Obama wants to crack down on patent trolls. That’s not enough.

June 4, 2013

The Wall Street Journal reports that the Obama administration will soon unveil a package of reforms designed to deal with "patent trolls," the ambulance-chasers of the high-tech world. Trolls employ no engineers and produce no useful products. Instead, they use the threat of patent lawsuits to extract payments from those who do. Troll litigation costs the economy tens of billions of dollars per year.

Rep Peter DeFazio (D-OR). (Zoeann Murphy)
Rep Peter DeFazio (D-Ore.). (Zoeann Murphy)

Trolls have become the whipping boy of the patent debate because their activities are so obviously harmful. But trolls are just a symptom of the patent system's problems. Legislation singling out trolls for special treatment won't solve those problems, and it may not even do much to stop trolls.

A series of rulings from the pro-patent Federal Circuit appeals court during the 1980s and 1990s made patents easier to get and easier to enforce. Small inventors and big firms alike rushed to file applications that would have been rejected under earlier legal standards.

Today, we're suffering a collective hangover for that patenting binge: hundreds of thousands of patents that probably shouldn't have been granted. The problem is made worse by rules that give patent holders too much bargaining power against accused infringers.

Trolls have taken advantage of these rules, but so has everyone else with a patent portfolio. For example, Microsoft has struggled to gain traction for its smartphone products. But the firm has tens of thousands of patents — so many patents that it's effectively impossible to build a smartphone OS without accidentally infringing numerous Microsoft patents. And Microsoft has used its "patent thicket" to force most firms selling Android phones to pay licensing fees.

The vast patent portfolios of incumbent technology companies such as Microsoft acts as a tax on innovation. The most innovative start-ups are increasingly being forced to make payments to their more established competitors, whether or not the latter continue innovating. That actually discourages innovation, the opposite of the effect the patent system is supposed to have.

Legislation that focuses on defanging patent trolls won't do anything to stop non-troll firms from abusing the patent system. And it may not even do much about the trolls.

For example, one popular anti-troll proposal, sponsored by Rep. Peter DeFazio (D-Ore.), creates a "loser pays" rule for patent trolls. But it's hard to draw a principled distinction between abusive lawsuits filed by "trolls" and those filed by other types of entities. The DeFazio bill defines a troll as someone who is not engaged in the "production or sale of an item covered by the patent." In many cases, it would be trivial for a troll to evade this requirement by producing a token number of units of a product covered by its patent.

Moreover, the DeFazio bill includes a provision explicitly excluding universities from the definition of a troll. But if trolling behavior is wrong when practiced by a "troll" firm, it's no less wrong when practiced by a university tech transfer office. The need for such carve-outs suggests that the underlying definition may be defective.

Anti-troll legislation targets one set of firms that are taking advantage of a broken patent system. But it might be more productive to focus on reforms to fix the patent system itself.

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Dylan Matthews · June 4, 2013