White Castle might not be the first company that comes to mind when high tech is mentioned, but the restaurant chain found itself in the middle of the patent troll controversy when it started sending menu updates from its headquarters to digital screens in restaurants around the country.
“We received a letter basically demanding payment not for the technology in the board itself but the process of our sending the information out to the menu boards,” Jamie Richardson, the vice president of corporate relations at White Castle, told Legal Newsline. “We don’t have the global resources that some companies do. So it’s really slowed us down. We’re definitely a lot more reluctant to try new technology.”
It was another example of how bold patent trolls, or patent assertion entities (PAE), have become.
The White Castle case illustrates how PAEs, which exist only to stockpile patents and sue anyone who might come close matching the concept, are not just targeting a handful of powerful Silicon Valley corporations. These days any enterprise that employs any new technology — even if it’s as common as digital signage — risks a dreaded cease-and-desist letter.
Research by an MIT economist found that, during the study period, sales of imaging software had declined by one-third relative to other medical imaging products. The study determined it was patent litigation, not a general slowdown in hospital demand, that was behind the drop.
All this is perhaps why, despite the ultra-partisan atmosphere in Washington, lawmakers are building bipartisan consensus to address the issue. In the House, Rep. Bob Goodlatte (R-Va.) introduced the latest round of patent reform legislation last week.
Goodlatte’s bill is expected to have provisions that aim to force patent trolls, if they lose a frivolous lawsuit, to pay defendants’ legal fees; limit the scope of discovery so that targets don’t drown in expensive and time-consuming requests; and require plaintiffs to be more specific in their infringement charges.
Meanwhile, the Senate plans to introduce a similar bill in the first few months, according to Senate Minority Whip John Cornyn (R-Texas). President Barack Obama has also lent his support through a series of executive orders that strengthened the U.S. Patent & Trade Office’s ability to deal with the often arcane language in technology and software patents.
These actions can go far toward curtailing traditional patent trolling, but as policymakers in D.C. move forward, they should also consider the many faces of patent trolling, some of which you may already know. Here are two that I address in my new Heartland Institute white paper, “Why Patent Reforms Are Needed: Intellectual Property Abuses Threaten Innovation and Cost Consumers Billions”:
Transformer trolls: Well-known brands that shift their business models to focus on extracting revenues from their war chests of patents. One example is Nokia, once the most successful mobile technology manufacturer. Although it sold its handset manufacturing operations to Microsoft in 2014, it retained most of its patent portfolio. Its CEO made no secret of the company’s patent assertion and aggressive licensing demands, as the core of its business model evolved away from producing anything. Though the word “troll” may conjure a more iniquitous image, the reality is that patent assertion is a lucrative practice that offers new revenues to companies of diminished manufacturing relevancy.
Foreign government-sponsored patent trolls: Think a small company’s cease-and-desist letter will have a chilling effect on innovation? Wait until you get one from the People’s Republic of China. Beijing has backed China’s Ruichuan IPR Funds with $50 billion to acquire patents that will be used in actions against U.S. companies. It’s not just China; South Korea, Taiwan, Japan and France have all formed state-sponsored PAEs as well. It’s the latest form of government subsidies to their native private companies by providing them a boost in the global market. As negotiations continue on the Transatlantic Trade and Investment Partnership (TTIP) and the Trans-Pacific Partnership (TPP), two major international trade agreements that stand to set new rules for global trade between the U.S. and Europe and the U.S. and Asia for years to come, stakeholders should consider including binding oversight on the issue.
In addressing these varied threats, patent reform will require a bipartisan, multilateral effort across several federal agencies, including the USPTO and the U.S. Commerce Department. It’s heartening to see that the White House and congressional leadership have signed on. Goodlatte’s bill is a good place to start.