Patent Trolls

Curbing patent trolls

Moderated by Rick Badie

Today we turn to patent legislation as Congress prepares to deal with patent reform — curbing so-called “patent trolls.” In the lead column, an inventor and entrepreneur calls patent trolls an exaggerated crisis. The companion piece, written by three University of Georgia professors, explains why they favor the Senate-offered Patent Act as an attempt to reduce frivolous patent lawsuits.

I am not a “patent troll”

By Kristi Gornias

When I filed my first patent with the United States Patent Office,I never would have suspected the government that had once promised to protect the integrity of my intellectual property would try to pass a bill weakening that protection. Couched as the Innovation Act and the PATENT Act, the proposed bills are an affront to the innovative and entrepreneurial spirit of America.

I started my company, the Kristi G Company — known for the Amazing E-Z Wipe System and the Go With Me Chair — while working to find solutions to challenges I faced as a mother of small children. I needed ways to manage my life with them better, especially when we went places.

After a few months of selling my products on my own, I had a meeting with a large retailer, which asked how I would produce enough chairs for 4,000 stores; and a baby website sold 320 chairs in eight minutes. I ran out of inventory. It was amazing to see the interest in my inventions. I decided to license my chair idea to a big company in order to meet demand.

Unfortunately, that licensing deal did not turn out as hoped. Thankfully, I was able to work with good lawyers to terminate the contract. Because of the strength of the United States Patent system, I was able to get back all of my rights, patents and trademarks. I needed to regain these rights to my idea so I could begin selling the product on my own again. It’s like starting all over from scratch, but I’ll be re-launching the chair as my own this year. This is where the heart of the American entrepreneurial spirit lies: in the ability to reach up, to branch out, knowing your intellectual property rights are protected.

Backers of proposed legislation in the Senate and House claim their bills address the problem of fraudulent patent lawsuits filed by predatory entities. They cite the number of patent litigation cases as a threat to American enterprise, but the crisis is exaggerated. They use such broad strokes in their terminology that they label legitimate non-practicing entities – inventors like myself who have ideas but are unable to produce the product themselves so they license their invention to others for production – as “trolls” filing patent lawsuits just to make a profit off settlements.

I am not a troll. I was fighting to get my rightful property back from someone who was not utilizing it to its fullest potential. Being a non-practicing entity in a legal battle doesn’t make me a “troll.” It makes me an American defending the rights afforded to me by the Constitution to protect my rightful property. That is the problem with overly broad legislation like this. It would target the good with the bad and impact legitimate business. Without the current strength of the American patent system, I may not have been able to regain the rights to my inventions.

The proposed legislation will compromise the ability of everyone, save large corporations, to defend their intellectual property. Forty nationally recognized economists and legal scholars have spoken to this fact in a letter addressed to Congress.

As a patent holder, the sweeping changes being proposed are concerning. I’m a legitimate business owner, an entrepreneur, and an innovator. I hope to continue on as such. To do so, I need to know that when I file for a patent that my intellectual property will be protected and that I won’t be prevented from defending it.

Evidence against the proposed legislation is undeniable. Expert testimony affirms the bill will be detrimental not only to independent inventors and Mompreneurs like myself, but also research facilities and universities. Larger innovation groups that lack the funding necessary to protect patents under the proposed legislation will face negative repercussions as well.

Now is a pivotal time in the debate.

Kristi Gornias, a local inventor and entrepreneur, is founder of the Kristi G Company.

Curbs needed on patent trolls

By Joseph Miller, John Turner, Jonathan Williams

Patent reform is on the agenda in the current Congress. The main objective of proposed reform is to stop unreasonable assertion of patents against businesses and individuals — that is, to shut down patent trolls.

We believe such reform is important to preserving the patent system’s role in innovation. We prefer that Congress enact the Senate-introduced PATENT Act (S. 1137). This will strongly complement Georgia’s law against bad-faith demand letters, which became effective July 1, 2014.

There has been a surge in patent litigation. Non-practicing entities (NPEs), firms that earn profits exclusively through “monetization” of patents via licensing or litigation, have driven the surge. They filed 67 percent of a record-high 5,518 U.S. patent infringement lawsuits in 2013, versus 28 percent of 2,491 lawsuits in 2009.

While NPEs are not new, they have never flourished at the scale seen today. These firms have been the most prone to behave as patent trolls.

Patent lawsuits cost firms money. The aggregate amount that publicly-traded U.S. firms lose from being sued for patent infringement exceeds the aggregate gain in profits from the patents that they own. NPE lawsuits make the difference. Without them, we find that profits from patents would exceed costs.

Georgia businesses have been hit especially hard. NPEs filed a total of 507 lawsuits against 189 Georgia companies between 2005 and the first half of 2014, with more than 75 percent of those lawsuits filed in the past five years.

A Suwanee-based telecommunications equipment company, ARRIS Group Inc., was sued 12 times the past decade. Many small businesseshave also been sued, including North Georgia Auto Brokers, a one-man used car dealership, and V-Tech Inc., a local construction firm.

Multiple studies have shown that NPEs win the lawsuits they initiate less often than practicing entities. This is because many NPEs behave as trolls and unreasonably assert their patents. Trolls can force defendants to spend money preparing a legal defense, giving them leverage in settlement negotiations. In many instances, it is less costly for a defendant to pay for a license than to contest a lawsuit, even when the defendant is certain to prevail!

Why is unreasonable assertion a bigger problem today? Information technology.

Computers and other electronic devices include many complementary inputs and are used in production in many different ways by many different firms. Think about how many retailers use barcode scanners, or how many coffee shops offer free Wi-fi. NPEs that own patents covering technology that complements other technology can, while never making a single product, claim royalties from a wide variety of manufacturing and end-using firms.

The Internet hasmade it easier for inventors to search for things to patent (without really innovating), and easier for inventors to search for parties to sue.

How will patent reform help? Like the new Georgia law regarding bad-faith demand letters, it punishes firms that make unreasonable patent assertions. But it goes farther in extending to federal court proceedings. The PATENT Act requires losing plaintiffs to pay defendants’ court costs whenever the case is deemed “objectively unreasonable.”

The Act would also make it less expensive to defend a patent lawsuit. It delays discovery to keep litigation costs down and allows technology manufacturers to represent end-users of the technology in litigation. A small business that uses barcode scanners in transactions may delay its own patent lawsuit over the scanners, while the case against the manufacturer of the scanners goes forward. Together, these mitigate the tactical advantages currently enjoyed by firms that over-assert patents.

Finally, these reforms will not harm firms that create real value through inventing technology, be they manufacturers or NPEs. Such firms will continue to be able to assert patents reasonably to earn rewards for their breakthroughs.

Joseph Miller is a University of Georgia law professor. John Turner is an associate professor of economics at the University of Georgia. Jonathan Williams is an assistant professor of economics at the University of Georgia.

 


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