Diary

The Time Has Come To Reform a Broken Patent System

Rarely can you find an issue in which the White House, Republicans and Democrats in Congress concur, but in a rare instance of bipartisan agreement, calls for meaningful patent reform legislation have transcended the proverbial aisle.  Bills in both the U.S. House and Senate have been introduced, and after five years of attempts, perhaps the time for action has finally arrived.

In the House, the Innovation Act was introduced again this year by Judiciary Committee Chairman Bob Goodlatte.  After passage last year in the House by a strong, bipartisan margin, then Majority Leader [mc_name name=’Sen. Harry Reid (D-NV)’ chamber=’senate’ mcid=’R000146′ ] did what he is best known for and refused to bring it to a vote on the Senate floor.  But the Senate introduced their own comprehensive reform bill just a few weeks ago, the Protecting American Talent and Entrepreneurship Act of 2015 (PATENT Act), which has already received wide bipartisan support.

Patent trolls, take advantage of an overburdened litigation system and target nearly every kind of industry – a list as diverse as the auto industry, the grocery industry, the tech industry, financial services, hotels and restaurants – from Wall Street to Main Street, companies big and small.  They search for and find vague language in patents in order to threaten to sue operating companies utilizing common technology.  Patent trolls issue letters demanding payment – the collection of licensing fees – or threaten to sue.

However, small businesses take the hardest hit, with many simply choosing to pay the licensing fee in lieu of racking up astronomical legal fees to hire a lawyer to dispute the abusive claims.  This quagmire leaves many to ponder, “Is this just the cost of doing business today?”  This question has driven many smaller companies out of the marketplace – decreasing competition, leading to fewer jobs and higher prices, and retarding innovation.

At the heart of the issue is this: patent lawsuits are cheap to file, but incredibly expensive to defend.  According to Forbes, the average cost to defend a patent claim where less than $1 million is at risk is $600,000.  However, for most major cases, the median costs reach $5 million in litigation.  The article goes on to state that frivolous patent litigation costs U.S. businesses $29 billion per year in direct costs, not to mention the $80 billion in indirect costs to the system.

Of course there needs to be a reasonable remedy for legitimate patent litigation.  Our Founding Fathers ensured that “authors and inventors” had legitimate rights to their creations in crafting Article I, Section 8 of the U.S. Constitution.  And both the Innovation Act and the PATENT Act are narrowly tailored to protect legitimate interests and address bad actors.

Both bills would increase transparency in the litigation process, providing clarity as to who is filing suit.  This will make is easier to detect multiple suits from the same patent troll.  They would require patent trolls to provide detailed information to support their allegations – no more ambiguous letters.  The bills would streamline the discovery process, which is often the most expensive part of litigation.  Since trolls don’t actually produce or create anything, they don’t have many documents to turn over during discovery, keeping their costs minimal.

Critically important, both the Innovation Act and PATENT Act would strengthen the right of winning defendants in truly frivolous cases to recover their legal costs from the losing party and would include a system for fee recovery.

Over 50 IP Scholars recently sent a letter to Congress highlighting just how detrimental patent trolls are to investment and innovation as productive companies are forced to shift funds from R&D to pay for ongoing litigation.  Loss of jobs, the stifling of business and the suppression of innovation are the result of these abusive lawsuits.  The time has come, we need to reform our broken system.

 

Andrew Langer is the president of the Institute for Liberty.