It seemed a throwaway line in President Obama's hour-long State of the Union address: “Let's pass a patent reform bill that allows our businesses to stay focused on innovation, not costly, needless litigation.”
But unlike most of the items on the president’s economic-policy agenda — energy, immigration, the minimum wage —patent reform is an issue that bridges the partisan divide. A bill aimed at eliminating meritless and abusive patent ligation, the “Innovation Act,” passed the House in December by an overwhelming margin (325 to 91).
Why is there such broad support for patent-litigation reform? In recent years, many of the most innovative companies in the technology sector have complained about lawsuits launched by so-called “patent trolls,” or patent assertion entities, which produce no goods or services but acquire and seek to enforce patent rights. According to one study, lawsuits led by patent trolls have imposed as much as $29 billion in litigation costs on the economy.
Increasingly, patent trolls have been targeting not software companies developing new products but small businesses that use off-the-shelf technologies. Patent trolls have sent thousands of demand letters to coffee shops, retail stores and restaurants claiming patent infringement for the mom and pop shops’ use of scanners or wireless network technology — and seeking thousands of dollars in licensing fees. Given the high cost of defending a patent claim in court ($650,000 or more), business owners are pressured to quickly settle.
Even cities aren’t immune to such shakedowns. In 2011 and 2012, a patent troll named ArrivalStar sued public transit agencies in multiple municipalities over their bus-tracking technology. Settlements were costing taxpayers tens of thousands of dollars until watchdog agencies finally stepped in and stopped the low-merit suits.
To their credit, both Congress and the White House have recognized the problem, publicly expressed their desire and plans for reform and initiated action. After several iterations of proposed reforms, legislators of both parties in the House settled on the Innovation Act, which takes direct aim at patent trolls’ small-business-shakedown business by delaying patent litigation against end-users of a product until litigation is resolved between the plaintiff and the product’s manufacturer. In addition, the act would deter meritless claims by forcing losing plaintiffs in patent lawsuits to reimburse defendants’ expenses unless the plaintiff can prove that their infringement claim “was substantially justified or that special circumstances make an award unjust.”
Although the Innovation Act isn’t perfect — for instance, it would not eliminate “forum shopping” in which patent lawyers seek out lawsuit-friendly jurisdictions like the Eastern District of Texas — it would significantly alleviate abusive patent litigation’s downward pressure on innovation and entrepreneurship.
And though policymakers should always be concerned about the potential unintended consequences of proposed legislation — and innovation crucially depends on patent protections for inventors — the Senate’s delay in acting on patent reform is based more in politics than policy.
Bipartisan passage of patent-lawsuit reform could prove critical in building goodwill and setting a precedent in advance of the upcoming battles on immigration, the debt ceiling and minimum wage. The president can blunt Republican criticism of his promises to bypass Congress if they don’t pass his recommended reforms by leading constructively in one area of common agreement.
The public is understandably frustrated by Washington gridlock, and patent-litigation reform offers a rare opportunity for compromise. By clearing away the lawsuits that have become an impediment to innovation and a threat to small business — and thus an unnecessary hurdle to economic recovery — the president and Congress can give Americans across the political spectrum a reason to stand up and applaud.Isaac Gorodetski is the deputy director of the Center for Legal Policy at the Manhattan Institute, which in 2013 released a report, "Trial Lawyers Inc.: Patent Trolls."