bunch of nerds who collectively donate very little to their campaign coffers and can therefore safely be ignored.
That started to change over the past couple of years as the patent trolls expanded their shakedown enterprises beyond tech companies to local governments and Main Street-style business, such as retailers and hotels. This brought in the big guns. Well-funded groups like the National Retail Federation used their mature and extensive D.C. lobbying machines to get some traction on the issue. This ultimately lead to the Innovation Act, which passed the House of Representatives today on a 325 to 91 bipartisan vote.
This bill has a lot of good things in it, such as fee shifting (trolls who lose meritless patent lawsuits must pay the defendant’s costs), limiting the ability of patent trolls to hide behind shell companies (a favored tactic), and requiring trolls to be more upfront about what exactly they believe is infringing on their patents (right now they don’t have to tell you until the discovery phase of the lawsuit). The fee shifting provision alone makes it a much riskier proposition for patent trolls to pursue companies with the resources to go to court. And being able to recoup their costs makes it more likely larger targets will choose to fight back. This is great, but the bill has a massive, fundamental flaw.
The Consequences of not Dealing with the Root Cause
Nothing in the bill that passed today deals with the core of the problem: bad patents that should never have been issued in the first place. It doesn’t make it cheaper or easier to revoke existing garbage patents and does nothing whatsoever to reform the USPTO to stop it from granting such patents in the future. By not dealing with these issues, I think Congress may have unintentionally setup small businesses to be even bigger targets for patent trolls going forward.
The Innovation Act is largely about reforming the process of litigating against a patent infringement claim. But what if judicial relief isn’t an affordable option in the first place? Sure, it does some things to bring the costs down, but this is like offering me half off the price of a Ferrari 458 Spider. It’s cheaper but I still cannot even come close to being able to afford one.
Patent trolls spend a lot of money acquiring their arsenal of bogus patents and the passage of a single bill isn’t going to make them throw up their hands and go do something else – not while these terrible patents are still valid, anyway. Since the Innovation Act significantly increases the risk of going after larger targets, all but the boldest of patent trolls will refocus their efforts on more vulnerable targets. Targets that don’t have the deep pockets needed to mount a legal defense. Targets without a significant lobby in Washington. And targets whose offerings are most likely to run afoul of the vague and broad claims that characterize these bad patents. Hmmm… I wonder what kind of company would fit this profile? Maybe small, independent tech companies? Yes, I believe they do.
We’ve already seen trolls, such as Lodsys, make shaking down small software companies a key part of their business and the Innovation Act is going to make the problem worse. The House of Representatives could have helped all businesses, large and small, by addressing the root of the problem: making it cheap and easy to revoke bad patents and reform the USPTO so it will stop issuing new ones in the future. Instead, they took the easy route and dealt with some of the symptoms rather than the underlying problem.
A First Step is not Necessarily One of Many
Many supporters of the Innovation Act, such as the Electronic Frontier Foundation and Application Developers Alliance, acknowledge the bill is flawed and does not address the core problem. Yet they herald it as a good first step towards real reform. The problem is I think it will be the only step.
Congress has a nasty habit of passing laws with far-reaching unintended consequences or, due to extreme shortsightedness, even fail to achieve their stated goals. Take a look at the Digital Millennium Copyright Act (DMCA) as an example of the former and the CAN SPAM Act as an example of the latter.
Unless there is massive public outcry or a well-funded lobbyist behind the issue, the first step is often the only step Congress takes. I cannot tell you how many times I have heard the phrase, “We’ve already dealt with that issue.”, from some legislative staffer when asked about a problem that previous legislation should have fixed but didn’t. Congress failed to address the patent problem with the America Invents Act, which in some cases made things even worse. I got the, “We’ve already dealt with that.”, response on several occasions after it passed and that is still what I would be hearing if the trolls hadn’t pushed their luck too far by going after businesses that had big-time lobbyists at their beck and call.
So ultimately, this is why I’m opposed to full passage of the Innovation Act. It gives Congress the ability to say, “We’ve already dealt with that”, satisfies the big-money lobbyists, and avoids a serious confrontation with the formidable trial lawyer lobby, which vehemently opposes real reform. Most members of Congress have neither the will nor the backbone for such a fight. Unless we push them right now to really reform the system, we will lose the best chance we’ve had in years to really do something about this problem.
I hope I’m wrong, but everything I’ve learned about the workings of D.C. over the years tells me there will not be a second step. This first step… it’s the last.