Intellectual Property

Three Issues to Watch as the Senate Targets Patent Trolls


Rousing itself from its tendency toward angry paralysis, a large and bipartisan majority in the House quickly passed legislation that would tamp down on patent abuses. Congress has been heavily lobbied to pass some kind of patent reform this year, and everyone from Verizon Communications (VZ) to the National Retail Foundation and the Electronic Frontier Foundation praised Thursday’s vote.

Public debate on the issue has focused primarily on so-called patent trolls, companies whose main activity is threatening to sue businesses over alleged intellectual property violations. To a certain extent, the troll is in the eye of the beholder, and the House bill doesn’t actually define such entities. Instead, it shifts the balance of power in patent disputes to try to discourage abusive behavior. “There are a lot of things in there that make sense, but it would be a mistake to think it’s a surgical attack on patent trolls,” says Florian Mueller, an intellectual-property analyst who advises tech companies.

This isn’t leaving the best of tastes in some mouths. Democratic Representatives John Conyers and Mel Watt, of Michigan and North Carolina, respectively, opposed many parts of the legislation, as did universities and trade groups representing venture capitalists and small-business owners. “The bill suffers from a rushed process and responds to only a part of the constituency in the patent ecosystem,” said Watt on the House floor.

The debate is not yet over. With the Senate saying it will soon take up the issue, a few key issues are likely to be in play:

Challenges to patents: Perhaps the major point of contention is how defendants can challenge patents they are accused of infringing. The last time Washington took up patent reform, it passed a provision that allowed defendants to request that the Patent and Trademark Office review whether certain patents were valid. It applied only to financial products and services and was seen as somewhat of an experiment. The bill passed today by the House initially proposed expanding the types of patents covered, drawing widespread opposition. Some patent holders worried that this would allow defendants to delay any legal action almost indefinitely. Taking the provision out of the bill was a major factor in getting it through the House. But Senator Charles Schumer (D-N.Y.) has been beating the drums for the expansion, and the issue will likely get another round of debate.

Transparency for demand letters: The House bill also disappointed advocates for more aggressive reforms by eschewing harsh action regulating the letters that patent holders send when threatening legal action. The Electronic Frontier Foundation, among others, wanted strict transparency rules to limit companies that send out dozens of form letters intimidating small businesses into settling. But drawing the borders around inappropriate activity proved tricky. The House expects to return to the issue at some point.

Litigation fees: Then there’s the centerpiece of the bill itself—the requirement that losers of patent litigation pay the winners’ legal fees. Patent lawsuits are an effective tool for intimidation largely because they are so expensive, and shifting the burden to the losers of the suit is supposed to add some extra risk to filing frivolous lawsuits. But opponents of the bill say it will discourage smaller companies from pursuing litigation against deep-pocketed defendants. “Although a prevailing-party approach for attorney’s fees may be acceptable for litigants that are similarly situated economically, this approach puts unfair burden on early-stage companies which are typically capital constrained,” wrote Bob Franklin, the president of the National Venture Capital Association, in a letter to Representative Bob Goodlatte, a Virginia Republican who is the lead sponsor of the legislation.

A supporter of the House bill expressed concern that while the fee-shifting provision may have made it through the House, there would likely be pressure to strip it from whatever bill the Senate passes.

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

Best LBO Ever
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • VZ
    (Verizon Communications Inc)
    • $49.55 USD
    • 0.34
    • 0.68%
Market data is delayed at least 15 minutes.

Sponsored Links

Buy a link now!

 
blog comments powered by Disqus