Today Senators John Cornyn (R-TX) and Chuck Schumer (D-NY) hosted a Google Hangout with entrepreneurs who have first hand experience dealing with “patent trolls”—firms that come in and sue companies over “patent violations” that don’t actually exist. The Hangout was part of a renewed push in the Senate to achieve meaningful patent reform.
The PATENT Act is the latest in a long history of efforts to prevent patent trolls from shaking down small startups. The bipartisan bill would help protect innovators from the crippling pre-litigation costs (think discovery, which in patent cases takes anywhere from 3 to 5 years) that trolls use as leverage against startups that can more easily afford a payout than they can afford years of legal fees.
Until very recently, patent trolling was an issue that mostly affected the technology and pharmaceutical industries; now, however, patent trolls are going after “main street”—think small business owners, startups, and independent inventors—and end users, meaning that people who simply use allegedly patented technology are being hit with bogus lawsuits.
You can watch the Hangout here:
David Bloom, a New York entrepreneur and founder & CEO of Ordrx (formerly Ordr.in) made it clear during the discussion that, at least in his experience, patent trolls care less about innovation, and more about achieving a quick payday. Bloom was sued over software he developed to help restaurants share their services and accept orders online. The firm insisted that his invention infringed on a patent that extended all the way back into the late 90s—long before the coding techniques he used to write his software had even been invented. When he countered with a memo laying out a laundry list of reasons why his invention wasn’t covered under the patent, Bloom says the firm responded by saying, “Everyone says that, and everyone pays.” By the end of the ordeal, Bloom’s legal bills exceeded his total salary payouts; his customers were concerned, and the the bad publicity from the lawsuit affected business.
Bloom closed up shop a few weeks ago.
Van Lindberg, an attorney and engineer who serves as Vice President of Intellectual Property at cloud hosting firm Rackspace, has seen similar tactics leveraged against Rackspace’s creative development. “It’s as close to legalized theft as you can get,” said Lindberg, as he described what many consider to be the extortion tactics of high-dollar patent trolls. Rackspace’s litigation budget has fluctuated between 3 and 5 million dollars over the past three years; after settling their first few patent disputes, Lindberg and his colleagues discovered that firms that had received a payout were coming back with new entities claiming new, infringed-upon patents.
Lindberg describes these firms as bullies that don’t care about “true invention”; I’m ready to believe him, given the fact that when Rackspace actually jumped through the hoops necessary to challenge the trolls’ claims, Rackspace won on the merits.
Rackspace has been fortunate enough to survive the barrage of claims, but each claim—no matter how vague or frivolous—takes hours and thousands of dollars to even begin to address.
The PATENT Act’s biggest critics claim that if implemented, the new rules will cheapen the value of private property rights. The bill, however, doesn’t actually prevent legitimate lawsuits from moving forward. Normally, patent litigation takes years to make its way through the courts; if passed, the Act will slow down the discovery machine until a judge rules that a claim does or does not have merit. If a claim is deemed frivolous, the Act’s fee shifting provisions will hit the troll with the other side’s legal fees. It only punishes frivolous claims (meaning, claims that aren’t “objectively reasonable.”)
The bill isn’t perfect, and doesn’t fix the problem of low-level patents being awarded to begin with, but it’s a good start in the fight to separate legitimate patents from illegitimate ones. You can read more about the bill’s provisions here, here, and here.
The PATENT Act heads for markup in the Senate tomorrow. We’ll keep you updated on the bill’s progress.
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