8/16/13 The Trouble with Patent Trolls | Rulebase The Trouble with Patent Trolls t’s no secret that intellectual property (IP) is a major driver of the U.S. I economy. Technological know-how, world-class brands, and an unrelenting drive to create works of literature and art have become the single W R I T T E N B Y greatest export from the U.S. According to a report released by the U.S. Sam Eichner Commerce Department on April 11, 2012 entitled “Intellectual Property and the U.S. Economy: Industries in Focus P U B L I S H E D O N (http://www.uspto.gov/about/ipm/industries_in_focus.jsp) ,” IP-intensive August 13, 2013 industries account for about 40 million jobs and contribute in excess of $5 1 trillion dollars to, or about 35% of, U.S. gross domestic product (GDP). T O P I C S Law Despite the beneits that IP produces for the U.S economy, a dark underbelly to THIS METHOD T A G S this panacea has emerged in recent ARGUABLY copyright, litigation, patent, years: the rise of “trolls,” or non- technology, troll VIOLATES THE practicing entities that seek to enforce BASIC PRINCIPLES intellectual property rights for reasons N O T E S UPON WHICH THE other than to protect their own PATENT SYSTEM IS 1. See the full report here innovations. Instead, these trolls acquire (http://www.uspto.gov/news/publi BASED cations/IP_Report_March_2012.p intellectual property rights and make a df) . business out of suing on them in order to exact rents from others seeking to operate in the relevant ield. Patent trolls such as the company, Intellectual Ventures (http://www.intellectualventures.com/) , have done this very successfully; in the past 13 years, this company has amassed in excess of 70,000 patents, and has initiated countless patent infringement lawsuits in 2 order to monetize on those patent rights. Patents have a limited lifespan of 2. Intellectual Ventures – Legal rulebase.com/the-trouble-with-patent-trolls/ 1/5 8/16/13 The Trouble with Patent Trolls | Rulebase approximately 20 years, excluding the various legal workarounds. Once a Updates (http://www.intellectualventures.c patent has been acquired, there is no time to waste. This method arguably om/index.php/news/legal-updates) violates the basic principles upon which the patent system is based, and has prompted calls for legal reform to curb perceived abuses of the patent system, and more generally, of the U.S. IP system.3 While patent trolls have received by far the most publicity as of late, trolls do in 3. Edward Wyatt, “Inventive, at Least in Court,” (2013). fact come in many forms. In theory, trolls can arise in relation to any form of (http://www.nytimes.com/2013/0 intellectual property right that is readily transferrable and enforceable in court. 7/17/business/ftc-turns-a-lens-on- abusers-of-the-patent- In other words, the problem is not only an intellectual property problem, but a system.html?pagewanted=all) litigation problem as well. Thus, recent legislative proposals4 designed to curb the onslaught of costly patent infringement suits have come in the form of heightened pleading requirements in federal patent cases. For example, the Patent Litigation and Innovation Act of 2013,5 which was recently introduced to the House of Representatives to address the issue, contains a number of 4. Diane Bartz, “U.S. lawmakers pleading requirements that basically require plaintiffs in patent cases to plead offer bill to curb patent with extremely high particularity the details of their claims including: lawsuits,” (2013). (http://www.reuters.com/article/2 013/07/22/us-usa-congress- which products or devices are actually infringing the patent or patents patents- in question, idUSBRE96L0YH20130722) where the actual infringing technology is within those infringing 5. Patent Litigation and products or devices, and Innovation Act of 2013, H.R. the speciic legal theory upon which the patent infringement suit is 2639, 113th Cong. (2013). (http://www.gpo.gov/fdsys/search based. /pagedetails.action? packageId=BILLS-113hr2639ih) Pleading requirements in all federal cases have been raised in recent years following the Supreme Court’s decision in Ashcroft v. Iqbal.6 Nevertheless, the proposed legislation before Congress would raise those pleading requirements higher for patent infringement plaintiffs, with the intention being to make it more dificult to maintain frivolous patent suits in the future. Other legislative proposals have included the SHIELD Act,7 the Patent Quality Improvement Act,8 and the End Anonymous Patents Act.9 State legislation has also begun to address the problem.10 Vermont recently enacted the “Bad Faith Assertions of Patent Infringements” which also endeavors to solve the patent troll problem.11 For better or worse, that legislation avoids a strict deinition of a “bad faith patent assertion.” The law instead accounts for judicial factors for consideration in identifying illegitimate 6. Ashcroft v. Iqbal, 129 S. Ct. 1937, (2009). patent assertions, such as: (http://scholar.google.com/scholar _case? failing to identify the patent(s) at issue, case=10490065676294220138&q =Ashcroft+v.+Iqbal&hl=en&as_sdt failing to identify the patent owner, or =2,44) the extent to which the complained of behavior actually infringes the patent(s) at issue. Also to be considered is the plaintiff’s behavior prior to the formal institution of 7. Bill Summary & Status of the SHIELD Act rulebase.com/the-trouble-with-patent-trolls/ 2/5 8/16/13 The Trouble with Patent Trolls | Rulebase legal proceedings, including: how much money is requested in a demand letter, (http://thomas.loc.gov/cgi- bin/bdquery/z?d113:hr845:) or how quickly a response is demanded. Of course, the merits of the patent claim are also considered, i.e. whether or not the claim would hold up in court. 8. Bill Summary & Status of the Patent Quality Improvement Act Alternatively, there are also factors that would weigh in favor of a patent (http://thomas.loc.gov/cgi- infringement plaintiff, including: bin/bdquery/z?d113:s866:) 9. End Anonymous Patents Act, evidence of commercialization of the patented invention H.R. 2024, 113th Cong. i.e. proof that the plaintiff is not a non-practicing entity, (2013). (http://beta.congress.gov/bill/113t evidence that the plaintiff is an educational institution or not-for-proit, h/house-bill/2024) or 10. Eric Goldman, “Vermont Enacts prior successful enforcement of the patent in court. The Nation’s First Anti-Patent Trolling Law,” (2013). Interestingly, the law also creates a cause of action against bad-faith patent (http://www.forbes.com/sites/eric goldman/2013/05/22/vermont- asserters, in which victims of bad faith assertions can claim actual damages, enacts-the-nations-first-anti- “exemplary” damages of three times the value of actual damages or $50,000, patent-trolling-law/) whichever is greater, and attorneys’ fees. The law also authorizes the state 11. Vt. Stat. Ann. tit. 9, § 2461(b) Attorney General to bring civil proceedings against those asserting patent (2014). infringement in bad faith, and also gives courts the authority to require those (http://www.leg.state.vt.us/docs/2 014/Acts/ACT044.pdf) asserting patent infringement to post a bond of up to $250,000 with the court. Despite the publicity accorded to patent troll concerns in recent years, the troll THE TROLL problem does extend beyond the patent PROBLEM DOES realm. Copyright trolls have also EXTEND BEYOND emerged in recent years in a number of THE PATENT REALM different industries. For example, the “Prenda litigation” relating to illegal downloading of X-rated materials constituted a business model built upon iling questionable, if not altogether frivolous, IP infringement lawsuits.12 The Prenda irm’s typical business dealings happened as follows: the irm would ile a lawsuit in federal court alleging copyright infringement against a number of John Does. It would then serve subpoenas on the internet service providers seeking to obtain the identities of infringers. Once those identities were obtained, Prenda would serve those persons with demand letters, threatening up to $150,000 in statutory copyright damages per each instance of infringement in an attempt to exact a settlement of approximately $4,000. If recipients of the demand letters refused, they would ind themselves named on a public document that made it clear they had illegally downloaded pornographic material, a clearly embarrassing reality that initially led to many settlements. The practice was eventually put to a halt when one court came to realize what was going on, and effectively sanctioned the irm out of existence.13 Nevertheless, the series of cases signiies the prevalence of troll tactics outside the patent context, and makes it clear that the issues extend beyond patent law to IP more generally. All this commotion surrounding “patent trolls” and IP trolls begs the question; rulebase.com/the-trouble-with-patent-trolls/ 3/5 8/16/13 The Trouble with Patent Trolls | Rulebase is all this really so bad? The vast 12. Claire Suddath, “Prenda Law, the Porn Copyright Trolls,” majority of discussions surrounding the LITIGATION “IS JUST (2013). issue do in fact assume that trolls are (http://www.businessweek.com/a LICENSING BY rticles/2013-05-30/prenda-law- bad and deal with how they can be ANOTHER MEANS” the-porn-copyright-trolls) stopped, but discussions as to exactly why trolls are bad is somewhat less common. Peter N. Detkin, co-founder of Intellectual Ventures, has said that litigation “is just licensing by another means,” and is a legitimate business practice that adequately prices the value of patents in the marketplace.14 At the end of the day, patent trolls do what the original inventor would have done had they still owned the patent, the major difference being one of ownership.