For the last couple of years, Congress has been debating how to address the problem of the “patent troll”. In June, the Senate held hearings on the issue, and various pieces of legislation have drifted in and out of committee since 2004.
Patent law is not a hot-button issue like abortion; you don’t see protestors on the steps of the capitol holding up signs to “abolish the doctrine of equivalents”. Most people (read: most voters) don’t care a whole lot about patent law. And very, very few people know anything about it in the first place. It’s an exceptionally complicated area of the law, and in attempting its reform, Congress has waded into the deep end of the pool.
But the issue has teeth. Estimates vary, but as much as twenty billion dollars are spent in the U.S. every year obtaining and enforcing patent rights. Some industries, like the pharmaceutical and computer industries, are absolutely dependent on the patent system; without it, they simply would not exist. Patent law may be an arcane field, but most seem to agree that it’s vital to the concept of capitalism itself.
There are many problems with the patent system, but none more annoying than the problem of “the patent troll”. A patent troll is a holding company which has only one asset: a patent, and only one type of employee: a lawyer. The company doesn’t actively do anything at all, except one thing: sue other companies for patent infringement. There’s a tremendous amount of money to be made in patent trolling, largely because the cost of litigation is so extremely high that most defendants settle for a “nuisance fee” rather than engage in a protracted lawsuit.
It works like this: A company invests a few thousand dollars to acquire a patent on a “new” technology, whether by actually prosecuting the patent itself, or by simply buying a patent that has already been issued. The company then hires a lawyer to sue all the other companies in the field that might infringe that patent. Lawyers in such cases routinely agree to take the cases on a contingency-fee basis, because the settlement values in these cases can be so incredibly high. Because the company isn’t paying the lawyer any fees, the cost of litigation is therefore extremely low. The defendants in such cases typically offer a settlement amount that begins in the tens of thousands of dollars; far more than it cost to get the patent in the first place. The patent trolling company then moves on to its next victim.
Defendants rarely engage in a defense, for two reasons. First, the cost of a patent infringement defense routinely jumps into the millions of dollars, which is far more than it costs to simply pay the patent troll to go away. Second, the risk of loss can be enormous; a few years ago, Microsoft lost a famous case against a plaintiff who was arguably a patent troll. The judgment in that case was half a billion dollars. That liability is then passed on, of course, to the consumer, who pays more for a Microsoft product these days because Microsoft needs to pay off the patent trolls who constantly nip at its heels. All large companies in the U.S. are in a similar predicament; Sony, for example, is sued for patent infringement nearly 100 times every year.
Ask a corporate general counsel what the biggest problem is facing her company these days, and she won’t say “oil prices” or “tax reform”; the answer is routinely “patent trolls”. It may not be an issue for most people, but patent trolls have the potential to become a devestating burden on the economy. At the Senate hearings on the issue back in June, one general counsel said that the cost of paying off the patent trolls was so high for his company that it was directly attributable to the layoff of 75,000 employees.
So how to fix the problem? Because most people agree that patents are vital to the economy, the tricky question is this: How do you make it possible for “good” patents to be procured, while making it extremely difficult, if not impossible, for “bad” patents and “bad” patent trolls to continue to drain the economy?
Proposed answers to that question vary, and some of the proposals — especially the ones from members of Congress themselves — are simply bad ideas. Senator Orin Hatch, for example, has proposed a definition of “prior art” that would make obtaining a patent all but impossible. Under his proposal, a patent application could be rejected if the Patent Office says, “Hey, I think I’ve seen this before”, without having any evidence to support that belief. Not only would the proposal do nothing to stop patent trolling, it would also cripple the startup industry, which is genuinely trying to invent cool new things. Senator Hatch knows about as much about patents as I do about bobsledding. But there he is, and Congress with him, trying to fix a system they know nothing about.
One very simple and effective solution to the patent troll problem has been floated before Congress several times, most recently at the June hearings, but has never been taken seriously. (My theory is that it’s so simple that Congress has effectively rejected it because it’s just too easy.) The solution is this: To obtain standing to file a lawsuit for patent infringement, the plaintiff must be actively engaged in producing or manufacturing a product. To protect the startups, the definition of “actively engaged” can include research and development costs.
Patent trolls are holding companies that do nothing except sue for patent infringement. They don’t really do anything. Under the proposal, they wouldn’t be able to sue for patent infringement, because they’re not actively engaged in making a product. Problem solved.
Lawyers reading this will rightfully point out that “solo inventors” who invent a cool new technology in their garage would also be unable to sue for patent infringement. For example, let’s take the hypothetical case of Bob v. Microsoft. If plaintiff Bob invents a cool new technology and obtains a patent on it, and defendant Microsoft later steals his technology, then Bob is shit out of luck under the proposal, because Bob is not actively engaged in making a product. Therefore, goes the argument, the proposal tramples on the little guy and is a bad proposal.
But think about this for a second. If Bob isn’t actively engaged in making a product, do we care? The patent system exists to encourage innovation, but it also exists to encourage production of useful technology. If Bob invents something, and patents it, but doesn’t pursue it, what’s the loss to the system if Bob is prohibited from suing Microsoft? I submit that the loss is zero. In fact, by prohibiting Bob from his day in court, we gain something, because Microsoft will be free to incorporate Bob’s invention into its product to the benefit of the consumer.
Moreover, if Microsoft actually steals Bob’s invention, Bob doesn’t have to rely on patent law; he can still have his day in court under a different theory, like trade secrets or misappropriation. The proposal wouldn’t trample on Bob’s rights; it would simply provide incentive for him to act quickly in licensing his technology to Microsoft. To completely alleviate this concern, an additional “grace period” could be written into the law, giving a patent owner, say, one year from the date of issuance to pursue a license, during which time Bob could have his standing to sue. That’s a little complicated for my taste, but point is this: The rights of the little guy are easily protected under the proposal.
No, it’s not as sexy as abortion or stem cells. But patent trolling is a problem, with an easy solution.