Senate should finish off the patent trolls

Recent strong action by Congress and the White House against patent trolls is a rare and welcome example of policymakers doing exactly what they were put in place to do: work in a serious, bipartisan way to address a grievous problem that is harming our economy and killing American jobs.

Sadly, none of this fierce urgency seems to have impacted the Senate, which is treading water despite the introduction of several strong bills targeting patent abuse.

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Senate inaction is disturbing because there is no time to waste. American businesses are being swamped by bogus patent threats, which are increasing at an alarming rate. While I represent the innovation industry, this is not just about tech companies: restaurants, realtors, retailers, the gaming industry, and even coffee shop owners are now losing billions to patent extortionists.

Of course, the brunt is borne by small businesses, which now make up 90 percent of patent troll victims. The trolls are crafty: it makes good sense to target startups and entrepreneurs without legal resources for a prolonged patent fight. In fact, one in three startups has been blindsided by patent litigation, and 40 percent of small technology companies say abusive patent suits have had a serious, negative impact on their businesses.

One troll infamously demanded $1,000 per worker from small companies that use a basic document scanner feature. Another attacked small businesses like coffee shops that were using Wi-Fi routers. In 2011 alone, patent abusers raked in at least $29 billion on these types of threats, costing the U.S. economy $80 billion. If you are a troll, there is little downside: you face few costs or consequences for spamming the world with patent demands, even if the underlying claim is bogus.

Essentially, this is an economic issue. Patent lawsuits are incredibly simple and inexpensive to bring, and extremely complex and costly to defend. Fighting a patent lawsuit can easily cost more than seven figures. No wonder so many victims are forced to “pay the toll to the troll” or simply shut their doors and go out of business.

Fixing the problem requires changing the economic incentives and imposing a penalty on the trolls for their so-called “business model.” To truly free innovators and spark our economy, the system should follow the model of other countries and put the burden of frivolous lawsuits squarely on the shoulders of the trolls.

That is why any Senate patent troll fix must include a fee shifting provision similar to the one found in the House bill. With this provision, if a troll brings a bogus lawsuit and loses, it could pay the winning party’s legal fees. Fee shifting gives defendants a chance to fight back against racketeers who capitalize on the outrageous expense of patent litigation to extort settlements. It does not disadvantage legitimate patent holders bringing actions to enforce their claims. Finally, it imposes a price tag on the patent trolls, which is important since the trolls overwhelmingly lose when their weak patents are actually litigated.

A similarly important provision involves bonding – requiring patent trolls to put up some money at the outset of new litigation. Many trolls work through networks of dozens or even hundreds of thinly-capitalized shell companies. If the defendant manages to win a judgment against the troll, the troll simply declares bankruptcy and disappears, leaving the defendant empty-handed.

A bonding provision would allow a court, if it suspects that a patent is weak, to require that plaintiff put aside money to cover the defendant's eventual legal fees. If the troll litigates and loses a bogus claim, it would be rightfully liable for the costs, and could no longer simply vanish into thin air.

There is no silver bullet to the patent troll problem, but simple, common-sense reforms like these would go a long way to driving the trolls back under the bridge.

Patent trolls are scaring off investors and killing innovation, putting a serious drag on our economy. This must end, for the sake of small businesses and the people they employ. The Senate must follow the president and Congress and enact solutions that drive at the heart of the problem, instead of tiptoeing around the edges. Let’s end the patent troll plague once and for all, and allow innovators to thrive.

Shapiro is president and CEO of the Consumer Electronics Association (CEA)®, the U.S. trade association representing more than 2,000 consumer electronics companies, and author of the New York Times best-selling books, Ninja Innovation: The Ten Killer Strategies of the World's Most Successful Businesses and The Comeback: How Innovation Will Restore the American Dream. His views are his own. Connect with him on Twitter: @GaryShapiro.