By Ros Krasny
WASHINGTON, Oct 29 (Reuters) - Technology companies onTuesday urged fast action on a patent reform bill in testimonybefore the House Judiciary Committee, including tackling whatthey termed the rising tide of costly lawsuits by "patenttrolls."
The Innovation Act, introduced last week by RepresentativeBob Goodlatte, a Virginia Republican who chairs the committee,aims to increase transparency and accountability in the patentlitigation system.
Patent Assertion Entities (PAEs), called patent trolls bycritics, are companies that typically do not invent ormanufacture products but instead buy or license patents fromothers, primarily for the purpose of obtaining licensing fees orfiling infringement lawsuits.
Companies have said the increase in such litigation stiflesinnovation and costs billions of dollars in legal fees.
Patent litigation costs have grown from $7 billion in 2005to $29 billion in 2011, when 5,842 lawsuits were initiated byPAEs against 2,150 companies, Krish Gupta, deputy generalcounsel with EMC Corp, said in testimony.
While hurtful to giant businesses like EMC, amultinational computing company, "they have done much moreprofound damage to small and medium-sized companies that lackthe resources to counter these frivolous lawsuits," said Gupta.
Abusive PAE suits often claim ownership over what are nowseen as "basic ideas," such as using a "shopping cart" functionon a website or aggregating news articles, Goodlatte said in hisopening statement.
A group representing the U.S. lodging industry applauded thebill, saying its members had been targeted for providingwireless Internet access to guests using wireless routers thatthe PAEs say infringe on their patents.
Kevin Kramer, deputy general counsel for intellectualproperty at Internet company Yahoo Inc, said the highcost of litigation "means that settlement is almost always theleast costly option, and the patent trolls know it."
About 75 percent of cases settle, creating a "virtuallyguaranteed payoff" for assertion entities, Kramer said.
The former head of the U.S. Patent and Trademark Officewarned that some provisions of the bill "would best be deferred"because of the danger of over-correction.
"We are not tinkering with just any system here; we arereworking the greatest innovation engine the world," DavidKappos, who stepped down as head of the patent office in Januaryand is now a lawyer in private practice, told the hearing.
While united against abusive patent litigation, companiesare less unified on how to curtail it.
A coalition of over a dozen small technology companies wrotethis week to Goodlatte expressing concerns about how certaintypes of financial software patents known as "covered businessmethod" (CBM) patents would be addressed.
The bill contains a provision "which extends indefinitepost-grant review at the United States Patent and Trade Office,"the coalition said in a letter.
"Instead of prolonging the post-grant process, we believethe next stage of patent improvement should come from a morerobust pre-grant examination process."
Several larger companies, from Caterpillar to AdobeSystems to Boston Scientific, also opposed theCBM patent proposals in September, when a draft of Goodlatte'sbill was circulated.
Goodlatte has not announced the timing of the next action onhis bill. A companion bill is expected to be launched in theSenate by his counterpart, Democrat Patrick Leahy.
Intellectual Ventures, based in Bellevue, Washington, ispossibly the best-known patent aggregator in the United States.
In a statement, its chief policy counsel, Russ Merbeth, saidthe company has "been pleased with Chairman Goodlatte'scollaborative approach on patent litigation reform" but had someconcerns.
"With careful consideration and certain alterations it willbe an effective bill for reducing frivolous lawsuits," Merbethsaid.
To read the text of H.R. 3309, the Innovation Act, see:
- Company Legal & Law Matters
- patent litigation
- patent trolls
- frivolous lawsuits