Congress considers banishing Patent Trolls
On Thursday, November 14, the House of Representative Subcommittee on Oversight and Investigations within the Energy and Commerce Committee held a hearing on whether patent assertion entities (or more critically, “patent trolls”) affect economic growth and technological innovation. The Senate Commerce, Science, and Transportation Committee has also held recent hearings related to patent assertion entities. Members of both chambers have expressed concerns that patent trolls are abusing the intellectual property rights that accompany patents, to the detriment of innovation and general business activities.
Patent assertion entities purchase patents from other patent holders, and approach alleged infringers for licensing fees. In one interpretation, they can be beneficial to innovation: paying innovators for patents that the previous owners would not have been able to enforce on their own, and using the licensing demands as a means of recouping the investments. As such, patent assertion entities provide innovators with needed capital for their patents, and use the investment in the patent to make a profit. In an alternative narrative, patent assertion entities are trolls preying on small businesses and consumers: they purchase myriad patents that are of questionable validity, and then send out demand letters to restaurants, small businesses, and others, expecting capitulation to their high demands in the face of the costs of litigating a patent infringement case to completion.
At this point, it is not clear which narrative is more accurate, or, if patent assertion entities are impacting innovation, to what extent. The Federal Trade Commission, tasked with protecting consumers and enforcing the antitrust laws, has opened investigations on both elements. The FTC may have the capacity to police patent troll activities under Section 5 of the FTC Act, granting them authority to challenge “unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce.” Members of Congress are considering a multitude of options that could be taken to address patent trolls, if that is determined to be necessary.
Representative Robert W. Goodlatte (R. Va.) has introduced the Innovation Act (H.R. 3309). Although largely addressing matters at the litigation stage of patent cases, the Innovation Act would also require the Patent and Trademark Office to keep a registry of demand letters related to specific patents, as reported by the recipients. A similar database is currently operated by an interest group, and is little used. Previous versions of the Innovation Act would have required patent assertion entities sending more than twenty demand letters register with the FTC and declare which patents were allegedly infringed, who the ultimate parent entity of the patent assertion entity is, whether the patent is subject to fair reasonable and non-discriminatory licensing terms, etc. Two state attorney generals, from Vermont and Nebraska, have investigated pursuing patent trolls under state consumer protection laws.
In my opinion, the danger of patent assertion entities acting as trolls and interfering with innovation and commerce is real. The patents purchased by trolls may be overbroad or obvious, and there is no proof that the alleged pro-innovation justification of providing innovators with the value of their patents is real. Additionally, the trend of sending demand letters to end-users (small businesses and consumers) rather than the maker of the infringing products, and relying on the certainty of high litigation costs to induce the payment of license fees, presents the practice as questionable investment practices rather than furthering innovation.