Too often, American businesses must respond to frivolous legal threats or actual lawsuits related to intellectual property.
The cost of defending a patent infringement accusation is significant – usually millions of dollars, and it can be difficult to know where to turn for help. Fortunately, for nearly 25 years, the Patent Trial and Appeal Board (PTAB) at the U.S. Patent and Trademark Office has been a reasonable, relatively efficient resource to address baseless patent assertions. Now, some special interests want to dismantle that mechanism.
We need to protect this vital part of our patent system to protect U.S. manufacturers and businesses and the jobs they create, rather than to advance special interests bent on extracting profit from manufacturers faced with the costs of defending meritless lawsuits.
As patent counsel for an American consumer products manufacturer for more than 20 years, I have seen many frivolous lawsuits. Shell companies called non-practicing entities (NPEs), also often called patent trolls, file more than half of all patent lawsuits, draining resources from U.S. businesses.
The NPE model is straightforward – acquire low-quality, overly-broad patents (the more abstract the better) and use those patents solely to threaten or initiate lawsuits. In some situations, they send thousands of letters to American businesses alleging infringement on these questionable patents and demanding licenses or other settlement fees in exchange for not filing lawsuits. In other cases, NPEs are more targeted, identifying highly-profitable or promising businesses and seeking a handful of larger paydays. NPEs have been shown to cost U.S. companies nearly $30 billion in out-of-pocket costs each year and have contributed to a decline in American economic dynamism.
An NPE sued our company alleging that, because our website stored – and allowed customers to edit – their shipping address after a purchase, their patent was infringed. In another lawsuit, an NPE claimed we infringed their patents simply by sending tweets (demanding $15,000 for every 1,000,000 followers reached). In a third case, an entity alleged patent infringement solely because our U.S.-based manufacturing facilities use Wi-Fi.
The claims are absurd, but these and similar assertions force businesses into a Hobson’s choice – proceed in court and be found not liable after wasting vast amounts of time and money – or pay the extortion fee to avoid the litigation. The Patent Office’s PTAB, thankfully, provides manufacturers with a more reasonable option. Any business or member of the public can ask the PTAB’s administrative patent judges (who are technically trained experts) to take a second look at patents with which they are threatened. If the patent should never have been issued, the PTAB can invalidate it, saving businesses from costly, arduous litigation.
This cost-effective protection against abuse of the legal system is necessary now more than ever. In recent years, litigation investors have become massive players in patent litigation. Hedge funds, sovereign wealth funds, and a range of other investment entities now bankroll individual cases – or NPEs generally – for a cut of eventual settlements or awards. These investors give NPEs deep pockets and incentivize them to extract even higher payments.
Patent cases have been the single largest area of new U.S. litigation investment activities in recent years and minimum estimates (investors often do not have to disclose their involvement in cases) suggest that at least 30% of all patent cases are now backed by outside funding, with most of that investment going to NPEs.
For example, one hedge fund has dedicated billions of dollars to patent litigation and is owned by a Middle Eastern sovereign wealth fund. The fund itself owns a patent troll that was initially awarded over $2 billion after repeatedly suing a U.S. semiconductor manufacturer. Fortunately, the PTAB ultimately reviewed the NPE’s patents and determined that these patents were invalid.
An American manufacturer nearly having to pay billions to a foreign-funded NPE, over accusations made based on invalid patents, plainly demonstrates why maintaining a reliable and accessible PTAB is so essential for our innovation economy.
It is no secret who benefits when the PTAB does not review patent quality (NPEs and their funders) and who ends up shouldering the cost when invalid patents remain in force (American manufacturers). John Squires, President Trump’s recently announced nominee to lead the Patent Office, needs to prioritize the well-being of U.S. manufacturers and the inventors who are the engine of our economy, not the interests of litigation investors and NPEs. The PTAB must continue to function as the accessible, vital component of our patent system that it has been for over a decade.
