It’s About Time: President Obama Takes on Patent Trolls

| Analysis

Organizations that make money by collecting patents and then filing lawsuits against other companies for infringement as their sole source of income -- lovingly known as patent trolls -- may have a harder time making a buck now that President Obama is on their case. The President is working on changes for the U.S. Patent and Trademark Office and pushing for Congressional action to make it more difficult for patent trolls to target companies, and to cut down on the number of overly broad patents that are issued. This is a great first step towards patent reform in the United States, and since most of what the President is proposing comes through an executive order, the changes can start now instead of waiting for Congress to pass new laws.

The White House is ready to take on patent trollsThe White House is ready to take on patent trolls

The President is ordering the USPTO to create new rules that require patent holders to disclose who actually owns the patents they represent. This will cut down on shell companies strong-arming money out of other companies over patent infringement claims. The forced transparency will also make it easier for companies that are accused of patent infringement to see if the actual patent owners also have other similar patents, making it easier to stop patent trolls from double-dipping by coming back for additional lawsuits against the same people or companies.

End users and small businesses will get some more protection, too. The President's executive order also calls for measures to keep patent trolls from targeting them with White House representatives stating,

End-users should not be subject to lawsuits for simply using a product as intended, and need an easier way to know their rights before entering into costly litigation or settlement.

If you think patent holders wouldn't take that path, think again. Lodsys is well known for filing lawsuits against iOS app developers for using Apple's in-app purchase mechanism -- a system that Apple paid to license from Lodsys. The company felt everyone should pay licensing fees, however, and started by threatening small companies that likely wouldn't be able to afford expensive trials, and then later started hitting them with patent infringement lawsuits.

Apple convinced the court to let it step in on behalf of developers, and since then Lodsys has targeted bigger app developers including Disney.

VirnetX targeted Apple with a string of patent lawsuits, and sued Apple yet again on late 2012 over FaceTime-related patents after winning US$368.2 million over FaceTime patents only two days earlier.

Podcasters haven't been spared from patent trolls, either. Personal Audio started by filing a lawsuit against Apple over playlist organization and navigation on the iPod, and then followed up by hitting podcasters with infringement lawsuits over podcast distribution. The Electronic Frontier Foundation is now collecting donations to mount a defense for podcasters since the Personal Audio patents seem surprislingly broad.

Cases like these not only pose serious financial burdens to the defendants, but depending on their outcome could significantly curtail the number of developers and podcasters. Smaller players don't have the financial resources to defend themselves from ongoing patent infringement cases, especially when those lawsuits target them for using services provided by other parties.

The President is hoping Congress can help address some of these issues, too, through new legislation that protects end users from abusive lawsuits from patent trolls, and laws that require companies that lose their patent infringement cases to pay the defendant's legal expenses along with their own. He also wants to see changes to how the International Trade Commission operates since many companies use it as a tool to push for faster injunctions while persuing parallel courtroom battles.

Coincidentally, the ITC granted Samsung an injunction this week against Apple blocking the import of AT&T-compatible iPhone 4 and iPad 2 models over standards essential communication patents. Apple said the injunction won't impact product availability, and it plans to appeal the ruling. Depending on how this case plays out, it could set a precendent where standards essential patent holders use the threat of injunctions as a tool to force companies to pay unreasonably high licensing fees instead of negotiating fair rates.

The ITC ruling also goes against the consensus in courts around the world -- and marks a reversal in the ITC's usual stance -- where the idea of banning products over standards essential patents is seen as a bad move for the market and consumers.

President Obama's call for change, coupled with Samsung's ITC injunction win, underscores what analysts and industry experts have been saying: the patent system is broken, and patent trolls are abusing it.

Change on this scale won't happen over night, but it looks like we're finally starting to move in the right direction, and none too soon since the trend towards targeting small businesses and end users with patent lawsuits seems to be growing. In the end, that kills innovation and ultimately it's the consumer that suffers.

[Some image elements courtesy Shutterstock]

Comments

ibuck

It isn’t just the patent system that’s broken. Now that the issue has been raised, there’s nothing to prevent the patent trolls from contributing to current House & Senate members’ campaign funds to persuade (bribe) them that patent holders need the protection current laws provide, that the proposed legislation is more cumbersome regulation that restrains trade, and is bad for inventors and patent holders, threatening their privacy and security. Such arguments are bunk, but they would surprise no one if they came from many, if not most, of our Congress critters.

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