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Trumping the Patent Trolls

Patent-stampEver found yourself wondering why all the fuss over patent trolls? Aren’t patent holders entitled to invention protection and the right to license their discovery to others who manufacture and sell it? Of course. But, in a disturbing trend, many patent assertion entities – better known as patent trolls – are using litigation to wrongfully target end-users of such products. 

If, for example, your office has a copier with a “scan to email” function, your company or employer could be at risk. As holders of vague patents, some PAEs have sent letters to small businesses, demanding approximately $1,000 per employee for the use of such scanners. The demand letter’s message: settle or be sued. Most choose to settle, primarily because of concerns about the cost of a defense.

GAO-patent-infringementTrolls use patents as legal weapons, instead of coming up with new ideas or creating new products. And they are a growing problem for CPA firms and countless other businesses nationwide. In fact, more than 100,000 businesses were threatened by PAEs in 2012. A Santa Clara University professor found that 55 percent of defendants to patent troll suits are small, with less than $10 million in annual revenue. Worse yet, the number of patent infringement lawsuits and defendants are on the rise (see chart for estimated number of defendants in patent infringement lawsuits, 2007 to 2011).

Congress and the White House have taken notice and are taking action. As President Obama urged lawmakers in his State of the Union address, "Let’s pass a patent reform bill that allows our businesses to stay focused on innovation, not costly, needless litigation.”

The House has already done so. The Innovation Act, H.R. 3309, passed last December on a vote of 325-91. A comparable measure, the Patent Transparency & Improvement Act (S. 1720) is now under consideration in the Senate. The AICPA submitted written testimony in support of both bills that promotes the profession’s guiding principles for patent reform:

  • Protect “off-the-shelf” use by consumers and business. This principle, in part, aspires to force the dispute to concern the proper parties: patent owner vs. supplier (rather than the end user).
  • More readily available challenges or defenses for small businesses / individual. This calls for an alternate tribunal for small business or “Main Street” customers that is cheaper and faster than litigation.
  • Greater transparency in the entity asserting the patents. This would require disclosure of more than a holding company and allow recipients to better identify a patent owner and pool resources if a common real party in interest.
  • Cost-shifting to patent holding companies for unsuccessful litigation. A PAE that is a losing party would ultimately pay a defendant’s costs and fees, under this principle.

Together, these four principles represent a solid foundation in reforming the patent litigation system. And the good news is that several are addressed in both pieces of legislation.

The Senate Judiciary Committee’s deliberations continue and a vote is on the horizon. For its part, the White House is hopeful bipartisan legislation will reach the President’s desk this year. In the final analysis, a new patent reform law may not stop trolls from demanding settlements up front, but it will make patent trials a less threatening proposition. That’s something to think about the next time you email a scanned document.

Jay Hyde, Director - Media Relations, American Institute of CPAs.

Patent stamp image via Shutterstock

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