New York Senator Charles Schumer to Introduce Bill to Stem Patent Trolling

By Peter Bernstein May 02, 2013

Monday, May 6, promises to be one to remember in the U.S. if you are what are commonly called “patent trolls,” aka “patent assertion entities” and “patent pirates.”  That is the day Senator Charles Schumer (D-New York) will be introducing legislation that could stop many patent suits from proceeding in court.

Senator Schumer’s bill, to be introduced when Congress ends its current recess, calls for the expansion of a provision Schumer and Senator Jon Kyl (R-Arizona) added to the 2011 patent reform legislation known as the America Invents Act. That provision instituted a program that allowed companies in the financial services industry to challenge business-method patents at the U.S. Patent and Trademark Office (USPTO). The new bill opens the gates to other businesses, to do likewise.   

For those of you who follow my postings, you are aware that this has been a favorite topic of almost two years.  The problem of companies choosing litigation over innovation through the hoarding of intellectual property for the purpose of extracting licensing fees and infringement fines - has become a bane of existence for many in the tech community in particular, and the outrage for Congress to fix what is broken, has been thunderous. As others have noted, while companies have complained about the flood of what they view are frivolous lawsuits filed by companies that exist primarily to assert patents, it has not been until the academic community placed numbers on just how onerous such activities that lawmakers have felt compelled to act.  Not only do such lawsuits clog the courts, but study after study has shown that they impede innovation and hence have severe economic consequences for competitors as well as the U.S. economy in general. 

“Patent trolls are bullying New York’s technology companies, stymieing innovation, and dragging down growth,” Schumer said in a statement. “This legislation will provide small technology start-ups with the opportunity to efficiently address these claims outside of the legal system, saving billions of dollars in litigation fees.”

Schumer makes the case

The Senator’s brief on why legislation and why now, is compelling.  He said the expanded program would not only help resolve existing suits in a low-cost way, but would also deter trolls, what are called “non-practicing entities (NPEs)” from marching to the courthouse in the future. The aim is to stop the most egregious practice where NPEs acquire low-quality patents that use broad language, wait for a deep pocket entity to develop a similar technology and then pounce.  Some of these NPEs have been very successful because they know how to work the process.  They leverage the fact that in many instances, an alleged infringer would rather settle the case than litigate both because of the costs involved and the time to market lost.  

Schumer pointed out that in 2011 alone, NPEs cost operating companies $29 billion. The average settlement, he said, costs a small or medium-sized company $1.33 million, while an in-court defense would cost the same company an average of $1.75 million per case.

Under the Schumer-Kyl provision in the patent reform legislation, experts at the USPTO will be able to review a challenged business method patent in a post-grant review. If the USPTO finds it more likely than not that the patent will be deemed invalid, it will take a second look and return a decision quickly.

It should be noted that this is just a start on the problem in many ways since the number of suits brought by NPEs against tech companies far exceeds those involving business method patents. However, it is a start and certainly can serve as a model for even further expansion.  Plus, the new provision, which only has temporary status in the America Invents Act, will not only expand the types of business covered but also removes its temporary status.

Since patent reform is a multi-headed hydra, you may wish to pay attention to a bill in the U.S. House of Representatives that takes a different tack on the problem.  The SHIELD Act, (Saving High-Tech Innovators from Egregious Legal Disputes Act of 2013), has been introduced by Representatives Peter DeFazio (D-Oregon) and Jason Chaffetz (R-Utah).  It proposes that a plaintiff who loses a case that is deemed a trolling expedition would have to pay the cost of the litigation for both parties.

The aim here is simple. The legislation is designed to make NPEs think seriously about filing suits they know would be unlikely to prevail if defendants were willing to take them to their logical conclusion. Faced with a possibility that more defendants would risk a trial rather than quickly settle, this approach does something everyone understands. It changes the odds of success on what many feel are at the core just get rich quick schemes. 

The challenge on both bills is that legislation has a habit of moving almost as slowly as court cases.  In short, it is problematic as to when and if either bill will be voted on, and then there is the reconciliation process between the two houses.  That said, the intensity of complaints has risen to the point, and the lobbying money available to force action by those who would like to stop the NPEs from cashing in and causing problems has been amped up enough that this session could act.  This is an instance that is non-partisan, and as such could be something that lawmakers would look to as proof that they are capable of getting something done.  Let’s hope so.  As the studies have proven, there is a lot at stake, and the sooner there is clarity, the better.


Edited by Stefania Viscusi
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