Congress Aims to Rein in Patent Trolls

Boston University scholar Jim Bessen said patent trolls have cost the U.S. economy $320 billion over the last four years. That number reached 80 billion in 2011 alone, with companies making $29 billion in direct payouts, according to Michael Beckerman, president and CEO of the Internet Association, an advocacy group that includes eBay, Amazon, and numerous other Web companies.

"Where a few years ago it was mostly tech companies that cared about patents, today it's grocery stores, it's restaurants, it’s retail shops, it's also hospitals and banks -- virtually every kind of business you think about throughout our economy has been impacted by this, and they're all interested in it," Beckerman said.

Eighty-two percent of businesses targeted have annual revenues of less than $100 million. In 2012, patent trolls filed 62 percent of patent cases, increasing from 20 percent in 2006.

“This has become a very lucrative business where you can extract very large settlements before you even get to the litigation process,” he added.

When these cases make it to court, patent trolls lose 85 percent of the time because these patents are generally too broad, Beckerman said.

Tech industry depends on patents of its devices and business methods, so tech companies including Google and Apple have been staunch supporters of solutions to curb patent trolls.

Business method patents are litigated nine times more often than any other. These patents protect methods of doing business that commonly happen in the brick-and-mortar sector that someone has patented the idea of doing online.

For example, a shipment confirmation email, not a novel or original idea, is an actual patent that has been used to target many retailers, airlines, and even public transportation agencies. Another lawsuit allowing customers to reserve seats on airplanes and buses is targeting airlines and other transportation companies. Other patent lawsuits target restaurants that show their nutritional information or offer meal-planning options online.

Under the America Invents Act of 2011, companies facing patent infringement lawsuits can challenge the validity of their opponents’ claims if those patents are related to financial products. The Innovation Act would expand the review process to business method patents.

Various industries seeking relief from such practice have touted the bill, even as some tech companies and trade groups have raised red flags about key provisions.

The National Retail Federation, the Application Developers Alliance, and the Credit Union National Association have all praised the bill.

Nonetheless, raising the stakes against the party alleging infringement could make it more difficult for inventors and tech startups to defend their innovations against large competitors, such as Google and Apple, which purchase hundreds of patents or patent tech concepts every year.

Brian Pomper, head of the Innovation Alliance, warned that some of the bill’s provisions could “significantly shift the balance of patent ownership and licensing power from small companies and inventors to larger, better financed incumbent companies.”

President Obama issued several executive orders earlier this year to address the “risks to small businesses” from frivolous litigation by patent trolls. The Obama administration has hailed Goodlatte’s bill, saying it supports measures that increase transparency and accountability in the patent litigation system.