The intellectual battle

Patent infringement lawsuits filed by ‘patent trolls’ have a tremendous impact on economies.

Patents (photo credit: ronen topelberg)
(photo credit: ronen topelberg)
New US legislative initiatives aim to fight patent trolls inter alia by distinction in the litigation process between plaintiffs who practice inventions and the Non-Practicing-Entities (NPEs, also know as Patent Assertion Entities (PAEs) or “patent trolls”). If the proposals are passed, patent trolls may find themselves reimbursing the dispute-related expenses of entities sued by them.
Giant trolls like Intellectual Ventures (the “mother of all Trolls” which owns tens of thousands of patents), Round Rock Research and Inter Digital will now be required to recruit their intellectual resources to plan and update their strategy and business plans.
Patent infringement lawsuits filed by patent trolls have a huge effect on the US economy, and their impact is on the increase. They are attacking anyone in sight, from major hitech companies to individual end-users of products.
The title “patent troll” is a derogatory name for entities that utilize patents solely as a method of aggressively and opportunistically filing lawsuits against entities which allegedly practice the inventions covered by the trolls’ patents. The NPEs themselves, as their name suggests, do not develop, manufacture or sell products.
In the past two years the number of claims filed by patent trolls has tripled; 62 percent of US patent infringement lawsuits filed in 2012 were brought by trolls. Estimates are that over the past year NPEs threatened more than 100,000 companies with claims of patent infringement.
$ 29 billion (!) is the amount spent in 2011 by defendants and licensees to pay patent trolls, according to James Bessen and Michael Meurer of Boston University.
Obama and US legislators declare war One of legislative initiatives of 2013 (brought by Congressmen Peter DeFazio and Jason Chaffetz) proposes that in an action for patent infringement, the defendant may argue, at the very beginning of the judicial process, that the plaintiff is an NPE. If such argument is raised, a preliminary trial would be held in which the court would examine the following:
• Is plaintiff the inventor of the patented invention? • Was plaintiff the owner of the invention at the time a patent application was submitted? • Has plaintiff implemented the patented invention through a significant investment in the production and sale of products covered by the patent? If the answer to at least one of the above parameters is found to be “no,” the plaintiff could be defined as an NPE. (Academic institutions and their IP commercialization arms will not be defined as patent trolls, although such entities do not practice the inventions covered by their patents.) If the preliminary trial defines the plaintiff as an NPE, the plaintiff would be exposed to the following consequences: If the patent infringement case results in a finding of noninfringement or invalidity, the plaintiff will be ordered to reimburse the defendant’s litigation costs.
Such costs are substantial (the median cost of managing a patent infringement lawsuit in the US is about $650,000 in cases considered “small,” and can reach $5,000,000 or more in cases where the claim exceeds $25,000,000).
To make things even more stringent, the proposed legislation requires the plaintiff to execute a bond, in an amount determined by the court, to ensure payment of said expenses.
If this legislation passes, the rules of the game will change.
The patent troll, who until now had nothing to lose in bringing a suit for patent infringement, even if it was ultimately found to be frivolous, will now have to carefully consider his actions and examine whether its claim is sufficiently solid to justify the financial exposure of an unsuccessful lawsuit (which, as noted above, could amount to millions of dollars).
The modern world increasingly relies on technology vs.goods, intellectual property vs.tangible property. Intellectual property has broken the limits of its originally intended framework.
So now, the emerging legislation aspires to withdraw to the original borders of patent legislation as set by the US Constitution: “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 author is a partner in Pearl Cohen Zedek Latzer Baratz (Israel office).