With opposition to "patent trolls" running at an all-time high, the Obama Administration pressed ahead Tuesday with reforms that could help to undermine the troll business model. Many tech companies hailed the proposals as long-overdue, saying they’ll let businesses spend less time litigating and more time innovating. But some patent-holders warned that the reforms could hurt the economy in the long run.
In a statement released on Tuesday, the White House said it is ordering the U.S. Patent and Trademark Office and the U.S. International Trade Commission to take steps to "bring about greater transparency to the patent system and level the playing field for innovators." In addition to those executive actions, the president proposed seven legislative fixes, many of which have have already been incorporated into four different bills being shopped around on Capitol Hill.
Several of the reforms would add transparency into pre-litigation negotiations, which is where most patent fights get resolved. One of Obama’s orders would force patent-holders to regularly update the PTO on who has an ownership stake in a granted patent. Another would require certain disclosures in pre-litigation "demand letters," and would also make those letters publicly accessible and searchable.
"Patent trolls often set up shell companies to hide their activities and enable their abusive litigation," the White House said in Tuesday’s statement. "This tactic prevents those facing litigation from knowing the full extent of the patents that their adversaries hold when negotiating settlements, or even knowing connections between multiple trolls."
Obama also proposed that Congress weaken the ITC, a quasi-judicial body that hears patent disputes and can block infringing devices from entering the country. Specifically, Obama recommended forcing the ITC to recognize eBay Inc. v. MercExchange, a 2006 U.S. Supreme Court decision that made it very difficult to win an injunction in a patent case in federal court. The ITC’s willingness to issue injunctions is a major reason for its popularity as a venue for patent litigation over the past decade.
Obama’s ideas also include: giving judges more discretion to award attorneys fees in patent cases; training patent examiners to scrutinize certain patent applications more closely; and allowing judges to stay "troll" litigation against end-users of technology in cases where the manufacturer is willing to step in. That last proposal may partly be a response to a troll known as MPHJ Technology Investments LLC, which has accused thousands of small businesses and nonprofits of infringing a dubious patent on the process of scanning documents into an e-mail. MPHJ’s litigation campaign has already sparked new legislation in Vermont, as well as a civil suit by the state’s attorney general alleging violations of consumer protection laws.
Krish Gupta, the deputy general counsel of EMC Corporation, which has cultivated a reputation and a fair measure of success as a troll-fighter, told us that he’s "very encouraged" by Obama’s proposals, particularly the measures to increase transparency. "That can help galvanize defendants that have all been targeted by the same patent troll," he said.
Gupta added that he "feels pretty good about the chances" of Obama’s legislative recommendations becoming law. "There is a lot of political consensus, on both sides of the aisle," he said.
Others are not so sure about the president’s agenda. "Some of these proposals make sense and I would support them, but proceed with caution," said Erich Spangenberg, a consultant to non-practicing entities (née trolls) who has an ownership stake in several NPEs of his own. "Give me one example in history where defining property rights based on the attributes of the owner has worked out well," he added.
Spangenberg said the proposed legislation would definitely help combat a few bad apples, but it would also make it harder for small-time inventors to get compensated for their work. "Let’s not lose sight of what this is," he said. "This is about huge companies that want to debase the patent system. The people benefiting from this are the ones with the deepest pockets."
"Many of these changes won’t have a major impact on patent assertion entities," said Kenneth Parker, a patent litigator at Haynes & Boone. "In particular, loosening the standard for awarding attorneys fees is unlikely to make any difference. Most judges don’t like to award fees. They are steeped in the American rule."
According to Parker, instead of ordering new training for patent examiners, Congress should give the PTO more money. He noted that, even before the financial crisis, PTO fees have been siphoned off from the agency to pay for other parts of the federal government. "There is nothing fundamentally wrong with the standards they are using to grant patents," he said. "Some low quality patents slip through the cracks because there is no funding in place."