Monday, September 01, 2014

The Toll of Patent Trolls

Inventions and engineers go together like songs and musicians, and consequently every engineer should know something about patents.  The practice of patenting inventions to give the inventor a temporary monopoly as a reward for ingenuity is something that most countries do today, and by and large, we are probably better off with patent systems than without them.  But patent systems can be abused, and some of the biggest abusers of the patent system in the U. S. are "nonpracticing entities" (NPEs), otherwise known as patent trolls, as pointed out in William J. Watkins' recent book Patent Trolls:  Predatory Litigation and the Smothering of Innovation.

If you're a patent troll, here is what you do.  First, you acquire a lot of broadly written patents on some technology that either has a lot of wealthy corporations active in it already, or is likely to in the future.  Software is a favorite, as are wireless technologies and even business practices involving the Internet.  You either file the patents yourself or, more likely, buy them up at a dime a dozen at a bankruptcy sale of some startup.  Then you wait till a well-heeled firm like Apple or IBM is doing something vaguely related to your patents, and you send them a letter threatening to sue for patent infringement.  If they call your bluff, you file suit in the U. S. District Court of the Eastern District of Texas, headquartered in the town of Marshall near the Texas-Louisiana border.  You carefully select a jury of twelve rural citizens who probably wouldn't know an ethernet cable from a rattlesnake, and your lawyer (who is a member of your small NPE firm) exhorts them about the evils of out-of-state big-business interests who try to crush the innovative spirit of the small, struggling, independent businessman/inventor, namely you.  More likely, the defendant corporation you threaten to sue simply settles out of court for millions of dollars rather than face an even more expensive jury trial, and you walk away richer and better-funded to do it all over again next time.

If this unsavory process smacks of blackmail, you are on the right track.  Unfortunately, a number of legislative and bureaucratic circumstances have created a large loophole through which millions of dollars each year is drained from productive firms into the pockets of patent trolls.  The U. S. patent law was written back at a time when most inventions had a lifetime of at least several years, so the term of fourteen years (later extended to twenty) was a reasonable one.  But now that product lifetimes, especially in the software field, are measured in months rather than years, twenty years is plenty of time for a patent to turn into a kind of zombie, rising from the dead when revived by a patent troll to haunt a legitimate firm with dubious claims of infringement.  The U. S. Patent and Trademark Office is severely understaffed, with each of its few examiners having to work through hundreds of filings a year.  Rather than let a backlog pile up, they have defaulted to issuing patents freely, including many which really shouldn't be allowed.  And finally, judges and juries in the Eastern District have proved so friendly to the patent trolls and hostile to the defendants that the American Tort Reform Foundation has put it on their watch list of "Judicial Hellholes."

The well-heeled giant tech firms are not the only ones harmed by patent trolls. Watkins cites an example of a small software startup in the late 1990s headed by one Brandon Shalton, who teamed with two nuns to develop a way that pastors could record their messages and play them back through a website.  After testing the product with several churches, Shalton prepared to market his product, only to be confronted by a challenge from Acacia Research Corporation, which held a patent that they claimed would be infringed by Shalton's product.  Shalton knew the claim was false—the general idea of recording audio on a website had been around for years.  But lacking the resources to fight Acacia's threat, Shalton threw in the towel, and his company died before it was even born, a victim of a patent troll.

What can be done about patent trolls?  One idea being considered for legislative action is to impose some kind of practice requirement on a plaintiff in a patent infringement lawsuit.  Unless the plaintiff suing for infringement can show evidence of actually intending to use the patent to make something—manufacturing facilities, investment plans, etc.—the plaintiff would not be allowed to sue.  Under current law, simply owning a validly issued patent, no matter how flimsy, entitles you to file a suit for patent infringement, even if you never intend to use the patent yourself to make or sell anything. 

In making such a fix, lawmakers would have to be careful to protect the rights of the truly independent inventor, who has a good idea and patents it but lacks the resources to exploit it fully.  This is the mask that most patent trolls don when they go before juries, but the reality is different in most cases.  Watkins thinks there are ways to make sure that small independent inventors can still obtain valid patents and protect them, while putting the true patent trolls out of business.

Patent law represents a balance between protecting the rights of the inventor and allowing the benefits of the invention to spread beyond the inventor's initial monopoly.  No patent system will ever make everybody happy.  But Watkins makes a good case that patent trolls are currently stifling innovation and exploiting a loophole in the present system that ought to be closed.

Sources: Patent Trolls:  Predatory Litigation and the Smothering of Innovation by William J. Watkins Jr. was published by the Independent Institute of Oakland, California in 2013.  A complex case of a true inventor who eventually veered toward patent-trolling but left a legacy encouraging independent invention was Jerome Lemelson, who I mentioned in my blog of May 30, 2007, "Engineering Altruism:  Two Paths."

1 comment:

  1. A patent is a property right it is not a monopoly. Anyone who calls a patent a monopoly is a propagandist

    By what standard have you decided that the patents are overly broad.

    Patent law is not a balancing test, in fact no law is a balancing test. It is about protecting peoples Rights.