Patent Trolls Still Alive and Kicking

Over at Techdirt, there is a good story up on how a patent troll attacked a startup and the litigation costs so distressed the startup that it was forced to sell out to another patent troll.

Peter Braxton created Jump Rope Inc., and developed an app that allows users to pay a fee to skip a line. For example, rather than wait hours in line for a seat at a trendy restaurant, the app allows you to get in quicker.

Enter the patent troll Smart Options, which has a patent on a “method and system for reserving future purchases of goods or services.” In other words, a patent on electronic options buying. This is a great example of the junk patents that the United States Patent and Trademark Office (USPTO) puts a rubber stamp on and approves.

Braxton wins the fight in court, but in the face of the costs for an appeal and renewed threats by Smart Options to sue again on another patent, he sells out to another patent troll that was able to capitalize on Braxton’s distress.

This is but the latest example of why patent reform is needed. Those claiming that trolls are on the decline are simply wrong. Innovation faces daily threats from the trolls, and Congress needs to step in and pass serious reform legislation.

Update: I appreciate Mr. Lauder’s comments below and wanted to address a couple of points made. I stand by the assertion that patent troll suits have grown over the last decade and continue to inch upward. Take a look at the data compiled by Patent Freedom; lawsuits involving non-practicing entities are increasing. The Supreme Court’s decision making fee shifting easier is certainly helpful, but only more time will reveal what impact this will have on patent trolling. Many of the trolls are well funded and, as is the case with Smart Options mentioned in this post, can continue to drag out litigation with appeals and other vehicles so that a true innovative company (e.g., Jump Rope) that has won in the district court and is armed with the fee-shifting order still must capitulate in the end because of the price of litigation. The trolls have great staying power.

Mr. Lauder is correct that no one should wish for reform that makes it so expensive to enforce patents that innovators are unable to receive justice. Patent litigation already is very expensive and taking a case to trial costs in the millions. As I argue in my book, probably the most helpful long-term reform would be to treat software differently than, say, pharmaceuticals. I believe that a five-year patent term for software rather than a 20-year term would eventually make it more difficult for trolls to exploit dated patents in litigation. The book explores a number of possibilities, but an end to the one-size-fits-all patent system would be helpful.

Finally, I think that Mr. Lauder and some of his esteemed colleagues misinterpret my calls for reform as an attack on the principles of property rights and decentralization. They contend I’m in favor of a state industrial policy. Further, I fear they believe that I see patents as an unwarranted form of market interference. These criticisms are unfounded. It is within Congress’ enumerated powers to promote science and the useful arts by issuing patents to inventors. I do not call for the abolition of patents, and agree that innovators should acquire exclusive rights to the IP for a reasonable period of time. What I do see as a problem is the rise of entities acquiring patents, often very dated, and then suing innovators in hopes of earning a quick pay out. The trolls have no intention of making a useful product and instead exist to litigate. Numerous startup companies with good ideas fold because of the prospect of being dragged into court by a patent troll. This is a real problem and stifles innovation. I simply want to make it harder for the trolls to exploit the system and dominate the Jump Ropes of the world.

William J. Watkins, Jr. is a Research Fellow at the Independent Institute and author of the Independent books, Crossroads for Liberty, Reclaiming the American Revolution, and Patent Trolls.
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