Open-Source Software Users are Paying the Patent Troll Toll More Than Ever

Open-Source Software Users are Paying the Patent Troll Toll More Than Ever

Open source software is software produced through a decentralized development model that distributes source code publicly to facilitate collaboration among a global community.^[1] This model fuels innovation and is now widely supported by the tech industry.^[2] Banking and fintech companies employ open source software to deliver their services on a global scale.^[3] Unfortunately, its increased success has made it more appealing to “patent trolls.”^[4] As of June 2022, patent trolls are on track to have increased their focus on open source projects by 100% compared to 2021.^[5]

Patent trolls are investors who buy unused, often low-quality patents and then assert that others, such as open source code users, are infringing them.^[6] They then demand payment.^[7] There is no need to prove that developers were aware of these patents or knowingly used patented material in their commercial programs.^[8]

These suits are difficult to fight because it can be nearly impossible to discern who owns a patent.^[9] Patent trolls often organize in LLCs that frequently change their name, and there is no requirement that these entities provide their targets with notice that they are suing.^[10]

Companies can fight patent trolls with an invalidation defense.^[11] To do so, they must prove that the patents bought up by patent trolls should never have been issued by the USPTO.^[12] However, the Federal Circuit Court of Appeals has been largely unpredictable in its rulings on patent validity, making it difficult to predict when an invalidation defense would be worthwhile and when it would be more efficient to settle.^[13]

The Supreme Court’s 2014 ruling in Alice Corp. Pty. Ltd. v. CLS Bank Int’l^[14] helped to reduce patent trolling by holding that certain abstract business methods employed by large companies (the types of patents that trolls often took advantage of) are not patentable, but the decision is vague and the Federal Circuit continues to debate how to apply it correctly.^[15]

Patent trolling is a lucrative business—the costs of filing such a lawsuit are relatively low and the payout, often a settlement, is typically high.^[16] 71% of patent cases asserted against open source products are brought by patent trolls, and their most targeted companies are typically those that can afford to pay, such as Google and Apple.^[17]

However, this isn’t just a problem for big businesses. While many cases are brought against large corporations, nearly 60% of all companies attacked by patent trolls are small- or medium-sized, and their losses represent a larger proportion of their revenue.^[18] Not only are these companies forced to spend money on empty accusations, but those that settle or lose to patent trolls suffer an average of $160 million in reduced investment over their next two years.^[19] This can be especially worrying for innovation in areas such as renewable energy, where reduced investment in green technology will hurt the climate for decades.^[20]

As patent trolling continues to plague innovators, many are calling for a restructuring of the patent system.^[21] One of the first major demands is to improve transparency.^[22] Congress could require “demand letter transparency” and make it illegal for patent trolls to conceal their identities in LLCs.^[23] Congress could also invest more money into the USPTO, improve its efficiency, and increase the amount of time an examiner spends reviewing each patent application, thereby preventing the issuance of low-quality patents bought by patent trolls.^[24]

Some have suggested a cheaper, faster alternative to litigation when it is clear that a suit is being brought by a patent troll.^[25] The director of the USPTO could achieve this goal by repealing the NHK-Fintiv rule, which denies PTAB review when parallel litigation, such as a suit brought by a patent troll, is underway.^[26] If this rule was repealed, companies could receive a swifter ruling from specialized PTAB judges without having to endure the financial burden of further litigation.^[27]

States have attempted to enact their own remedies. In 2014, Idaho passed the Bad Faith Assertion of Patent Infringement Act which requires patent-owning companies to offer a bond covering the cost of litigation if the defendants can demonstrate that these companies brought the suit in bad faith.^[28] However, the constitutionality of this law is currently being challenged.^[29]

Innovators cannot sit and wait for legislative reform. Companies are employing “defensive aggregators”—organizations that quantify the risk of future litigation and distribute the cost of countervailing efforts, such as patent acquisition.^[30] One such “defensive aggregator,” Unified Patents, helps companies raise an invalidation defense—and does so with a success rate of almost 90%.^[31] Although successful, this strategy is only ameliorative. Other open source defenders, such as the Open Source Initiative will continue to push for reform so that individuals and companies can innovate without the hindrance of patent trolls.^[32] Until then, companies will keep paying the patent troll toll.