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February 28, 2014 | BusinessFrom the blogTechnology

POTUS’s War Against Patent Trolls Could Save Your Small Business

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Domenic Romano

Founder & Managing Partner

The White House has announced three new executive orders in its ongoing effort to shore up the U.S. patent system.  “Patent trolls”—also known as patent assertion entities (“PAEs”) or non-practicing entities (“NPEs”)—are giving inventors and business owners headaches.

President Barack Obama, hoping for help from Congress and the courts, wants to improve the patent system by curbing the number of unfair and frivolous patent infringement suits being filed.  Both large and small businesses have their fingers crossed that POTUS’s efforts will inspire lawmakers to slay the unpopular patent trolls once and for all.  Will the President’s efforts be enough to answer the patent troll’s riddle?

The White House’s Patent Reform Initiative

On February 20, 2014, Secretary of Commerce Penny Pritzker took the stage—along with United States Patent and Trademark Office (“USPTO”) Director Michelle Lee and a slew of White House patent reformers—to announce the Executive Branch’s latest efforts to reform the current U.S. patent scheme.

Among other things, the latest executive orders include an improved system for locating prior art—“the technical information patent examiners need to make a determination of whether an invention is truly novel.”  Changes also include an expansion of the USPTO training program for examiners, as well as a national pro bono program to assist American inventors who lack legal representation.

President Obama’s executive orders last June called for a strengthening of the patent system.  To deliver on these commitments, the White House has attempted to increase transparency, making it more difficult for patent trolls to hide behind shell companies.  The Administration has attempted to make patents clearer by implementing a glossary in patent specifications that will be launched in the coming weeks.  Additionally, the USPTO has launched an online toolkit to inform consumers about the risks and benefits of litigation or settlement, helping them to pick the best course of action.

Anatomy of a Patent Troll

Buying patents with no intention of manufacturing the patented invention or supplying the patented service is the biggest problem created by patent trolls.  As their name suggests, patent trolls hoard large quantities of patents—sometimes 10,000 or more—with hopes that some unsuspecting inventor will create something comparable enough to bring a lawsuit.  Patent trolls cause problems by bringing expensive (and oftentimes questionable) claims against businesses that are cheaper to settle than to litigate.

The cost of litigation for patent trolls is significantly lower than the cost for defendants, as it is a defendant’s burden to prove his or her use is not infringing on the patent.  Because of the cost difference, it is profitable for patent trolls to bring claims that force settlements.  Additionally, patent trolls are able to hide the ball, “creating shell companies that make it difficult for defendants to know who is suing them.”

Companies Strike Back

In two ongoing cases, Octane Fitness v. ICON Health & Fitness and Highmark v. Allcare Management Systems, the Supreme Court will take a closer look at patent trolls—warts and all.  A coalition of large companies has voiced their concern for the outcome, and the numbers are staggering.

About 1 in 5 of all U.S. patent infringement lawsuits are brought by patent trolls.  Over 100,000 companies were sued by patent trolls in 2012.  In the last five years, both Apple and Google have been roped into over 125 patent troll suits each.  The companies argue that patent trolls have an “unfair advantage because they don’t make products of their own, leaving them effectively immune from countersuits.”

Patent trolls may take some of the jingle out of larger companies’ deep pockets, but $2 million in legal bills and 18 months or more of litigation can be fatal for small businesses and inventors.  For smaller companies with limited budgets, settlement of patent infringement suits is all but inevitable, regardless of the merits of the claim.

As he declared during this year’s State of the Union address, President Obama hopes that Congress will “pass a patent reform bill that allows our businesses to stay focused on innovation, not costly and needless litigation.”  Will the White House’s efforts be enough to chase patent trolls back under the bridge, or will businesses and inventors be forced to keep paying the toll?

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