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U.S. Senator Charles Schumer (D-N.Y.) is joining Google, BlackBerry, Earthlink, Red Hat and others in the fight against companies that make a business entirely of creating lawsuits over patent rights. The latter are referred to as nonpracticing entities (NPEs), patent assertion entities (PAEs) or, most commonly, patent trolls.
On May 2, Schumer introduced legislation that would expand a provision called the Schumer-Kyl program, which was attached to the September 2011 America Invents Act (AIA).
“Patent trolls are bullying New York’s technology companies, stymieing innovation and dragging down growth. It’s time we address this growing problem,” Schumer said in a statement.
“This legislation will provide small technology startups with the opportunity to efficiently address those claims outside of the legal system, saving billions of dollars in litigation fees,” he continued. “The Patent and Trademark Office (PTO) is already reviewing 20 patent cases in a temporary patent review program, and I am confident that extending this program will be beneficial to New York’s and the nation’s economy.”
PAEs buy up patents—often “low-quality” ones, per Schumer—but don’t actually make anything. The PAEs use patents to pursue litigation against product-producing businesses, and often small ones that can sustain the costs of a lawsuit. Etsy, the online home to crafters and artisans, is among the New York companies that have been sued by a PAE for patents related to storing and delivering messages.
According to Schumer, patent trolls cost operating companies $29 billion in 2011 alone.
Companies have two options when faced with a patent suit—defend themselves in court or reach a settlement. The first option costs the average company $1.75 million per case, while the latter averages about $1.33 million, according to the Schumer statement.
The new Schumer-Kyl provision is a program that grants reviews of patents by experts at the PTO. A petitioner can request a review of a covered patent, and if it’s found to be invalid, the PTO can make a quick decision.
On April 5, Google and its above-mentioned crew wrote to the Federal Trade Commission and Department of Justice, complaining that PAE activities are “inconsistent with the fundamental goal of the patent system—that is, ‘to Promote the Progress of Science and the Useful Arts.'”
The group further wrote that PAEs impose a type of “ever-rising tax” on innovative companies, and are “exploiting fuzzy patent boundaries and targeting ‘inadvertent infringers.'”
The group also asked for an investigation into the practice of patent enforcement being outsourced to operating companies.
“So-called ‘privateering’ amplifies the threat to innovation and competition already posed by PAEs,” wrote the group.
PAE lawsuits now account for 62 percent of all filed patent litigation.
Google has also been fighting PAEs through its relationship with United Patents, a San Francisco startup that charges companies for the right to join together and pool their resources, protecting smaller companies from being easy PAE targets.
Schumer said that the legislation proposed today will not only help resolve existing patents in a more cost-effective way, but also “deter trolls from filing suits in the future because it provides a cost-effective option to knock out bad patents.”