Republicans Split over Patent Reform

The Washington Times has an interesting article on the division among Republicans on patent reform. According to the article:

Two dozen prominent conservative political groups, led by the influential American Conservative Union, the Club for Growth and the Eagle Forum, sent a letter Wednesday to House Speaker John A. Boehner, Senate Majority Leader Mitch McConnell and the Democratic leadership seeking to block floor votes on the so-called Innovation Act.

The bill is being shepherded through Congress by Republican Reps. Robert W. Goodlatte of Virginia, chairman of the House Judiciary Committee, and Darrell Issa of California to reform patent laws and diminish the rise of “patent troll” lawsuits in which parties seek to win money for infringements of obscure patents.

Republicans are split on the evil of patent trolls. As supporters of private property, many have trouble taking shots at the trolls when trolls acquire patents by purchase, not fraud, and simply use the court system to “protect” patent rights. Unfortunately, this is an oversimplification.

Our twenty-first century economy depends on innovation. Innovation is now imperiled by certain patent holders known as non-practicing entities (NPEs) or patent trolls. The NPEs obtain patents not for the purpose of producing an invention or a technology, but to license and enforce the patents. They garner all the benefits of patent protection, but offer society no benefit relative to increasing the store of knowledge.

Many NPEs employ no workforce (except trial lawyers), do not have physical facilities that produce things of value, and have very little invested in the patents themselves. They simply exist to shakedown companies that engage in productive activities.

Researchers at the Boston University School of Law have calculated that from 1990 through late 2010, NPE lawsuits were responsible for over half-a-trillion dollars in lost wealth (in 2010 dollars). Looking at a smaller window, they found that from 2007 through October 2010, the losses averaged over $83 billion per year in 2010 dollars.

This is a major problem for our economy.

The proposed reform buzzing about Washington is old hat. Reformers want to require plaintiffs to plead claims with specificity, limit discovery, make it easier to join interested parties in litigation, and shift litigation costs to the losing party if the underlying claim was questionable. Unfortunately, this does not really tackle the underlying problem of patent trolling.

As I have argued in the past, and in my monograph Patent Trolls: Predatory Litigation and the Smother of Innovation, Congress should consider broader reform proposals. Here are just two ideas that would make a world of difference:

1.) Require companies that want to file patent suits to prove that they are actively participating in the relevant industry. Trolls without plants, equipment, employees, or significant investments in the patents would not be allowed to bring infringement suits. This would not bar the courthouse to legitimate NPEs—such as research universities—that can show substantial investments in engineering, research and development, or licensing related to the patent. But it would make life much more difficult for the trolls.

The United States International Trade Commission (“ITC”), formerly known as the United States Tariff Commission, has imposed a similar requirement in cases alleging patent infringement against manufacturers of imported goods. Outside of this international trade setting, there is no “industry” requirement. The imposition of an industry requirement for patent plaintiffs suing in federal district court could be a game-changer.

2.) Patent law could borrow from trademark law and require that a plaintiff prove the intention of “use.” A person or entity may file a trademark application based on the intent to use the mark in commerce. This means that the applicant must have bona fide, demonstrable intention to actually use the mark—that is, to sell products to the public with the mark attached. The rights to a trademark can be lost if the holder abandons or stops using the mark.

Likewise, patent holders who never show any intention of using the technologies covered would lose their right to sue. Trolls would undoubtedly try to devise nominal uses of the technology to meet the use requirement, but the courts could evaluate the alleged use and determine if it represents a good faith attempt to practice the invention or is merely a minimal effort meant to secure an open courthouse door.

Real patent reform is needed. Republicans should get on the same page and do something meaningful to secure innovation.