Support for Patent Troll Legislation Growing

Momentum against non-practicing entities continues to grow. Over the last month, Congress, the Obama Administration, the Federal Trade Commission, and the business community have all called for patent reform intended to combat patent trolls.

Non-practicing entities do not directly use the patents they own to produce goods, but rather license them to other companies that do. These firms have drawn the ire of the business community because they often collect patent rights solely to opportunistically extract licensing fees. According to a recent study by Boston University, litigation by patent trolls continues to rise dramatically. Researchers determined that these lawsuits cost tech companies more than $29.2 billion in 2001, compared to $6.7 billion in 2005.

To combat patent trolls and their increasingly aggressive litigation tactics, Congress is now considering at least different seven bills. Proposed solutions include requiring the loser in a patent infringement lawsuit to pay all of the litigation costs and attorney’s fees as well as mandating greater transparency in patent ownership.

The White House also announced a series of executive actions and seven legislative recommendations intended to improve the quality of high-tech patents and cut down on frivolous litigation. In the statement accompanying the proposals, President Obama specifically addressed patent trolls, which he stated “don’t actually produce anything themselves,” and instead develop a business model “to essentially leverage and hijack somebody else’s idea and see if they can extort some money out of them.”

The FTC is also concerned that patent trolls may cause competitive harm. The agency will launch an extensive investigation into patent assertion entities, according to Chairwoman Edith Ramirez. Particular areas of concern include “privateering,” where one company transfers patents to a non-practicing entity for the purpose of suing competitors for infringement, and the practice of strong arming small businesses in an attempt to induce the payment of illegitimate licensing fees.

Seeking to capitalize on the growing support for anti-patent troll legislation, U.S. businesses have also stepped up pressure on Congress. Over 50 businesses, including big names like American Bankers Association, the Motion Picture Association of America, and the National Retail Federation, recently sent a letter to leaders in both the House and the Senate urging swift action.

“The undersigned organizations strongly encourage Congressional efforts to address abuses of the legal system by certain patent assertion entities, commonly referred to as patent trolls. Managing frivolous patent suits unfortunately has become an expensive distraction for a large cross section of American businesses. Instead of focusing on innovation, job creation, and economic growth, we are forced to deal with legal games that have serious consequences,” the letter states.

If you have any questions about the patent legislation or would like to discuss the legal issues involved, please contact me, Fred Zemel, or the Scarinci Hollenbeck attorney with whom you work.