Among the many gripes in the US tech industry over the past 10 years, you’d be hard-pressed to find one so universal as "patent trolls." These are the companies that acquire patents but don’t make any real products or services. Instead, they use patents primarily to sue other companies, effectively extorting, or "trolling" them. The problem — as many prominent tech executives, venture capitalists, developers and journalists have repeatedly pointed out — is that such rampant, often frivolous lawsuits may discourage actual innovation, ultimately harming competition and consumers.
"The trolling has gotten out of control, and it’s time to act."
Many solutions to the patent trolling problem have been proposed over the years, but few have made it into law or industry practice. But now the White House is on the case in a big way. Just yesterday, the Obama administration released a long list of executive actions and recommendations for new laws it wants Congress to enact to reform the US patent system and cut down on trolling. "It’s clear that the abuse of the patent system is stifling innovation and putting a drag on our economy," wrote Gene Sperling, director of the National Economic Council, in an official White House blog post on Tuesday. "The trolling has gotten out of control, and it’s time to act."
Tech industry figures and advocates by and large applauded the move. "Very glad patent trolls are getting @whitehouse attention & looking forward to seeing how the proposals develop," tweeted Alex Macgillivray, Twitter’s general counsel. Twitter has been among the most outspoken tech companies on patent reform, promising to use its own patents only for defense, including one for the "pull-to-refresh" feature widely used by many other iOS apps.
"It’s going to take a lot of work for us to get out of the mess the patent system has become, but this is a very promising start," said Julie Samuels, a staff attorney at the Electronic Frontier Foundation, whose honorary title is "Mark Cuban Chair to Eliminate Stupid Patents." Samuels also took to the EFF blog to praise the White House’s moves, but said even more action by all parts of Washington would be needed to fix the "broken system."
The broken system
The White House’s announcements are already having some effect on lawsuits, though not necessarily for the betterment of consumers: sources close to the Apple and Samsung dispute before the International Trade Commission told The Verge that the timing on ITC’s decision Tuesday to allow an import ban on Apple products into the US was motivated in part by the Obama Administration’s new patent announcements.
'victims' of patent trolls paid out $29 billion in 2011 alone
Those patent announcements came in three separate bundles: a report detailing the damage patent trolling does to US companies, new executive orders that will go into effect in the coming months, and a wish list of new patent reform laws the White House wants Congress to pass. The White House report on the scope of the patent trolling problem found that "victims of patent trolls" paid out $29 billion to fight or settle infringement claims in 2011 alone; that 62 percent of all patent lawsuits in America involve claims by patent trolls; and that 40 percent of tech startups who were sued by patent trolls "reported a significant impact on their business." Those statistics are in line with other previous findings by non-government sources.
Percentage of US patent troll lawsuits out of total suits, over time. (credit: White House, The Rise of Patent Trolls: Total Number of Patent Cases Commenced, 2006-2012.)
Don't feed the trolls
But the White House didn’t just lay out the extent of the problem, it also produced a fairly comprehensive strategy for dealing with it, including seven recommendations to Congress for new laws that "would have immediate effect on some major problems innovators face." The move is a striking one, given that Congress already came together in rare bipartisan fashion in 2011, to pass a massive patent reform bill, the America Invents Act. The fact that the White House is now recommending additional laws indicates that in its view, the America Invents Act, a bill over a decade in the making, did not have the time, nor political willpower, to tackle patent trolling effectively.
"immediate effect on some major problems innovators face."
Indeed, legal sources told The Verge that the jump in the number of patent troll cases filed in 2011 was directly due to a provision in the America Invents Act requiring companies to file complaints against every alleged patent violator, which was meant to discourage mass trolling by increasing the number of filing fees. Instead it’s only multiplied the total number of lawsuits filed, because the fees are still too low to discourage trolling.
So now the White House wants Congress to pass some new laws specifically targeting patent trolls, starting with a law requiring all patent-holders, applicants and anyone filing a patent infringement lawsuit in any court to reveal the true owners behind the intellectual property at stake, also known as the "real party-in-interest." It’s not clear that the White House has the political ammo to get Congress to pass such law in the near future, though the chairman of the House Judiciary Committee has said he wants to move forward on additional patent reforms in line with the White House's at some point later this year.
Name and shame trolls
Even without help from Congress, the White House is flexing its own powers to reform the patent system: President Obama issued an executive order Tuesday requiring companies to disclose who actually owns their patents whenever they appear before the US Patent and Trademark Office (PTO) with disputes. The PTO is the agency in charge of patent applications across the country, granting patents and re-evaluating whether or not they are valid when complaints come up, based on when the contested patents were filed, whether or not anyone else filed a similar patent before or came up with the same invention previously.
Forces companies to identify "ultimate parent entity" of patents
This executive order forces companies to identify the "ultimate parent entity" of their patents when they go before the PTO, and it’s important because many large companies have set up smaller patent holding companies to troll on their behalf: see Intertrust Technologies, which held patents owned by Sony and Philips, and MobileMedia, which held patents owned by Sony and Nokia. While the links between these specific smaller, lesser-known companies and their famous big brethren have become public knowledge, many other patent holding companies operate without ever acknowledging who is actually behind their patents. Update: Intertrust has reached out to clarify that it has only filed two patent infringement lawsuits since its founding in 1990, and that the majority of its 300 patents were invented by its employees, with only "20 to 30" gained from acquisitions of other companies.
"It’s about making the real party-in-interest come forward, seeing who’s really behind the curtain like in the Wizard of Oz,’" said William Atkins, partner and head of IP litigation at Pillsbury, a law firm that represents Blizzard, AOL, AT&T, and many other high tech clients. "It is a deterrent to see the roadmap of the many companies that are formed." Atkins said this could cause pain for patent trolls in the form of negative press and retaliatory lawsuits directly against the true patent owners, who may have set up the holding companies precisely to keep their main business out of messy lawsuits.
"who’s really behind the curtain like in the ‘Wizard of Oz’?"
However, this new executive order doesn’t impact as many lawsuits as a similar new law from Congress would, because it only applies to the PTO, and most patent lawsuits are fought in court. Furthermore, the White House said that the PTO is only getting started on making new disclosure rules — they aren’t in effect yet and there’s no definite timeline on when they will be. So in the meantime, patent trolls can still avoid revealing their true owners. "It will likely be months before this manifests itself," Atkins told The Verge. "But once the rules are applied, it will definitely be better."
Narrow patent definitions
The White House announced another executive order on Tuesday designed to narrow the definitions of patent claims, also known as "tightening functional claiming." The rule is likely to have some serious ramifications for patent trolls and patent holders, who use overbroad claims to go after similar technologies, although it may also produce some side effects that impact companies with legitimate patent infringement claims.
"Patents should be understandable, period, and it’s a big problem that they’re not," Samuels told The Verge. Samuels and other advocates say that trolls use the obscurity and complexity of software patents to go after other similar technologies that aren’t really infringing. She pointed to one case, Ultramercial v. Hulu, in which the former company sued the latter for violating a patent that is "basically watching an ad before you can access copyrighted content online," as Samuels described it. "It isn’t limited to one way of displaying an ad, Ultramercial claims it applies to all ways of displaying an ad."
Ultramercial's patent on online ads for copyrighted video content. (Credit: Ultramerical/USPTO.)
Again, the White House isn’t waiting for lawmakers to act, instead ordering the PTO to beef up training for its staffers and have them require narrower definitions on inventions claimed in software patent applications. The White House stopped short of ordering patent applicants to file a "working code requirement," a provision long sought by the EFF and patent reform advocates, which would require just what it sounds like — working strings of code to be included in patent applications. But the White House did say that the PTO would begin requiring glossaries in the description portion of patent applications (known as specifications), another way of forcing companies to restrict the definitions of their patented inventions.
the trouble with trolls
"none are a silver bullet."
"So now, when you take a claim into court, you’ll have to say: ‘This is what this claim means,’" Atkins explained of the new order. That said, it’s unclear if courts would follow suit in requiring stricter definitions when evaluating patent claims, so the impact of this measure could be blunted when it comes to actual lawsuits. Companies filing legitimate patent claims will also have to more narrowly tailor the definitions of their inventions, potentially opening the door for rivals to develop similar technology that’s only slightly different, but enough to avoid a lawsuit.
Most importantly, the White House has not yet released its final, specific rules for how the PTO should carry out the executive orders, which could change how they get applied. It also hasn’t put a deadline on Congress for moving forward on its end of patent reform. Still, "there will definitely be behavior that changes," Atkins predicts. Samuels agrees: "We [EFF] think most of these reforms would make the world a better place, but none are a silver bullet." For now, the proposed reforms and executive orders mark Washington’s most concerted attempt yet to outsmart the patent trolls.