On patent troll problem, federal government could learn from states

In Louisiana, Gov. Bobby Jindal (R) recently signed into law a bipartisan measure to curb the prevalence of frivolous patent litigation by so called patent trolls – entities that do not produce goods but assert their patents by seeking licensing fees through demand letters and filing suit against small and large businesses alike for alleged infringement. The measure makes Louisiana the thirteenth state to enact such legislation – twelve just this year – against the backdrop of the U.S. Congress failing to pass a comprehensive federal measure.

Senate Judiciary Chairman Patrick Leahy (D-Vt.) stated that a failure to reach a consensus on the details of the various provisions led to the Senate’s decision not to proceed with the Patent Transparency and Improvements Act. The powerful trial lawyer and pharmaceutical lobbies also played a big part in the decision to table the bill.   While the decision is frustrating to many, it is more important to now take the time to craft a bill that curbs troll activities without being overreaching, and one that reflects the practical realities of patent acquisition and enforcement.  The bill should protect big and small companies alike from abusive tactics, but also not deter those same companies from rightfully asserting their own patent rights. 

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Patents spur innovation and any bill must not weaken the patent system – because defining a patent troll is not as simple as it appears. 

The term “patent troll” is a derogatory term for a non-practicing entity engaging in abusive litigation tactics.  Non-practicing entities are entities that hold onto intellectual property but don’t use their patents to build anything. The problem is that many universities and other research-based organizations would technically be considered trolls by this definition.  And the issue only gets more complex when patent pools, or entities that collectively license a group of complimentary patents, are examined with the same consideration as trolls.

For example, MPEG LA’s ATSC patent pool licenses a group of patents used in digital televisions, converter boxes, and other related devices.  The Federal Communications Commission (FCC) actually requires all televisions sold in the U.S. to use the ATSC standard and pay MPEG LA’s license fee. Patent pools are designed to make patent licensing more efficient by providing innovators licenses for technologies without going to multiple patent holders.  This becomes problematic only when the licensor, in the case of ATSC MPEG LA, charges a fee that isn’t representative of the value of the patents it is licensing.

MPEG LA charges a royalty of five dollars for every receiver product it sells. But according to the Coalition United to Terminate Financial Abuses of the Television Transition, that is about four dollars too much. A similar European standard as well as a Japanese license for another similar technology costs manufacturers only about one dollar. Under normal circumstances the marketplace would have a chance at self-correcting through consumer choice of a lower priced alternative. In this case, however, normal market forces are not in place because the FCC requires the inclusion of this standard and supports this government sponsored monopoly.

It is expected that the U.S. Senate will revisit the issue of patent reform next year.  Hopefully lawmakers will continue to consider the interests of patent holders and small businesses as they draft a comprehensive bill.  That bill should include provisions addressing patent pool activities in which pools engage in their own form of abusive licensing tactics diverging  from their mission posing just as much of a threat as the trolls the Senate bill sought to remedy.

For now we must wait for a comprehensive piece of legislation at the federal level that will actually address the trolling problem thoroughly.  In the meantime, we will continue to look to the individual states to pass legislation curbing abusive patent troll behavior.

Hopkins is a partner and chair of the IP Practice Group at Tydings & Rosenberg LLP. Reach her @JulieAHopkins.