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Caution is necessary in patent ‘troll’ debate

There is a large push in some quarters for Congress to quickly enact major patent litigation reform. This effort has been supported by some in the business community as an effort to push back against so-called patent “trolls” that are asserting frivolous claims against businesses which cost companies billions a year.  Others are using a report by the President’s Council of Economic Advisors asserting patent troll lawsuits more than doubled between 2010 and 2012. Taken together, their argument is that patent trolls have overtaken the patent system with frivolous suits, which are crushing small and large innovators.

To be sure, reducing frivolous lawsuits is a laudable goal and one we support. But we contend, as law professors whose research concentrates on empirical studies of patent law and patent policy, that decisions to overhaul a law as important to the U.S. economy as the patent system should be made only after a careful, objective, and data-driven analysis. As scholars, we believe that the empirical case for major patent reform has not been made.

{mosads}First and most important, the current push for reform is based mostly on  underlying data used in prior studies that is maintained as confidential, making these studies next to impossible to peer review and validate.  While the norm in most academic disciplines is the public release of the underlying data, the same is unfortunately not the case in studies of patent litigation. The confidential data relied upon by most studies supporting reform was assembled by companies involved in defending lawsuits, which makes peer review all the more necessary.

Many of these studies also rely upon on an overly broad definition of patent “troll.”  We note that the phrase patent “troll” itself is a loaded term, implying an evil creature demanding tolls from innocent passersby. The press characterizes them as shell companies who do not invent anything but merely buy patents to sue other innovative companies. In truth, patent assertion entities (“PAEs”) represent a wide range of entities, including universities, individual inventors, failed start-ups and companies, and speculators. Since many have included all of these diverse entities within their definition of patent “troll” and kept their data secret, we cannot evaluate the effect of removing individual inventors or universities, for instance, from their definition. And there is publicly available data to suggest removing such entities would dramatically change their conclusions.  For example, in 2010, we found that 20-30% of patent lawsuits filed by non-manufacturers were filed by individual inventors (or companies formed and owned by individual inventors). 

As for the purported explosion in the number of patent lawsuits in the past two years, we have researched the issue and found there has not been any such explosion between 2010 and 2012.  Instead, we find that most of the differences between the years are likely explained by, and attributable to, a procedural legal change adopted in 2011 that required separate lawsuits for each unrelated accused infringer. Before 2011, multiple, unrelated accused infringers could be sued together in a single lawsuit. The legal change in 2011 appears to have merely introduced a cosmetic increase in the number of lawsuits, while leaving the overall number of patent holders and accused infringers largely unchanged.  To be sure, data is complicated, and we do find a modest increase in PAE litigation, especially if one uses a narrow definition of PAEs. But overall, the often-repeated “explosion” of PAE litigation from 2010 to 2012 (before and after the last major patent reform in 2011) is essentially a myth.  Although we agree there has been a notable increase in suits by “non-practicing entities” over the last 15 years, those seeking reform have exaggerated the recent increase to encourage Congress to act rashly. And more recent studies find that patent litigation declined almost 20 percent from 2013 to 2014.

So what if the data is inaccurate or incomplete? The pending patent reform bill, called the “Innovation Act,” is targeted at frivolous cases, right? Wrong.  The Innovation Act is designed to make it harder and more expensive across the board for companies to assert and prosecute patent infringement complaints. The costs on our innovators to enforce their patents will increase, decreasing the value of their patents.  Unfortunately, the bill isn’t narrowly tailored, and, in turn, applies with equal force to meritorious claims and frivolous ones. That results in legitimate patent holders being disadvantaged, and some who infringe valid patents unfairly preferred. Thus, the proposed law throws the proverbial “baby out with the bathwater,” and does so on incredibly shaky empirical grounds.

In sum, before Congress takes any radical action affecting the patent laws, it is important to study the issue more carefully, including evaluating the underlying data supporting the popular assertion that the market is in need of significant legislative action, particularly the broad, sweeping action being suggested by some.

Cotropia is professor of Law, Austin Owen research fellow, and director, Intellectual Property Institute, University of Richmond School of Law; Kesan is professor and H. Ross & Helen Workman research scholar, University of Illinois College of Law and director of the Program in Intellectual Property and Technology Law; and Schwartz is associate professor and co-director of the Center for Empirical Studies of Intellectual Property at Chicago-Kent College of Law.

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