usptoGuest Commentary

by Cory Clements, a 2013 Judge K.K. Legett Fellow at the Washington Legal Foundation and a student at Texas Tech School of Law.

The act of patent trolls asserting patent rights without first proving them is parallel to the actions of the troll in the fairy tale Three Billy Goats Gruff. Like the troll asserting a right to control who may and may not pass over his bridge, so too the patent troll asserts control over those who may be using technologies covered by broad patents – the acquisition of which makes up their entire business. The troll neither invented the bridge nor the patent troll the patent. These “trolls” are in the business, as one Forbes contributor puts it, to “buy up patents, sometimes by the tens of thousands, then scour the marketplace for people who may be infringing these patents.”

A New York Times article illustrates an interesting aspect of how this trend of patent litigation began. Many critics of patent litigation argue that big corporations are to blame in initiating this type of litigation, and it’s not hard to see why. Apple has spent billions of dollars litigating patent suits initiated both by and against it. According to the article, Steve Jobs’ attitude was to patent every idea Apple employees came up with because even if they didn’t move forward with the idea, they would have a defensive tool.

This attitude might lead one to believe corporations like Apple are to blame for the influx of troll-initiated patent litigation. That is, until one learns of some of the first lawsuits against Apple. A few notable cases include a 2004 settlement with E-Data over Apple’s popular iTunes, after which E-Data initiated lawsuits against 14 other companies. Then there was the 2005 Hong-Kong based Pat-rights suit demanding 12 percent from all iTunes and iPod sales followed by a 2006 suit by Singapore-based Creative Technology resulting in a $100 million settlement.

While it might be plausible that patent trolls were influenced to initiate patent suits by these corporations, their motives are quite different. Apple was in survival mode and on the defensive. Mr. Jobs had a business to save and maintain. Patent trolls, on the other hand, have expanded an arguably necessary business practice into an entire industry.

The emergence of this nascent patent litigation industry recently grabbed the attention of both Congress and the Obama Administration. In 2011, Congress enacted the America Invents Act (AIA), which contained a provision known as the transitional program for covered business method patents. This provision made it easier to invalidate patents on covered business methods in financial products or services. Specifically, this provision allows patent infringement defendants to challenge the validity of the patents on business methods outside of court with a new administrative board within the United States Patent and Trademark Office (PTO). This potentially could save defendants millions – if not billions – of dollars on litigation. This program is certainly a step in the right direction, but some fear it may be construed too narrowly to properly address the problem with patents that at face value do not fall within “financial products and services.”

The PTO issued a ruling last September clarifying whether the language from Section 18 of the AIA meant to exclude patents with no relation to the financial industry from the program. They determined that it did not. In all respects, the PTO elected a broad interpretation of the terms “financial products or services,” and reiterated in each response throughout their ruling that patents covered under AIA’s transitional program are “not limited to the products or services of the financial services industry.”

Even with this clarification, litigation has been on the rise specifically with software patents. Senator Schumer has proposed a bill seeking to rectify potential issues. First, the “transitional” program for covered business method patents would become permanent. This will ensure the AIA will not serve as a temporary fix in minimizing abusive litigation which could result upon the “transitional” program’s expiration. The second major change proposed by the Schumer bill is the inclusion of all software patents when dealing with “business method” patents.

In light of the PTO ruling, it might seem as though the Senator’s bill is more about the programs permanency than its expansion; however, the PTO’s ruling that other patents could be covered under the program, did not specify how broadly this legislation is to be interpreted. Many software patents are conceivably covered as a “business method”; however, Schumer’s proposed legislation would conspicuously clarify that all software patents can be subject to the scrutiny of the PTO board outside of court. This distinction is far more than semantics considering sixty-two percent of all patents asserted by patent trolls between 1990 and 2010 were software patents.

Growing concern over frivolous patent litigation soon reached the White House. President Obama recently issued five executive actions and seven legislative recommendations meant to “prevent innovators from frivolous litigation and ensure the highest-quality patents in our system.” Among these is a legislative recommendation that tracks the language of the Schumer bill with regard to expanding the PTO’s transitional program: “Expand the PTO’s transitional program for covered business method patents to include a broader category of computer-enabled patents and permit a wider range of challengers to petition for review of issued patents before the Patent Trial and Appeals Board (PTAB).”

Industry leaders agree that something has to be done to quell all the litigation revolving around software patents. What started out as a bitter, broader battle between operating companies is arguably fading into fatigue. Tech giants may be realizing that abusive software patent litigation is cannibalizing business and a truce might be in both their best interests. The New York Times article previously mentioned illustrates these sentiments discussing the frequency with which attorneys from companies like Google and Apple speak with one another regarding the litigation. The article also cites an alleged “cease-fire” proposed by Google in 2012 and their withdrawal of the Motorola suit against Apple as indications of a potential allegiance against the common enemy – the patent troll.