There was a time not too long ago when the definition of trolls was limited to mythical, cave-dwelling beings in folktales, children’s books, fantasy or science fiction. No longer. The most common reference now seems to be in connection with non-practicing entities (NPE) that purchase rights in patents (as well as other forms of IP) and monetize their investments through licensing and litigation. But if the White House, Congress, courts and others have their way, trolls may once again be relegated to myth.
NPEs are a real problem for large and small businesses alike. They are also a problem for their customers. According to recent studies, NPEs file the majority of patent litigation; the number of NPE lawsuits increased by 11 percent in 2013, and the total costs of NPE patent suits exceed the societal benefits of patent ownership. This does not represent the entire story, as it does not reflect the vast majority of claims that never ripen into litigation. Moreover, a study by Robin Feldman in October 2013 titled, “Patent Demands and Startup Companies” indicates that such claims have a negative impact on startups and may even discourage venture funding.
What’s Being Done?
On Feb. 20, 2014, the White House provided a status report on initiatives started in the previous June and announced a variety of additional steps designed to improve patent quality and put pressure on patent trolls. These included crowd source prior art, providing a toolkit of information for companies accused of patent infringement (http://www.uspto.gov/patents/litigation/index.jsp). This toolkit answers common questions about patent claims and requirements and establishes a database of demand letter, and rules designed to increase transparency in patent ownership (http://www.gpo.gov/fdsys/pkg/FR-2014-01-24/pdf/2014-01195.pdf).
There is activity in the U.S. Congress as well. The House and Senate both have bills under consideration that would make it more difficult for NPEs to bring infringement suits. For example, H.R. 3309 and S. 1720 would both make it a deceptive practice to send cease-and-desist letters demanding payment with vague and unspecified claims of infringement. Both would put a stop to claims against consumers who purchase products from manufacturers, and H.R. 3309 would make NPEs shoulder the costs of litigations if they do not prevail.
On Sept. 27, 2013, the Federal Trade Commission (FTC) announced that it planned to undertake a study of the business practices of what it described as “Patent Assertion Entities,” but which, in substance, are essentially the same NPEs that have caught others’ attentions. The FTC proposes to use its power to get answers from 25 designated companies on how they run crucial aspects of their businesses. In theory, the FTC has sweeping powers and could take action against specific NPEs if the study concludes that such action is necessary. But therein lies the rub. The agency has much on its plate, and even when the study is completed there is no specific timetable for follow-up enforcement action, if any.
The United States Supreme Court took up the issue of fee shifting in Octane Fitness, LLC v. Icon Health & Fitness, Inc. this spring. This decision could make it easier for District Courts to award fees to prevailing parties in patent cases. At the same time, courts around the country have increased pressure on NPEs by awarding sanctions, and in at least one case, forced it to go to trial and explain its “sham operations” to a jury.
Individual states have not been sitting idly by either. Several states, including Kentucky, Oregon, New York, Vermont, Massachusetts, Nebraska, Minnesota and Alabama have taken action to stem the tide of NPE lawsuits, including giving the accused infringer a claim against the NPE for bad faith assertions of patent infringement.
The bottom line is that there is a growing interest and activity addressed to the patent troll problem, but until they bear fruit, what should a restaurant, hotel, tour operator or other company do if it receives a cease-and-desist letter from an NPE? The following are some suggestions which, separately or combined, may improve your chances of success.
The troll problem persists, but as noted, it is not going unnoticed. With luck, some of the changes above will be implemented soon and businesses that have been the subject of these claims can turn their attention back to what they do best: innovation. Until then though, caution and intelligent pushback are the watchwords of the day.
Scott Warner is an attorney with Greg Duff and Company.
