Patent Trolls Hit With a One-Two Punch

While the White House issued several executive actions today to safeguard innovators from malicious opportunists widely known as "patent trolls," lawmakers have long been working behind the scenes to push several bills forward that would offer business owners more protection.

Last month, Vermont Attorney General William Sorrell filed the first-ever government lawsuit against a patent troll. Citing the state's Consumer Protection Act, Sorrell is suing notorious patent troll MPHJ Technology Investments, alleging that it routinely targets small companies and some nonprofits across the country with claims that it is owed up to $900 to $1200 per worker for patent violations. The suit contends that MPHJ engages in "unfair and deceptive acts" by sending letters that threaten to sue small businesses, which lack the resources to fight back in court. Representatives of MPHJ did not respond to requests for comment by press time.

"Over the past year and a half, we have heard multiple accounts from the small-business community about being attacked by patent trolls," says Ryan Kriger, assistant to the Attorney General, explaining why Sorrell finally put his foot down.

The cost of patent trolling on the U.S. economy is staggering. According to a study by the Boston University School of Law, patent trolls drained more than $29 billion in legal fees and settlement costs from U.S. companies in 2011 alone.

The same day Sorrell filed the suit, Vermont enacted legislation to protect businesses from "bad faith" patent infringement suits. While the law does not explicitly define a bad patent assertion, it provides factors for courts to consider when identifying one, including letters that offer to license the patent for unreasonable fees or that demand a response within an unreasonably short period of time. Another red flag: letters that do not provide specifics on how the company violated the patent.

On the federal level, aside from the White House announcement today, lawmakers are considering several bills that would make it harder for trolls to threaten a business without consequence, and some have received bipartisan support.

Here's a look at the proposed legislation currently being reviewed:

SHIELD Act
Proposed by: Rep. Peter DeFazio (D-Ore.) and Rep. Jason Chaffetz (R-Utah)

Introduced February 27, the Saving High-Tech Innovators from Egregious Legal Disputes Act proposes shifting all litigation costs to the losing party in order to deter patent trolls from threatening companies with unsubstantiated lawsuits.

DeFazio became passionate about this issue after taking a tour of a small tech firm that had recently been slapped with a demand letter from a troll. He spoke extensively with the company's founders, who asked not to be named to avoid being targeted by other trolls. They emphasized the lack of options available to small businesses when threatened by a troll, a spokesperson in DeFazio's office said.

What's next: The bill was assigned to the House Judiciary Committee, which will hold hearings on it before possibly sending it on to the House.

Patent Quality Improvement Act
Proposed by: Sen. Chuck Schumer (D-N.Y.)

Introduced May 6, this act would amend the America Invents Act, the 2011 patent-reform law that has been widely criticized as too limited to have a real impact on trolling. The Patent Quality Improvement Act would expand the types of businesses currently covered to include technology companies. More importantly, the bill would allow questionable patents to be reviewed by the U.S. Patent and Trademark Office after they have been granted.

In the late '90's, many overly broad software patents were approved, creating a fertile breeding ground for future trolling. According to a 2011 study by the Georgetown Law Journal, while software patents make up just 12 percent of all patents, they account for 74 percent of the most litigated patents.

Daniel Nazer, a staff attorney for the Electronic Frontier Foundation (EFF), an international nonprofit digital rights group, believes the bill is an important first step in addressing low-quality patents, but that more needs to be done. Getting a patent reviewed could cost upwards of $30,000 in patent fees, a hefty burden on small-business owners trying to cover their operating costs, he explains. "While this bill may be good for the big players, it will not do much to help small businesses fight patent trolls," Nazer says.

What's next: The bill was assigned to the Senate Judiciary Committee, which will hold hearings on it before possibly sending it on to the Senate.

Patent Abuse Reduction Act
Proposed by: Sen. John Cornyn (R-Texas)

Introduced May 22, this bill would require patent trolls to identify themselves and the substance of their claim and, similar to the SHIELD Act, would shift the litigation costs to the losing party.

The bill has received support from several organizations, including the Coalition for Patent Fairness, a group of companies lobbying for reforms in the patent system, and the Software & Information Industry Association, a U.S. trade association for the software and digital content industries.

While Nazer says the EFF is encouraged by the anti-troll legislative efforts taking place in Congress, he is concerned that the underlying problem remains unaddressed, namely that the standard for getting patents approved is too low.

"I hope that eventually the really abstract, vague patents will be invalidated," Nazer says. "I'm excited that members of Congress are interested in this issue, but broader changes are still needed."

What's next: The bill was assigned to the Senate Judiciary Committee, which will hold hearings on it before possibly sending it on to the Senate.