The phenomenon of so-called “patent trolls” is becoming more and more prevalent, and President Barack Obama is seeking to curb the trend by introducing several changes to U.S. patent law. “Patent trolls,” or “non-practicing entities,” are companies that own and purchase patents solely to use them in litigation, and are tying up both the legal system and the U.S. economy with wide-ranging, often frivolous patent suits in the hopes of getting a quick settlement.
On Tuesday, Obama called on Congress to pass legislation that will make it easier for a federal judge to award legal fees to the winner of a patent case deemed by the judge to be abusive, and make it more difficult for the U.S. International Trade Commission to ban sales of products made with technology that infringes on a patent. The ITC currently has a lower standard for ordering an injunction than a U.S. District Court.
The companies that will be affected by this legislation, known as non-practicing entities or NPCs, do not manufacture, produce, or sell any products. Their business model relies on the purchasing of technology patents and then attempting to enforce them en masse in legally questionable ways. For example, a company may send out 8,000 legal notices to hotels that offer wireless internet because the server they use may infringe on a patent they hold. If any of these hotels attempt to settle the lawsuit, the company makes money.
NPCs also deal with larger companies like Apple, Disney, and Facebook, filing infringement suits against them in the hopes of blocking the sale of the products and getting a quick settlement.
NPCs reject these accusations, saying that they are a specialized service that helps patent holders process their claims who might otherwise be squashed when taking on much larger companies with wide resources.
Regardless of the motivations behind the NPCs, it is indisputable fact that the lawsuits they file are clogging the patent and trademark legal system. Reuters reports that 2,921 infringement lawsuits were filed by patent litigation companies in 2011, making up 62% of all patent infringement lawsuits filed that year.
Two of the largest companies in the NPC field, Eolas Technologies and Innovatio IP Ventures LLC, responded to the Obama’s call for legislation saying that they were being unfairly persecuted. “The idea that because you’re not actually making things, you shouldn’t be able to get a return on your investment, I think that’s wrong,” said Mark Swords, chief executive of Eolas.
Matthew McAndrews, who represents Innovatio, spoke with Reuters, with “Who gets to define an abusive patent litigation claim? It [The proposed legislation] places way too much emphasis on non-practicing entity.”