You can’t say you weren’t warned. In February this year, President Obama called for “smarter patent laws”. Yesterday, he gave us seven legislative recommendations (all of which will have to be debated in Congress) and five slightly less exciting executive actions (mainly USPTO tasks), accompanied by a 17-page report. The report says that patent-assertion entities (PAEs) “have had a negative impact on innovation and economic growth”. PAE now seems to be the favoured jargon for what President Obama and others call patent trolls, the terms NPE and PME having apparently been abandoned.*
Not everyone agrees there is a problem, and of course merely asserting a registered patent is neither illegal nor immoral. But surely the president is right that the extreme examples of trolling – making wide-ranging threats based on dubious patent rights and exploiting the frailties of the US litigation system – do nothing to “promote the Progress of Science and the useful Arts” (to quote the US Constitution). In fact, by draining resources from companies that are bringing innovations to the market, trolls arguably impede innovation. As SAS General Counsel John Boswell testified before Congress: “It does not cost much to be a troll and to make broad, vague demands. On the other hand, the risk to the company receiving a troll threat is enormous.”
The presidential proposals adopt many of the suggestions made in recent debates, including increasing transparency (by requiring applicants to disclose the real party behind actions, and incentivising public filing of demand letters); giving district courts more discretion to award attorney’s fees for abusive court filings (some including Chief Judge Rader argue that similar powers already exist); tightening functional claiming (as proposed by Mark Lemley); and providing more information to potential troll victims, especially downstream users.
But I fear some elements could make the situation worse. The president wants to expand the recently introduced USPTO programme on covered business method patents “to include a broader category of computer-enabled patents” but it’s barely been tested yet. He also recommends making it harder to get injunctions at the ITC. Depending on how they are drafted and implemented, both these initiatives risk creating a two-tier patent system as well as adding to costs for both patent owners and third parties.
Some patent owners will therefore no doubt feel the proposals go too far (as Microsoft apparently does). But in another sense they don’t go far enough.
It’s not something patent owners or practitioners want to hear, but part of the problem (worldwide not just in the US) is patent inflation – by which I mean the growth in the number of patents. We see it in the sums paid for large patent portfolios, in the boasts made by certain companies and in the annual figures trumpeted by patent offices. Focusing on these numbers leads to investors and companies putting too much weight on the number of patents in a portfolio, and not enough on the strength of those patents. Maybe it’s time to take a deep breath and say that, paradoxically, innovation will benefit if fewer patents are applied for and granted.
*As many commentators have pointed out, it’s not really clear who is and who is not a PAE. Indeed, you might say all patent owners are: why would you spend the time and money obtaining a US patent if you were not prepared to assert it? At Managing IP, we’ll stick to using patent trolls – it may upset some sensitive souls, but at least we all know what we’re talking about. (A good rule of thumb is that as soon as people create compound names that have to be contracted to three-letter abbreviations then they’re trying to hide something – look at the trouble caused by ABS and CDO.)