Patent law is so broken that casinos, supermarkets, and realtors are demanding change

October 28, 2013

The Food Marketing Institute, which represents supermarkets like Giant Eagle, is asking Congress for patent reform. (Photo by Fan of Retail)

In the last few years, patent litigation has become such a widespread problem that industries that traditionally had nothing to do with the patent system are demanding that Congress take action. The latest sign of that is a letter asking Congress to make it easier to invalidate low-quality patents.

The letter is signed by some high-tech lobbying groups that have long been active on patent issues. But, surprisingly, the letter also drew support from distinctly low-tech sectors of the economy, including casinos, supermarkets, chain restaurants, airlines, and the printing industry.

"It's important to recognize that the problem of patent trolls are no longer limited to technology companies," says Whit Askew of the American Gaming Association, which represents casinos and the manufacturers of gambling devices. "Over the last couple of years, we've unfortunately been bit by the patent troll lawsuit bug, where frivolous lawsuits have been filed against many in our industry."

These predominantly brick-and-mortar business groups aren't just demanding patent reform in the abstract. Askew and other letter signers are endorsing expansion of the clumsily-named "covered business method" program, which provides an expedited process for challenging patents at the U.S. Patent and Trademark Office (PTO). That's significant because expansion of the CBM program has drawn the ire of some patent-rich software companies, including Microsoft, IBM, and Adobe.

Opponents of expanding the CBM program argue that procedural reforms, such as allowing technology vendors to intervene on behalf of their customers and forcing defeated patent plaintiffs to pay defendants' legal bills, will be sufficient to bring the patent litigation crisis under control. And they worry that the defendant-friendly provisions of the CBM program will make it too difficult for the owners of legitimate patents to enforce their rights.

But Monday's letter, whose more than two dozen signers include groups representing advertising agencies, publicly-owned power plants, real estate agents, hotels, and retailers, argues that these process-oriented reforms aren't sufficient to solve the patent troll problem.

"Companies need an effective alternative for challenging validity [of patents] outside of the courtroom," the letter argues. The CBM program "gives threatened companies a substantially less expensive way to challenge low quality patents. Other programs for challenging patent validity at the PTO do not allow the PTO to consider whether the patent is abstract, vague, or too broad," which are common problems with patents used by trolls, the letter argues.

Industry groups that signed the letter say they were motivated to do so by a dramatic increase in the frequency of frivolous patent lawsuits. "We are now seeing [real estate] brokers receive demand letters for use of common technologies like scanner-copiers and website alert technologies," says Gary Thomas, president of the National Association of Realtors.

"I'm a food lawyer," says Erik Lieberman of the Food Marketing Institute, which represents grocery wholesalers as well as supermarkets. "Members bring us issues that impact them. A couple years ago they start coming to me saying 'look this entity we've never heard of is sending us a demand letter asking us for $300,000 or $500,000 claiming we're violating their patent.'"

Lieberman says many of the patents covered common technologies like the store locator function on a grocery store's website or the use of QR codes in advertisements. Lieberman said that patent threats have now cost some of his larger clients millions of dollars in legal fees and staff time. And the burden can be especially serious for smaller supermarket chains that don't have anyone on staff with experience handling patent issues.

For both Lieberman and the American Gaming Association's Askew, low costs are one of the CBM program's key advantages. The program "gives threatened companies a substantially less expensive way to challenge" low-quality patents, Askew says. It can take years for a court to reach a final ruling on a patent case. In contrast, the CBM program can end a lawsuit — and permanently eliminate a low-quality patent — in a matter of months, saving hundreds of thousands of dollars in legal fees.

The letter also notes that under the program, "small businesses are able to pool their resources in order to pay to have a [patent troll]'s patent reviewed." That makes the program a particularly potent weapon against trolls that send letters to a large number of defendants seeking nuisance settlements.

Lieberman says that in the grocery business, "the profit margin is well under 1 percent," so the costs of patent litigation "get passed down to consumers."

The industries that signed the letter collectively have significant lobbying muscle. They could provide a counterweight to patent-rich companies who are squeamish about seeing their patent portfolios subjected to the kind of serious scrutiny the CBM program could make possible.

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