Mythological trolls — described as old and ugly creatures living under bridges or in caves — are known for one central feature: generally troublesome and injurious to human enterprise. Much of the same can be said for today’s patent troll — the dubious business entity again drawing the ire of Congress that exists solely to acquire patents and make claims of infringement in court.
Thankfully key congressional leaders, including Sens. John Cornyn, R-Texas, and Partick J. Leahy, D-Vt., and Reps. Robert W. Goodlatte, R-Va., and Darrell Issa, R-Calif., say that legislation broadly supported by the executive branch will soon move its way through Congress.
These trolls, often called “non-practicing entities,” acquire and stockpile patents, watch the industry for vulnerable and cash-strapped entrepreneurs that have developed a similar idea, and then attack with an infringement claim. Often similarities with the patented material are marginal and the claims frivolous, but the defendant lacks the resources to mount a usually costly defense.
Legislation, such as the America Invents Act of 2011, and a series of White House executive orders to the U.S. Patent and Trade Office, has provided patent defendants with additional weapons and tools to battle trolls. Last year the U.S. Supreme Court, in hearing appeals in two patent infringement cases, cited vague language and lack of specificity in plaintiff patent documents in overruling decisions that favored trolls.
Patent reform advocates believe this trend will continue in 2015 with the new Congress. Many anticipate the revival of the Innovation Act, which would require plaintiffs to be more specific in their patent claims. This would give litigious trolls pause while protecting patent holders with legitimate complaints and we have every indication that this issue will be addressed in Congress this month.
Even so, there is room for patent reform that goes beyond addressing traditional NPEs.
For example, foreign governments such as South Korea, Taiwan, Japan, France and China have formed state-sponsored organizations bent on acquiring all the patents possible, regardless of where the patent is filed or who the filer is, to extract settlements from alleged infringers. Intellectual Discovery, an entity backed by the South Korean government, has acquired more than 200 patents, including one for retinal eye scan technology from Singaporean chipmaker Avago Technologies Ltd. Elsewhere, the Chinese government reportedly has backed China’s Ruichuan IPR Funds with $50 billion to acquire patents to be used in actions against U.S. companies.
Congressional leaders must be weary of such blatant free market abuses and work to address foreign trolling during trade negotiations, since many of these entities are operated by allies with whom we trade frequently. These issues can have far reaching impact and when domestic companies are put at a disadvantage, consumers of their products are left picking up the tab.
As I address in “Why Patent Reforms Are Needed: Intellectual Property Abuses Threaten Innovation and Cost Consumers Billions,” released by the Heartland Institute, the consumer impact of patent assertion can perhaps be felt most poignantly by consumers through abuses of bad acting patent “pools.” Pools are designed to streamline research and development investment by allowing innovators to collectively license complementary patents.
The actions of bad acting patent pools, however, increasingly resemble those of trolls, especially when equipped with government-granted exclusivity for licensing a technology. The for-profit company MPEG LA originated as a patent pool for a relatively small group of patents that comprised the MPEG-2 standard for encoding video signals. Today, the company manages thousands of patents and — critics say — leverages that power by charging high-licensing fees for pools that contain a near preponderance of expired patents.
Digital TV and cable box manufacturers say MPEG LA is exploiting its exclusive licensing of a pool that conforms to government-mandated standards, such the ATSC digital broadcast TV standard, which the Federal Communications Commission requires every television, DVR and cable box sold in the U.S. to conform to. According to the Coalition United to Terminate Financial Abuses of the Television Transition, U.S. consumers pay about $20 to $30 more per digital set than consumers in other countries because manufacturers are being overcharged to use the required intellectual property.
Though legislation may not sufficiently remedy all intellectual property issues, public discourse benefits the process. I applaud policy makers for making patent reform a priority. Sound legislative action will benefit U.S. consumers and the businesses on which our economy relies.