Patent Trolls Are Beginning to Meet Sunlight

September 5, 2013

In July, I wrote about the growing number of legislative proposals that have been put forward in Congress to battle patent assertion entities, more commonly referred to as “patent trolls.” So-called patent trolls get their names by operating much like a troll from folklore. They produce nothing, buy up broad patents, and then hide and wait until the time is right to strike unsuspecting businesses with threats of highly damaging and expensive litigation. Trolls from folklore often meet their end in sunlight. For patent trolls, legislative and regulatory sunlight appears to be the only appropriate remedy. As we await expected major anti-patent troll legislation from Chairman Goodlatte and Chairman Leahy of the House and Senate Judiciary Committees respectively, momentum has begun to build against patent trolling in other areas.

On August 30th, the Government Accountability Office (GAO) released a report on patent infringement litigation. This report found that between 2010 and 2011, the number of patent infringement lawsuits increased by roughly 33 percent. GAO further found that between 2007 and 2011, the number of defendants in patent litigation increased by 129 percent. The GAO determined that up to twenty percent of those suits were brought by patent trolls. This percentage, however, likely did not capture the true magnitude of the problem, as it is important to note that companies often settle with trolls well before a trial or even the filing of a complaint. Most importantly, this report notes that much of the problem in this arena is sparked by the grant of overly broad patents, especially for business method patents relating to software. A number of the pending legislative proposals would help to remedy this problem. This report will certainly provide momentum to efforts already underway.

State Attorneys General also have begun to indicate a willingness to step in to stop patent trolls. On August 20th, Minnesota Attorney General Lori Swanson announced a settlement with a patent troll known to some as the “scanner troll.” This entity claimed to own a patent on scanning office documents to e-mail and targeted a number of businesses with demand letters threatening litigation if it was not paid $1,000 or more for each employee using the technology. Some of these letters even contained a draft complaint in an effort to increase the threat. Under the terms of the settlement, the company may not send further demand letters without the prior permission of the Attorney General’s office and may not grant its patent rights to any other entity unwilling to comply with these terms. Vermont Attorney General Bill Sorrell also filed a lawsuit against this same patent troll in May alleging unfair business practices under Vermont’s Consumer Protect Act.

The FTC has also indicated its willingness to step into the game. Chairwoman Edith Ramirez has stated that she believes the FTC should use its Section 6(b) investigative subpoena authority to determine whether or not patent trolls may be committing unfair business practices.

The abuse of the patent system by so-called trolls is harmful to innovation and economic growth. The American Intellectual Property Law Association found that patent litigation can cost as much as $650,000 for smaller claims, and as much as $5 million for larger claims. When costs of settlement to avoid litigation were factored in, the White House Report stated that as much as $29 billion was paid by companies to patent trolls in 2011. While recent actions by Attorneys General indicate a growing willingness to fight back against abusive practices, the GAO Report demonstrates that broader reform is needed to help provide the sunlight necessary to put a stop to the “trolling industry.” ANA is continuing to work hard as a part of several coalitions to ensure that such reform happens as soon as possible.

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