Proposal takes aim at ‘patent trolls’


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June 9, 2013

The White House last week issued a series of proposals aimed at curbing the onslaught of lawsuits brought by so-called “patent trolls” — companies that do not make products, but buy up or own patents and sue businesses they claim are infringing on those rights in order to collect licensing fees.

The fight was spearheaded by leading technology companies, but because intellectual property is central to virtually every industry that produces goods or services, it is one of the most closely watched issues within the broader business community.

Major hotel chains and coffee shops offering WiFi to customers, such as Marriott International and Caribou Coffee, for example, have been sued by Chicago firm Innovatio IP Ventures, which claimed the WiFi networks infringed on its patents. Neiman Marcus is fighting several patent infringement cases claiming the retailer’s use of automation and photo resizing technology on its Web site infringes on patents. Amazon.com is defending against infringement claims brought by California company Rovi Corp. over electronic programming guides on IMDb.com. Other patents in question deal with everyday Web and mobile functions, such as browsing the Internet and buying things online.

“It really affects a wide swath of the economy because the patents the administration is most concerned about are fundamentally [intellectual property]-related patents,” said attorney Steve Auvil, head of the intellectual property litigation group at Squire Sanders. “The patents can cover a process, a method of buying products over the Internet, how your mobile device functions — you name it, it’s implicated.”

Patent trolls, also called “patent assertion entities,” bring about 62 percent of patent lawsuits in the United States, and in 2011 generated $29 billion in settlements and fees, according to a June report from the Executive Office of the President.

Doubts

The White House proposals include seven legislative measures and five executive actions that would give judges more discretion to force patent firms to pay legal fees for the other side if they lose “abusive” patent litigation. The measures would also require patent owners seeking infringement claims to disclose their identity, and compel the U.S. Patent and Trademark Office — which grants patent applications — to narrow the scope of patents.

But many patent experts doubt the proposals will have much immediate impact. The bills may never see the light of day in a gridlocked Congress, and some of the executive actions are either too vague, or seek to improve a part of the patent process that has already been addressed in the 2011 patent reform legislation, the America Invents Act. And none of the actions will likely affect the hundreds of pending patent lawsuits currently winding their way through the courts.

“I don’t see these proposed solutions having any impact whatsoever on existing cases,” Auvil said. “Basically what the president said was, ‘This is a problem,’ and proposed some legislative solutions. Those take a long time to get worked out. The most recent patent legislation, [the American Invents Act], took more than seven years to get through Congress. That’s a very slow road.”

Robert L. Stoll, the former Commissioner of Patents at the Patent and Trademark Office, used to oversee the examination of patent applications. He said he doesn’t expect last week’s proposals to have a large effect other than causing uncertainty in some areas.

Stoll, now a patent attorney at Drinker Biddle, is especially concerned about unintended consequences of the proposal to expand the subject matter of “business method patents” that can be challenged. Right now, such patents include processes like those behind the buying and selling of stocks, or how an insurance company decides what to charge consumers. The Obama administration is pushing for legislation to expand that category to cover “computer-enabled patents,” which could include software.

“It could have damaging effects on small inventors trying to get into this area because the added uncertainty may scare investors,” Stoll said. “I think software is one of the areas where [the United States] leads the world. I’d rather not mess with it now.”

Mike Underhill, who leads the intellectual property group at Boies, Schiller & Flexner — which represents corporations defending against patent lawsuits, as well as individual inventors seeking to assert patents — said most of the executive actions are “window dressing” and won’t accomplish much. And one of the more substantive ones, which proposes the Patent and Trademark Office require patent owners to disclose their ownership or parent company, lacks detail.

“The real issue is at what level of detail will that requirement be imposed?” he said. “Every shareholder of a corporation or every partner in a partnership is arguably a party in interest. And the patent holder may have entered into contracts that relate to the patents … At some point this is going to become a privacy issue. Law firms that have cases on contingency, is that going to be disclosed? At a level of detail, this will become quite controversial.”

Catherine Ho covers law and lobbying for Capital Business, which she joined in 2011. She was previously a reporter at the Daily Journal in Los Angeles, covering LA civil courts and labor and employment law.
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