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Reining in frivolous and legally unsubstantiated patent infringement lawsuits by making it costly to lose an unfounded case is the goal of a new law passed Dec. 5 by the U.S. House of Representatives.
The legislation, which moves on to the Senate for a vote, targets so-called “patent trolls” who often file vague, catch-all infringement cases against broad classes of small businesses that can ill-afford prolonged and costly litigation in federal court.
Being a patent troll is essentially a way to print money. You look for overly broad patents for business processes or perhaps software, and then you buy the patent. Once you have the patent, you decide to impose license fees on everyone who might conceivably be infringing on your patent.
These claims are made constantly regardless of the fact that they don’t meet the U.S. Patent Office’s requirements for obviousness, prior art or other existing patents.
The process works like this: You choose a class of business preferably with limited resources, such as mom and pop restaurants, and then send every one you can find something called a Demand Letter, telling them that they have to pay for a license or face a patent infringement lawsuit.
If they pay, you make money. If they don’t pay, you also make money because you can sue for damages. It doesn’t mattered very much that your patent is only vaguely applicable, likely invalid or simply bogus—you still sue.
The reason this makes money is because most businesses would rather pay a nominal amount than get involved in a lawsuit as a defendant. And even if they do refuse to pay, because courts are remarkably vague on patent law, there’s a good chance you’ll win and make money. But what’s better is that as things are now, even if you don’t win, it doesn’t cost anything to try. The defendant will still likely have to pay the resulting costs and legal fees.
This last part is what the Innovation Act (HR 3309) would change. This law, sponsored by Rep. Bob Goodlatte, R-Va., and passed by a bipartisan vote in the House of Representatives, would require patent infringement plaintiffs to show that their claims are justified to avoid paying all of the litigation costs if they lose a case.
Chances are you thought that losing plaintiffs already had to pay for bringing a frivolous lawsuit, but that’s not the case in patent law. Plaintiffs do not pay any costs, even if they lose an infringement case. If the law goes into effect, however, they would.
Patent Trolls Lose Legal Advantages Under New U.S. House Legislation
This may sound like a minor change, but it would effectively level the playing field in the federal courts. According to the bill, if the plaintiff can’t show that it has a valid claim, then it has to pick up the tab. Now that the House has passed the legislation, it moves to the Senate, where a similar bill (S. 1720) has already been introduced by Sen. Patrick Leahy, D-Vt.
According to Brian LaCorte, an attorney in the intellectual property practice at Ballard Spahr, this legislation will go a long way in discouraging frivolous lawsuits filed in bad faith. “If passed, the Innovation Act will implement fee-shifting provisions that require a showing by plaintiff that its claims were justified to avoid imposition of attorneys’ fees for losing the case,” he said in a prepared statement.
“The bill also addresses issues concerning joinder, discovery, stays of customer suits, and post-grant review of business method patents,” LaCorte wrote.
LaCorte also said that the law would provide transparency regarding whoever is bringing the infringement and require that the plaintiff show who actually owns or co-owns the patent and that they have the legal or financial right to collect for damages. A favorite ploy of patent trolls is to sue for infringement of a patent that the troll doesn’t actually own or license.
Not surprisingly, groups representing small businesses were quick to hop on board the patent reform bandwagon. And for good reason: It is their members who are being shaken down by patent trolls for doing such things as displaying calorie counts on menus, taking carryout orders by fax or providing WiFi for customers.
The fact that some of these activities were being done long before the patent claiming infringement was actually filed is beside the point. The patent trolls are effectively extorting license fees by threatening lawsuits if these businesses don’t pay up.
“By reducing the financial incentive for bad actors to engage in predatory litigation practices, the Innovation Act provides a solid framework for needed reform,” said BSA Software Alliance President and CEO Victoria Espinel in a prepared statement. “BSA strongly supports measures such as fee shifting, curbing discovery abuse, making patent cases more efficient, and requiring patent holders to be precise in their claims and transparent about their ownership structures.”
There is a lot of fear, uncertainty and doubt (FUD) being circulating by groups supporting patent trolls, suggesting that the new law would somehow be bad for real inventors. But when you read the bill, it’s clear that real inventors and people holding real patents have little to fear. They will pass the test for having justified claims even if they lose. It’s the patent trolls who will suddenly find that their cash cow has left the barn.