Skip to main content

Not all patent trolls are demons

By Timothy Holbrook
February 21, 2014 -- Updated 1408 GMT (2208 HKT)
STORY HIGHLIGHTS
  • President Obama, Congress have proposed reforms to curb patent trolls
  • Supreme Court is considering cases relating to the issue of patent trolls
  • Timothy Holbrook says some trolls sue to enforce bad patents, but others serve useful purpose
  • Holbrook: The problem is mostly with Patent Office failings and with exorbitant costs for lawsuits

Editor's note: Timothy Holbrook is associate dean of faculty and professor of law at Emory University School of Law who specializes in patent law. He is an OpEd Project Public Voices fellow.

(CNN) -- Thursday, the White House revealed its efforts to reform the patent system, following up on President Obama's call in the State of the Union address.

The White House called on Congress to pass legislation to combat patent trolls, known less pejoratively as "patent assertion entities." PAE's are firms that don't manufacture anything. They buy patents and threaten to sue people to extract licensing fees, like the mythical troll charging a fee to cross a bridge. Apple, Google and AT&T have each faced more than 100 such suits since 2009.

Critics suggest that trolls create a drag on innovation by diverting resources to litigation.

Timothy Holbrook
Timothy Holbrook

In response, the House of Representatives passed the Innovation Act of 2013 in December. The Senate is considering various anti-troll bills. Even the Supreme Court has gotten into the act, hearing cases this term that relate to the troll issue.

If all three branches of government are reacting to trolls, clearly they are a huge problem.

Except, they aren't. What is lost in this mudslinging is that much of what PAEs do is laudable — paying inventors. Patents don't grow on trees. Someone came up with the invention and incurred considerable expense to obtain the patent. Many inventors can't bring their invention to market themselves, however, so selling the patent may be the only way for them to make money. By buying these patents, PAEs compensate inventors, one of patent law's objectives.

Many inventors can't bring their invention to market themselves, however, so selling the patent may be the only way for them to make money.
Timothy Holbrook

Patents give their owners the right to seek compensation for unauthorized uses of the invention, so there is nothing wrong with a PAE enforcing a valid patent.

The key word, though, is valid. Problems arise when PAEs sue on improperly issued patents, ones that never should have gotten out of the US Patent and Trademark Office.

For example, many patents on software and business methods -- areas where PAEs often operate -- are not sufficiently different from earlier technology to justify the patent, or are too vague to discern what they legitimately cover. Even though companies can knock these patents out in court, most parties settle. But, if they aren't legitimate patents, why do parties settle? Simple: to avoid the expense.

According to a 2013 American Intellectual Property Law Association survey, median litigation costs are $3.3 million when $10 million to $25 million is at stake. Discovery -- the process of looking for evidence relevant to the case --is responsible for much of the expense. Defendants must wade through voluminous records and e-mails to find anything relevant to the case. For a case worth $10 million to $25 million, the survey estimates that the median cost through discovery in defending a PAE suit is $1.5 million.

A PAE doesn't face these expenses. Discovery is easy for it because all it has is the patent. Plus, its lawyers usually take these cases on contingency, taking a percentage of whatever money they bring in, so there are no upfront attorney costs. When manufacturing companies face these costs, many simply settle, leaving the invalid patent in place.

But these are not troll problems; they are litigation and patent quality issues. Scapegoating trolls risks disrupting the useful compensatory purpose they serve and may cause unintended consequences in non-troll litigation.

Unfortunately much of the Innovation Act's proposals are ill-considered from this perspective. For example, the act makes all patent litigation -- troll and non-troll -- a "loser pays" system. The losing party must pay the attorney fees of the other side unless the loser's case was "reasonably justified." So, if a PAE sues on a bad patent and loses, it may have to pay the company's attorney fees. By having more skin in the game, hopefully PAEs would think twice about asserting bad patents.

Unfortunately, the provision applies to all patent cases, likely increasing litigation expenses in all cases as parties fight over fees -- worrisome and chilling the willingness of non-trolls, such as startups, to enforce their patents.

Such legislation is premature because two of the troll-related cases at the Supreme Court deal precisely with this issue. Other provisions in the act attempt to reduce litigation expenses, but they inappropriately micromanage the federal courts.

Patent quality concerns must be addressed by the patent office. Unfortunately, the relevant provisions of the Innovation Act were removed prior to passage, so the final version contains no provisions relating to patent office procedures.

The President's proposals, however, are directed to improving the quality of the patent office's review of patent applications. If successful, enhancing the clarity of what a patent covers would be a welcome improvement. The patent office's efforts to create greater transparency of patent ownership is also important because PAEs often hide their ownership behind various corporate shells.

Finally, in 2011, Congress created new procedures to challenge patents after the patent office has issued them. Time will tell whether they successfully enhance patent quality, yet the promise is there.

But all three branches must remember that not all patent trolls are demons. PAEs create markets for compensating inventors. Patent reform efforts should not myopically focus on trolls per se, or it may disrupt these markets and create other unintended consequences.

Reform must address patent quality and exorbitant litigation costs. The President's proposals offer hope, but the Innovation Act's efforts are misplaced. The Senate proposals are more modest. Let's hope Congress pauses to consider the broader role PAEs play in our economy and appropriately tailors legislation to the patent system's real problems.

Follow us on Twitter @CNNOpinion.

Join us on Facebook/CNNOpinion.

The opinions expressed in this commentary are solely those of Timothy Holbrook.

ADVERTISEMENT
Part of complete coverage on
July 23, 2014 -- Updated 1538 GMT (2338 HKT)
The idea is difficult to stomach, but John Sutter writes that eating dog is morally equivalent to eating pig, another intelligent animal. If Americans oppose it, they should question their own eating habits as well.
July 23, 2014 -- Updated 1630 GMT (0030 HKT)
Bill van Esveld says under the laws of war, civilians who do not join in the fight are always to be protected. An International Criminal Court could rule on whether Israeli airstrikes and Hamas rocketing are war crimes.
July 23, 2014 -- Updated 1205 GMT (2005 HKT)
LZ Granderson says Ronald Reagan went horseback riding and took a vacation after the Korean Air Crash of 1983. So why does the GOP keep airbrushing history to bash Obama?
July 23, 2014 -- Updated 1338 GMT (2138 HKT)
Aaron Miller says Kerry needs the cooperation of Hamas, Israel, Egypt and others if he is to succeed in his peacemaking efforts
July 23, 2014 -- Updated 1251 GMT (2051 HKT)
Errol Louis says the tragic death of Eric Garner at the hands of the NYPD has its roots in the "broken windows" police strategy from the crime-ridden '80s.
July 23, 2014 -- Updated 1408 GMT (2208 HKT)
Gordon Brown says the kidnapped Nigerian girls have been in captivity for 100 days, but the world has not forgotten them.
July 23, 2014 -- Updated 1127 GMT (1927 HKT)
Ruben Navarrette says Texas Gov. Rick Perry is right to immediately send 1,000 National Guard troops to the U.S.-Mexico border in response to the border children crisis.
July 22, 2014 -- Updated 1356 GMT (2156 HKT)
Ukraine's president says the downing of MH17 was a terrorist act, but Richard Barrett says it would be considered terrorism only if it was intentional
July 22, 2014 -- Updated 2015 GMT (0415 HKT)
Robert McIntyre says the loophole that lets firms avoid taxes should be closed
July 22, 2014 -- Updated 1535 GMT (2335 HKT)
Jeronimo Saldana and Malik Burnett say Gov. Perry's plan to send National Guard to the border won't solve the escalating immigration problem.
July 22, 2014 -- Updated 1742 GMT (0142 HKT)
Sally Kohn: The world's fish and waters are polluted and under threat. Be very careful what fish you eat
July 22, 2014 -- Updated 1242 GMT (2042 HKT)
Les Abend says threat information that pilots respond to is only as good as the intelligence from air traffic controllers. And none of it is a match for a radar-guided missile
July 21, 2014 -- Updated 1235 GMT (2035 HKT)
Frida Ghitis: Anger over MH17 is growing against pro-Russia separatists. It's time for the Dutch government to lead, she writes
July 21, 2014 -- Updated 1227 GMT (2027 HKT)
Julian Zelizer says President Obama called inequality the "defining challenge" of our time but hasn't followed through.
July 21, 2014 -- Updated 1157 GMT (1957 HKT)
Gene Seymour says the 'Rockford Files' actor worked the persona of the principled coward, charming audiences on big and small screen for generations
July 21, 2014 -- Updated 1417 GMT (2217 HKT)
Daniel Treisman says that when the Russian leader tied his fate to the Ukraine separatists, he set the stage for his current risky predicament
July 18, 2014 -- Updated 1642 GMT (0042 HKT)
Andrew Kuchins says urgent diplomacy -- not sanctions -- is needed to de-escalate the conflict in Ukraine that helped lead to the downing of an airliner there.
July 19, 2014 -- Updated 0150 GMT (0950 HKT)
Jim Hall and Peter Goelz say there should be an immediate and thorough investigation into what happened to MH17.
July 18, 2014 -- Updated 1507 GMT (2307 HKT)
Pilot Bill Palmer says main defense commercial jets have against missiles is to avoid flying over conflict areas.
July 20, 2014 -- Updated 1755 GMT (0155 HKT)
Valerie Jarrett says that working women should not be discriminated against because they are pregnant.
July 21, 2014 -- Updated 1953 GMT (0353 HKT)
David Wheeler says the next time you get a difficult customer representative, think about recording the call.
July 18, 2014 -- Updated 1933 GMT (0333 HKT)
Newt Gingrich says the more dangerous the world becomes the more Obama hides in a fantasy world.
July 18, 2014 -- Updated 1011 GMT (1811 HKT)
Michael Desch: It's hard to see why anyone, including Russia and its local allies, would have intentionally targeted the Malaysian Airlines flight
July 17, 2014 -- Updated 1914 GMT (0314 HKT)
LZ Granderson says we must remember our visceral horror at the news of children killed in an airstrike on a Gaza beach next time our politicians talk of war
July 17, 2014 -- Updated 1206 GMT (2006 HKT)
Sally Kohn says now the House GOP wants to sue Obama for not implementing a law fast enough, a law they voted down 50 times, all reason has left the room.
July 17, 2014 -- Updated 1214 GMT (2014 HKT)
A street sign for Wall Street
Sens. Elizabeth Warren, John McCain and others want to scale back the "too big to fail" banks that put us at risk of another financial collapse.
July 17, 2014 -- Updated 2016 GMT (0416 HKT)
Newt Gingrich writes an open letter to Robert McDonald, the nominee to head the Veterans Administration.
July 18, 2014 -- Updated 1601 GMT (0001 HKT)
Paul Begala says Dick Cheney has caused an inordinate amount of damage yet continues in a relentless effort to revise the history of his failures.
July 18, 2014 -- Updated 1404 GMT (2204 HKT)
Kids who takes cell phones to bed are not sleeping, says Mel Robbins. Make them park their phones with the parents at night.
July 17, 2014 -- Updated 1729 GMT (0129 HKT)
Buzz Aldrin looked at planet Earth as he stood on talcum-like lunar dust 45 years ago. He thinks the next frontier should be Mars.
July 16, 2014 -- Updated 1804 GMT (0204 HKT)
Mark Zeller never thought my Afghan translator would save his life by killing two Taliban fighters who were about to kill him. The Taliban retaliated by placing him on the top of its kill list.
July 17, 2014 -- Updated 1518 GMT (2318 HKT)
Jeff Yang says an all-white cast of Asian characters in cartoonish costumes is racially offensive.
July 17, 2014 -- Updated 0124 GMT (0924 HKT)
Gary Ginsberg says the late John F. Kennedy Jr.'s reaction to an event in 1995 summed up his character
July 16, 2014 -- Updated 1641 GMT (0041 HKT)
Meg Urry says most falling space debris lands on the planet harmlessly and with no witnesses.
ADVERTISEMENT