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PATENT REFORM: PATENT TROLLS & THE TOLL ON INNOVATION GAGNIER FOR CONGRESS ISSUE BRIEF christinagagnier.com
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Gagnier for Congress Issue Brief: Patent Reform: Patent Trolls and the Toll on Innovation

Dec 21, 2014

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Gagnier for Congress Issue Brief: Patent Reform: Patent Trolls and the Toll on Innovation
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Page 1: Gagnier for Congress Issue Brief: Patent Reform: Patent Trolls and the Toll on Innovation

PATENT REFORM: PATENT TROLLS & THE TOLL ON INNOVATION

GAGNIER FOR CONGRESS ISSUE BRIEF

christinagagnier.com

Page 2: Gagnier for Congress Issue Brief: Patent Reform: Patent Trolls and the Toll on Innovation

Patent Reform: Patent Trolls & the Toll on Innovation Introduction Patents can be forces of good or evil. The availability of patents can reduce barriers to entry, increase innovation and prevent free riding. Conversely, the availability of patents can produce industry holdup, raise competitor’s costs of production and force market foreclosure. However, determining good versus evil does not depend on who holds the patents, but rather how those patents are used. The term “patent troll” has come to refer to entities that use the threat of lawsuits or actual litigation to enforce their demands. More neutral names for these actors are “Non-practicing Entities” (“NPEs”) or “Patent Assertion Entities (“PAEs”). NPEs usually amass large portfolios of patents, which they purchase from companies that are in bankruptcy, from institutes that have developed technology they do not intend to use or from inventors that cannot afford to develop their ideas.

Entities with large patent portfolios are not all bullies and many of them can be beneficial middlemen. The object of a well functioning patent system is to incentivize the development of costly and high-risk innovative technologies that would not otherwise exist. However, the troll like behavior comes into play when the NPEs, armed with their massive patent portfolios, looks for successful products that use the technology covered by their patents and demand a licensing fee. Since patent suits are expensive to defend, the targeted companies will often pay the demand fee.

Many believe that the fear of being sued by an NPE discourages innovation. However, supporters of the NPEs argue that these entities actually encourage innovation by acting as act as “middlemen” to help inventors profit from ideas. The presence of NPEs within the patent system can be detrimental to innovation, but great harm also comes from the inefficiencies within the patent system that make it easier for these entities to use extortion-like tactics. Importance of Incentives

Under the Constitution, Congress has the power to “promote the progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” The patent system’s goal of promoting innovation for the benefit of society at large is derived from this clause. For the patent system to adhere to its constitutional goals, inventors need to have sufficient incentives to invest time and labor into inventive processes. Patent owners are given an exclusive right to enforce their patents by stopping others from using the same invention. The idea is that without this exclusive right, inventors would not expend the time, energy and capital to create cutting-edge products that ultimately benefit society.

Page 3: Gagnier for Congress Issue Brief: Patent Reform: Patent Trolls and the Toll on Innovation

The Patent Troll Problem A secondary market for patents should positively benefit the economy because it promotes distribution and economically efficient utilization of patents. The U.S. economy has transitioned into an intellectual property intensive model where all industry sectors are reliant on diversification, specialization and technical collaboration. Collaboration across a diverse spectrum of market participants promotes the most innovation and dissemination of knowledge. Maintaining strong patent rights that are backed by a credible threat of enforcement drives collaboration amongst inventors and creates jobs for complementary users necessary to bring a product to market such as technologists, developers, manufacturers, marketers, distributors and capitalists. Yet, changes in the patent system have made it easier for profit driven middlemen to thrive.

1. Software Patents

In 1998, the USPTO began issuing patents for computer software used for business activities.

Previously, patents were only granted for devices or physical processes. Software patents covering computer code and are harder for inspectors to evaluate and compare based on the lack of an established body of searchable prior art. A large amount of software is developed by way of open source software resources and these developers often do not file patent applications. As a result, the prior art generated by these innovative software developers is often overlooked during a prior art search.

Additionally, software patent applications notoriously use vague terms to describe what is

claimed in the invention, leaving it unclear as to what the patent actually covers. The rise in number of patents granted by the USPTO has left many inventors unsure of the scope, strength and validity of new patents, and therefore uncertain about whether their technology is infringing until the dispute is resolved in litigation. Uncertainty regarding patented technology highlights inefficiency within the patent system and casts doubt that current patent procedures are promoting the overall goal of efficient dissemination of information.

2. Overworked Examiners Vagueness and uncertainty would not be a problem, however, without overworked patent

examiners issuing patents that should have not been awarded. In 2012, the Patent Office received approx. 580,000 applications and, at that time, employed around 7,500 examiners. That means if each examiner worked all 365 days, they would need to review at least 77 applications per day. Although the USPTO has hired almost 2,000 more examiners in the past 2 years, the number of applications continues to rise at a quicker pace. Without rigorous scrutiny to devote to examining every application, the gap between quantity and quality of issued patents widens.

Our leaky patent system needs to be tightened to effectively start resolving the problems

related to troll behavior. When companies know what a patent covers, they will be able to gage

Page 4: Gagnier for Congress Issue Brief: Patent Reform: Patent Trolls and the Toll on Innovation

whether using a particular technology would infringe upon any patents and whether the troll demand letters are frivolous. Additionally, if it was required that patent owners notify the USPTO whenever there was a change in ownership or assignment of patent rights, individuals would be able to utilize free public research tools to see what kind of entity owns a particular technology and then conduct an appropriate risk of use assessment. Conclusion Patent trolls exploit the flaws of the patent system, but also draw attention to the need for patent reform. In order to rid the patent system of detrimental litigation, legislation is needed that focuses on undesirable behavior rather than amorphous categories of litigants or business models. The real problem is the patent system, and it cannot remain stagnant if it is to continue to promote innovation. The system needs flexibility to develop and change if the current model no longer works with modern times. When the current model ceases to fit is when the trolls come out from under the bridge to capitalize on the loopholes. Fixing the patent system will put the trolls back under the bridge and pave the way for an efficient secondary market that adheres to patent law’s underlying constitutional goal.