While the patent system was originally designed to protect ideas and foster a climate friendly to innovation, in today’s tech sector patents are being used as weapons by trolls as a form of legal hijacking that is destroying innovation in its wake. That is why a diverse coalition of stakeholders - ranging from start-ups to tech mainstays, the developer community and public interest organizations - are this week championing action against this "innovation tax" that is a growing threat to the tech economy.
Patent trolls are now filing the majority of all patent litigation, often over simple technologies that underlie many of the popular products consumers use every day – software’s equivalent of raw materials or an alphabet. President Obama has raised concerns about the effects of trolls on tech. Earlier this month, the president said, “The folks that you’re talking about [patent trolls] are a classic example; they don’t actually produce anything themselves. They’re just trying to essentially leverage and hijack somebody else’s idea and see if they can extort some money out of them.”
Take the case of Personal Audio, a known troll that has filed patent lawsuits against a slew of small companies and individuals that created their own podcasts, a now ubiquitous technology available for nearly a decade. This troll claims it invented podcasting, relying on an obscenely broad patent that claims rights to an “apparatus for disseminating a series of episodes represented by media files via the Internet as said episodes become available."
In short, this troll is holding podcasters hostage through the threat of litigation, in the hopes of securing a nuisance settlement or a licensing fee. It would be comical that a “company” such as this would be allowed to thrive because of our broken patent system - except it has real consequences on companies and the economy-at-large.
Growing, innovation-focused technology companies have been forced to shift resources and ring themselves in a protective moat of these patents, many for “features” as trivial as scroll bars or the shape of smartphone icons. Meanwhile, start-ups and other small firms, who don’t have an army of high-paid IP lawyers on retainer, risk losing their inventions and, indeed, their businesses to bogus “infringement” claims.
The costs trolls have exacted on the economy are very real: trolls cost the US economy half a trillion dollars in the last 20 years. Over $320 billion of that $500 billion came in just the last four years, an illustration of how the problem is only growing.
Part of the issue is the standards for technology patents are simply too lax and the loopholes in the system are too easily exploited. The current legal structure still makes it far too easy for entities to secure and then leverage, low-quality software patents, as trolls do when they purchase bundles of patents and then sue productive companies for infringement. Of the patents asserted by trolls from 1990-2010, 62 percent were software patents. Even worse, many of these software patents are approaching the end of the 20-year term and have now become practically industry standard - large targets for trolls to employ their shakedown methods against companies that are actually contributing to and growing our economy.
Since most trolls are shell companies with no real assets, they aren’t vulnerable to countersuits; most serious companies have no choice but to pay trolls lucrative settlements or risk getting bogged down for years in costly litigation. The average troll settlement costs a small or medium company $1.33 million, versus $1.75 million per case for an in-court defense. The majority of companies targeted by trolls have annual revenues of less than $10 million.
The patent system is supposed to protect innovators, but when it comes to software patents, the system is propping up litigators instead. With the future of the tech economy at stake, immediate action is needed to stop the trolls in their tracks. Let’s remove the constant threat of patent shakedowns, and let America’s entrepreneurs focus on what they do best.
Lamel is executive director of the foundation for Innovation and Internet Freedom.