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Why The Tech Industry Hates Patent Trolls, and You Should Too

·Contributing Editor

Congress is inching closer than ever to fixing the single biggest problem in U.S. tech policy. Characteristically, it’s doing so years after the issue became obvious.

Patents—the limited monopoly inventors get from the government for proving they’ve created a new, useful and non-obvious thing—have one job described in the Constitution, to “promote the Progress of Science and useful Arts.”

But over the last 15 years, undeserved patents have become a get-rich scheme for companies with no intention of seeing them used in new products. A 2015 study estimated that each case brought by these “non-practicing entities”—better known as “patent trolls”—averaged $53.4 million in direct and indirect costs.

The Innovation Act, first passed by the House in 2013 and batted around in various Senate subcommittees ever since, could be a solid first step toward fixing this problem. But only if Congress actually passes it.

How to succeed in business without really doing

Patent trolling can look like this: Imagine you own a restaurant with a good recipe for pie. Now imagine that somebody else who’s never even wielded a whisk for a living sends you a letter alleging that your recipe overlaps his—without specifying how.

You can pay a few thousand bucks now to license the recipe he bought from somebody else, or you can spend vastly more to go to trial—which may mean months in a federal court out in east Texas, where patent trolls are often treated like the legitimate innovators they aren’t.

Saying that you came up with the recipe yourself doesn’t count. You can only try to prove that the alleged overlap doesn’t exist. Got free time? You can try to get the patent invalidated, which may only take five years.

Meanwhile, the sender of that “demand letter” (who’s probably only a mouthpiece for a shell corporation that hides the true owners of the recipe) is shaking down your customers and demanding they pay up for infringing too.

Patent pain

Sound impossible? I admit that my example is unfair in one respect—recipes are essentially impossible to copyright and rarely eligible for patents. Yet despite that lack of intellectual-property protection, restaurants somehow remain a $709 billion business.

Real-world cases of patent trolling, however, follow this pattern. The tiny firm MPHJ Technologies sent letters to thousands of small businesses demanding $1,000 per employee because they used a scanner over an office network, allegedly violating patents for “scan-to-email” technology.

Another company, Soverain Software, sued dozens of Web retailers alleging infringement of patents covering basic, obvious parts of running an online store. The gadget emporium NewEgg.com went to court and got those patents rejected.

NewEgg spent between $3 million and $5 million on that five-plus-year effort, more than Soverain asked at first but less than its final demand, chief legal officer Lee Cheng said in comments sent by a publicist. He called the expense “an investment to deter additional litigation.”

Along the way, the speedy, remarkably patent-friendly federal court in Marshall, Tex., became a go-to venue for patent suits among companies with minimal ties to that town of almost 25,000.

Even big companies can’t resist a patent shakedown: In December of 2000, British Telecom sued the online service Prodigy over the laughable claim that it had invented the hyperlink. A judge tossed its case in 2002.

And I must note that in 2012, Yahoo Tech’s publisher Yahoo sued Facebook for allegedly infringing patents. After then-CEO Scott Thompson resigned when he was caught inflating his academic credentials, Yahoo negotiated a cash-free settlement.

The Two Faces of Trolling

Patent trolling is actually two problems that are linked: wrongly-issued patents for “inventions” that are neither new nor non-obvious, and their owners using these patents for legalized extortion.

The good news? The U.S. Patent and Trademark Office seems to be getting pickier with the kind of patents most abused by trolls; the approval percentage of so-called business-model patents has crumbled to 13.8 percent. An early move to crowdsource “prior art,” showing that other people had the same idea first, quickly proved effective.

“Over the course of the past two years, things have begun to change,” said Julie Samuels, executive director of the tech-policy group Engine. But, she added, that doesn’t fix thousands of bad patents already on the books.

Between their 20-year term and the six years patent holders have to bring a case after their expiration, these bogus patents amount to a pile of radioactive intellectual-property waste with a long half-life.

Court rulings – such as a 9-0 Supreme Court decision last year nixing the idea of making something patent-worthy by “requiring generic computer implementation” – have made it easier to kill bad patents. But they haven’t done enough to curb patent trolls.

That’s where the Innovation Act should help. It will thwart troll tactics such as making vague allegations of infringement and then suing customers of an allegedly infringing business. And it will punish abusive litigants by making them pay the winners’ legal costs.

That last bit displeases trial-lawyer lobbyists, which led to the demise of last year’s version of the bill in the Senate Judiciary Committee.

This year’s Republican majority in the Senate is uninterested in the concerns of trial lawyers and does not seem to mind the White House’s support of the bill. Commerce Secretary Penny Pritzker said in a statement that it “strongly supports moving balanced and meaningful reform forward this year.”

The Innovation Act still won’t let people who are sued for infringing a patent argue that their independent invention of the feature at stake proves it was obvious all along (as a farther-reaching proposal from Lincoln Labs urges). It’s the product of compromises that will leave some troll targets disappointed.

And it’s something that many voters still don’t realize is a problem—a poll this month put 45 percent in the “Don’t Know/No Opinion” camp. So I can’t rule out Congress falling for yet another round of sob stories about the plight of the American inventor.

The lesson of the past 20 years of intellectual-property policy is that people keep trying to find new ways to leverage these government-granted monopolies – see also Monday’s decision by the Supreme Court not to take up a foolish court ruling last year that let Oracle demand permission for a basic form of software development. We may be annoyed by this kind of freeloading, but we can’t be surprised by it any more.

Email Rob at rob@robpegoraro.com; follow him on Twitter at @robpegoraro.