It’s news when government identifies a genuine problem and takes reasoned steps to solve it. So here’s news: The Obama administration has a plan to fix the broken U.S. patent system.
The White House outlined the plan last week in a presentation distinguished by its freewheeling use of the term “patent troll,” which isn’t legalese but vernacular. It would have been a shame if the administration stopped there, but its initiative actually aims to dig down into what makes a troll a troll, and eradicate the problem from the roots.
“What’s really smart is that they’re looking at specific abuses taking place and providing a solution for them,” Colleen Chien, a patent expert at Santa Clara University Law School, told me. The initiatives, which include seven legislative proposals and five executive actions, “are narrowly tailored and practical, and they’ll be impactful,” she said.
They include proposals to make it easier for victorious defendants to collect their legal fees from patent plaintiffs, such as a “loser pays” rule that could stem frivolous patent lawsuits. Obama also is asking Congress to provide protection for end users — Main Street merchants and consumers whose use of an allegedly infringing product makes them troll bait. One firm supposedly protecting old Wi-Fi patents has been suing coffee shops and hotels that offer Wi-Fi to customers, rather than Cisco and the other big companies that actually make the purportedly infringing hardware. The White House wants to give the coffee shops and hotels a shield.
It’s not debatable that trolls are an economic drain. A White House economic study that accompanied the unveiling of its patent initiative cited an estimate that $29 billion was paid by patent defendants, mostly in the software industry, to troll-like plaintiffs in 2011. Only about 25% of that sum was plowed back into research or development. The very process of innovation can be stifled by patent litigation, the study said. Chien figured that 61% of all patent lawsuits last year were brought by plaintiffs fitting the description of trolls.
But the problem isn’t merely one of unscrupulous litigants exploiting the legal system. The most interesting aspect of the administration’s troll attack is that it aims to tighten up patent issuance. That’s good, because the underlying problem is the raw material trolls have been given to work with — patents that have been sloppily written and cavalierly issued by the Patent and Trademark Office. The most ruthlessly asserted patent rights often should never have been approved in the first place.
“Patent trolls are taking the rap for problems with the patent system,” Mark Lemley of Stanford Law School and A. Douglas Melamed, Intel’s chief counsel, observed in a paper earlier this year. They didn’t mean trolls weren’t a problem, just that “they are not the problem.” Clean up patent issuance, they say, and you’ve taken a huge step toward eradicating trolls.
First, it’s useful to examine the taxonomy of trolls. They’re not always what they seem.
Thousands of businesses, large and (especially) small, have become familiar with the garden-variety patent troll in recent years, to their abundant displeasure. (Technically, trolls are known as “patent assertion entities” or “non-practicing entities” to distinguish them from firms or individuals who hold patents with the intention of making things with them.) In their most refined and abusive guise, trolls are firms that buy up patents with the express purpose of threatening others with infringement lawsuits. What makes this a perversion of the patent system is that their goal isn’t to support the development of technology or produce goods for sale, which is the point of having patents, but to collect fees.
They also pervert the court system. Their weapon is the threat of litigation, but what they’re really after are out-of-court settlements. Each settlement might be nominal, but since the trolls customarily name hundreds or thousands of putative defendants at once, extracting nominal settlements from even a fraction of their quarries can add up to real money.
Not all “non-practicing entities” are trolls. Some can perform a legitimate function. If you’re a failing start-up whose only remaining assets are a few patents, selling them to a patent-acquiring firm may be your only option for turning your patents into cash. Indeed, Chien has found that small companies and individual inventors are the “primary source” of patents used by non-practicing companies in bringing infringement cases. That’s a double-edged sword, however: Chien observes that the majority of defendants in those lawsuits are small companies, defined as those with less than $10 million in revenue.
Nor is troll-like behavior limited to unscrupulous firms operating in the dark interstices of the legal system. Microsoft, for example, has been sedulously extracting patent license fees from makers of Android-powered mobile devices for several years. Estimates of the company’s take range from $3 to $13 on almost every Android device sold; at the high end of the range, that would come to more than $4 billion a year. Microsoft is currently suing Google in Germany over a 1996 patent it says is infringed by Google Maps, with the threat of a shutdown of the application lurking as its big cudgel.
Then there’s the global patent war in which Apple and Samsung have fought each other to a draw over the innards and design of each other’s smartphones. This is tit-for-tat on an immensely wasteful scale.
If these contestants don’t exactly exhibit troll-like behavior, their battle certainly distorts the purpose of patents, which is to spread technology, not foreclose its adoption. Tellingly, Obama will be asking Congress to bring the standards of the International Trade Commission, which is prone to awarding injunctions like one it granted Samsung recently, into line with federal courts, where money damages, not injunctions, have become the preferred remedy for patent infringement.
Still, as Lemley and Melamed point out, trolls wouldn’t be so voracious if the patent office hadn’t given them so much to feed on. The big error, they say, is allowing something called “functional claiming.” That’s when a patent is issued for the goal of an invention rather than the actual process by which the goal is reached. A patent covering, say, any use of scanners to send documents to email users, or any use of a “shopping cart” by an online merchant — that’s a troll’s banquet. Limit the patent to a particular way of sending scanned documents or creating a shopping cart — especially since clever software engineers can develop myriad innovative ways to achieve a goal — and the trolls are starved out.
Functional claiming was a problem in the last century, until the Supreme Court wiped it out in the 1940s. But it came back with the rise of patentable software and under the eyes of a lax patent office. Patent authorities have been trying to tighten their scrutiny of applications that may cross the line, but they need more help. The White House package requires the Patent and Trademark Office to give more training to examiners on how to recognize and squelch overly broad applications or those that should be rejected as too obvious to be patentable.
What are the chances that the whole package will become law? So far the grousing from industry is at a minimum — unsurprising, perhaps, since business has been the source of most of the complaints about trolls. That’s not to say there isn’t negative burbling, especially from software companies worried that their patent claims will now get heightened scrutiny. For example, Microsoft Deputy General Counsel Horacio Gutierrez said in a blog post that his firm is “concerned and surprised” that the proposal “targets software innovations more broadly.”
But that may be the price of clearing the forest of trolls. And industry may accept it. “The reception I’ve heard from various factions has been pretty positive,” Chien says. For a system in which everyone is at everyone else’s throat, with billions of dollars at stake, she adds, “that’s saying something.”
Michael Hiltzik’s column appears Sundays and Wednesdays. Reach him at firstname.lastname@example.org, read past columns at latimes.com/hiltzik, check out facebook.com/hiltzik and follow @latimeshiltzik on Twitter.