A Toll on Innovation

Patent trolls have broken the patent system. Six proposals for a reboot:

The U.S. Patent system is broken. The reasons are myriad, but one particular symptom has drawn the most attention: the patent troll. Patent trolls take advantage of the fact that litigating patent cases is notoriously complicated and expensive. They are often able to threaten lawsuits—which can last for years and cost many millions of dollars—leaving their targets more likely to take a license than to fight in court, even if they have a great case that the patent is invalid or that they don’t infringe. Taking these early licenses and settlements feeds the troll, continuing a dangerous cycle.

Paying lawyers instead of supporting innovation

Technology firms—both established and particularly smaller start-ups—bear the costs, to the tune of nearly $29 billion a year, according to one study. And that’s just the direct costs on litigation. The larger burden on the U.S. economy as a whole is estimated to exceed $50 billion.

These are dollars that are not used for research and development (indeed, 2011 was the first year in which Apple and Google spent more money on patent costs than on crucial R&D), nor are they used to hire new employees, release new products, or grow a business. Instead, they’re used to pay lawyers.

Here’s the thing: these problems largely affect the software industry. This is because the U.S. Patent system is one-size-fits-all system, meaning that al kinds of technology receive the same kind of protection. But this doesn’t make sense.

The traditional patent bargain—a 20-year monopoly in exchange for a clear explanation of what the invention is and how to practice it—makes sense in some cases. Take pharmaceuticals, which often require extensive research and development costing hundreds of millions of dollars; one can understand why we might reward that kind of investment with a government-granted, two-decade-long monopoly.

But software is different. It functions uniquely as a building block: The field is characterized by constant small improvements on what came before. It does not necessitate factories and manufacturing plants and years of testing at the FDA before approval. Instead, software requires just a computer and a coder. No doubt those coders work hard, but they can do so from their homes and existing offices. Even more importantly: There isn’t any indication that developers wouldn’t write their code if they weren’t promised a patent in return. (If anything, the opposite is true.)

Unfortunately, there is not much political appetite to treat software inventions differently than other types right now—many in Congress claim that trade agreements, particularly TRIPS, prohibit a software-only approach to reform. But TRIPS doesn’t do anything of the sort and in fact supports well-defined industry-specific patent regulation. Exemptions for surgical methods and drug testing are two existing examples.

Nonetheless, the political focus in the United States has been primarily on reforming patent litigation and, secondarily, improving patent quality. Taken together, the various legislative proposals out there would make it more expensive and more difficult—thus, hopefully less attractive—to be a patent troll.

There are currently no fewer than seven pending legislative proposals, along with five executive actions from President Obama’s office. The Federal Trade Commission (FTC) has also expressed interest in the matter, along with the courts.

Of the proposals currently being considered by Congress, we favor the following provisions:

Heightened pleading: Requiring patent holders filing litigation to specify which patent claims are at issue and how the defendant is alleged to infringe. This transparency is long overdue.

Protection of end users: Allowing manufacturers and suppliers to intervene on behalf of its customers. While this type of protection is good for consumers facing troll threats, we prefer across-the-board immunity for end users who use off-the-shelf technologies; there is no reason a consumer should find himself/herself facing any kind of liability for using commonly available technology for its intended purpose.

Discovery reform: Shutting down expensive and often harassing discovery until the court has ruled on certain motions, giving defendants a powerful tool to dispose of cases early before the legal fees and court costs really add up.

Fee shifting: Implementing a “loser pays” system, leaving the trolls on the hook for the outrageous litigation costs if they bring losing suits.

Expanded review at the Patent Office: expansion of current avenues for reviewing patents; these types of review are usually cheaper and more efficient than litigation, making it easier for those facing threats to fight back.

Tightening functional claiming: Cutting down on a dangerous, but common, practice that allows patent owners to claim all ways to solve a problem instead of the one way the patentee actually invented.

Taking matters into our own hands

Of course, Congress is slow. Companies like Twitter are taking matters into their own hands with proposals such as its Innovator’s Patent Agreement to keep patents from being misused while others propose promising self-help solutions like a Defensive Patent License. Organizations like the EFF (where I work) have launched Trolling Effects, a database where recipients can submit patent demand letters and learn more about the patent system and their legal options.

We don’t think Congress alone can fix this problem. But Congress can make the patent system a lot better, and when coupled with President Obama’s orders, the FTC’s troll investigation, and (fingers crossed) the continued interest from the Supreme Court into the problem of abstract software patents, we just might be able to get somewhere. The time to fix this problem has arrived. We’re encouraged to see real momentum toward making that happen and remain cautiously optimistic.

Read more in this debate: Rickard Falkvinge, James Bessen, Gregory Aharonian.

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