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Congress prepares for anti-patent troll vote with Senate hearing

Congress prepares for anti-patent troll vote with Senate hearing

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White House snow globe patent
White House snow globe patent

By Adi Robertson and Kwame Opam

Congress is one step closer to cracking down on patent assertion entities, better known as "patent trolls." In a hearing today, the Senate Commerce Committee grilled witnesses on both sides of the debate, attempting to clear up questions before voting on a companion bill to Representative Bob Goodlatte's (R-VA) Innovation Act. Goodlatte's bill would require more specific claims in the demand letters that patent holders send, making them list the products and patents in question; it would also require a court to take steps forward in the case before ordering the defendants to start a potentially long and expensive discovery process. If a patent holder is suing the manufacturer of a product, they can't require customers to stop using it during the case, and if trolls bring a suit to court and lose, they may have to pay the winner's court costs — giving companies a way to fight back without going broke.

The hearing was perhaps defined by both sides attempting to take the high ground on patent reform, with the requirements for demand letters a particular point of contention. The EFF and much of the tech community see patent trolls as a way to shake down businesses and even customers for settlement money, since simply paying up usually costs less than fighting the charge. Small businesses, they say, are particularly vulnerable: in one case, a patent troll sued small businesses for using off-the-shelf scanners with a computer network, saying they had to pay a licensing fee for each employee.

"We're talking about regulating certain bad behavior."

The law's opponents, meanwhile, say that creating rules for a nebulous category of patent holders will strip enforcement tools from small-time inventors. "While there are certainly some bad actors, Congress must be cautious in making systemic revisions to the longstanding legal rules governing how patented innovation is commercialized and litigated," said Professor Adam Mossoff of George Mason's Center for the Protection of Intellectual Property. "This is especially the case when such revisions are based more on rhetoric about particular types of patent owners than evidence of systemic problems that are clearly harming innovation." Universities, for example, patent new discoveries and license them out to private companies. Since they hold patents but don't use them, they'd fall under some common definitions of patent trolls.

But Larry Sinewitz, executive vice president of retailer BrandsMart USA, argues that just raising the bar won't shut out legitimate cases, and could even make them easier to clear up. At the hearing, he cited a case where he received notice that one of his imported products infringed on a specific patent in the US. "Within 15 minutes, I pulled every one of those machines off the shelf, contacted the person who imports them, and told them I wanted a return authorization to send these back," he said. "Because they did identify the product, because they did make it very clear, and they were very specific ... we were able to react to that." Julie Samuels of the EFF said that "we're not talking about regulating all demands letters ever. We're talking about regulating certain bad behavior."

Opponents say patent reform will strip important protections for inventors

Startup investors are also joining the fight. Outspoken Dallas Mavericks owner Mark Cuban and Reddit co-founder Alexis Ohanian both joined a group of 44 tech investors on Wednesday in issuing a letter pressuring Congress to pass comprehensive legislation. The letter, sent by internet advocacy groups the EFF, Engine Advocacy, and the Application Developers Alliance, portrays the tech community — an engine fueled by $1 billion in venture capital and the 1.4 million people it employs — as being irreparably harmed by abusive patent litigation. Young startups, it says, particularly suffer: while major tech companies paid the lion's share of the $29 billion lost to patent trolls in 2011, the letter says that smaller companies with less than $10 million in revenue are often big targets and take bigger financial hits.

Cuban, who donated $250,000 to the EFF last year for patent reform, and Ohanian, ever a spokesperson for internet freedom, are joined by the likes of Digg CEO Andrew McLaughlin and Hunter Walk, co-founder of venture capital firm Homebrew and one of the minds behind Second Life. Outside Congress, the FTC and White House have also identified patent trolling as a problem. President Obama issued five executive orders in June for new regulations on patent disclosures. And after 18 members of Congress called on the FTC to prosecute trolls, the agency started an investigation of how patent assertion entities and their plethora of shell companies actually operate.