Enterprise Tech

Fixing America's Patent Problem Means Going Beyond Trolls


White House Press Secretary Jay Carney holds a folder with an image of a troll and the words "innovation, not litigation" during a daily briefing on June 4

Photograph by Evan Vucci/AP Photo

White House Press Secretary Jay Carney holds a folder with an image of a troll and the words "innovation, not litigation" during a daily briefing on June 4

The so-called patent troll has become one of the tech industry’s favorite monsters in recent years, and on Tuesday the Obama administration announced it would pick a fight with patent-holding companies that produce nothing but lawsuits.

The trolls—or patent assertion entities, to use the White House’s less catchy and more presidential term—threatened 100,000 companies with lawsuits last year alone, according to a report issued Tuesday along with the White House’s proposals. Defendants and licensees paid $11 billion to trolls in 2011, four times the total from 2005. Since the money went to companies that don’t actually make things, little of it ended up going back into new innovations.

Companies operating out of empty offices in Texas make for great villains (and great radio!). But they’re not the only things Washington has to contend with as it looks to clean up the patent landscape. Here are three more:

Bad Patents: The administration wants to keep bad patents from being issued, which it plans to do by tightening standards on issuing new patents that are too obvious or not novel. Patent experts point out that there are plenty of horses that have already escaped this particular barn, particularly in the world of software. “You look at the kinds of patents involved, at rounded corners or bouncing lists, they’re trivial patents that have little value and probably shouldn’t have been issued at all,” said James Bessen, a patent expert and lecturer at Boston University’s law school. “There’s easily a quarter of a million bad patents out there.”

Instead of doing something to reel these patents back in, the government is hoping to make it harder to act on them. Patent trolls have used anonymity to their advantage, setting up shell companies and transferring patents between them to keep their targets off balance, and the White House wants to make it more difficult for them to hide. That way, when a company is approached by another threatening legal action, it can at least determine whether the company pursuing it actually holds patents that it may be violating.

In addition, the White House is encouraging Congress to transfer some of the financial risk to people filing lawsuits by passing legislation that would make the losers of patent lawsuits pay their opponents’ legal fees. European courts already work this way, but in the U.S. the potential for large legal fees alone has been enough to scare people into settlements.

Big Companies: There are several proposals floating around Congress dealing with legal fees in patent lawsuits, but one unresolved issue is how they will distinguish between patent trolls and regular-old companies that pursue patents aggressively. Florian Mueller, an intellectual-property analyst who advises tech companies, warned that a tight focus on patent assertion entities could leave some bullies to their own devices.

These companies are expending enough resources fighting among themselves that patent litigation is regularly referred to as the “sport of kings.” In 2011, for example, Apple (AAPL) and Google (GOOG) spent more on patent litigation and acquisition than they did on research and development, according to the New York Times. Mueller points out that Tuesday’s moves will do little to address squabbles between large technology companies.

International Trade Commission: The major decision expected soon in a patent fight between two technology heavyweights, Samsung and Apple, won’t be issued in a courtroom. Instead, like much patent warfare, the International Trade Commission will decide whether Apple’s mobile devices violate patents held by Samsung. If the decision goes against Apple, the commission could ban certain products from entering the U.S. Despite the severity of the punishment, the commission’s standard of proof is lower than in U.S. courts.

The White House has asked Congress to make it harder for companies to win import bans in front of the commission and to make sure that it’s hiring qualified judges. Until that happens, however, the commission will likely remain a favorite venue for those filing aggressive patent lawsuits, said Mueller.

“There’s one governmental agency that you can use to get a shortcut and get something you couldn’t get elsewhere,” he said. “The mere threat of an import ban leads to settlement that wouldn’t have been possible without the ITC.”

Brustein is a writer for Businessweek.com in New York.

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