The Problem of Patent Trolls
Many readers may have been introduced to the term “patent troll” and wonder exactly what a patent troll is and whether patent trolls really exist.
If you watch the HBO series “Silicon Valley,” you may have noticed a character named Stuart Burke. He attempts to (and does) make money by using patents as legal weapons through lawsuits and the mere threat of lawsuits. Another common definition of a patent troll includes people and businesses that own patent rights but do not produce any goods or innovation based upon those patents. Some refer to these parties as nonpracticing entities, or NPEs.
NPEs often gain patents through purchase agreements from individual inventors and corporations who feel that payment of maintenance fees to the U.S. Patent and Trademark Office are no longer worth the cost. Other patents are purchased in bankruptcy proceedings and the like. After gaining the patents, the NPE evaluates how closely other businesses are practicing to the claimed invention of the purchased patent(s). If the NPE can make a business case for action, they will threaten to sue for patent infringement and may even eventually make it to a courtroom. Because the cost of patent-infringement litigation is quite high, many accused infringers simply bow to the pressure of the threat of a lawsuit and sign a license or settlement agreement. These agreements can often earn the NPE a relatively large amount of money, thus providing an incentive to continue.
Unfortunately, patent trolls still exist. Patent trolls were put in the spotlight in the May 2017 U.S. Supreme Court ruling in TC Heartland v. Kraft Food Brands Group. Patent cases generally don’t get a lot of media attention, such as the Heartland case, but characters in media such as Stuart Burke can help people understand many of the issues at hand.
The TC Heartland case addressed venue for patentinfringement litigation cases, which many hoped would deal a potentially huge blow to the Eastern District of Texas (EDTX) and its “rocket docket,” the long-favored venue for patent-infringement plaintiffs. The EDTX has been known to be friendly to patent-infringement plaintiffs, and the docket schedule tends to move a good bit faster than many other district courts around the U.S.
While the TC Heartland case has provided a ruling that may seem to give some relief to alleged infringers from unscrupulous NPEs, many issues remain unsettled. Clearly, it will take a good bit more time to settle the issues involved with venue and how district courts will interpret the Supreme Court’s ruling.
Because a majority of American corporations choose to incorporate in Delaware, and because patent suits there typically rule in favor of NPEs, a large number of cases could move to Delaware. Some experts have predicted that filings in the EDTX will decrease by roughly 70% (about 1,000 fewer cases per year), with the majority of those cases instead being filed in Delaware or the Northern District of California, home to many frequent patent-infringement defendants.
Another bright spot on the horizon has been the House of Representatives Judiciary Committee Intellectual Property subcommittee. The chairman, Darrell Issa (holder of over 30 patents), indicated that his subcommittee would consider new legislation to address litigation venue issues. This remains to be seen, and true venue clarity will take some time. In the meantime, there are countless opportunities for litigation thanks to global innovation, particularly in the areas of digital technology.
Historically, NPEs have capitalized on large digital shifts that create new opportunities to make money. We saw this in the 1990s with the rise of the Internet, when NPEs purchased and asserted large numbers of Internet patents. NPEs may do so again, seizing upon emerging opportunities and vulnerabilities created by the cloud, artificial intelligence, the Internet of Things and so on.
With the patent-troll situation still in flux, companies cannot afford to let their guard down in regard to intellectual-property protection and business strategy. Technology shifts provide nearly limitless new avenues for NPEs to assert infringement, and it is becoming clear that protection from the courts and Congress may be a long way down the road.
As hopeful as some folks were about TC Heartland, it certainly hasn’t stopped NPEs. The intellectual-property community must acknowledge this and adjust accordingly. It remains a murky situation for characters like Stuart Burke … at least for now.