Patent trolls – ugly, taxing brake on U.S., innovation

Trolls – once devious, fearsome members of a mythical race – are now an unwelcomed reality in our modern innovation economy.
More politely referred to as patent-assertion entities, patent trolls do not develop or sell new technologies. Rather, they exist to deploy large patent portfolios against productive businesses, dragging down our economy, costing us jobs and putting a tax on our most innovative products and services.
Here in Rhode Island, we are building a vibrant cluster of entrepreneurial tech startups that are developing innovative new products and services, and most importantly, creating jobs for Rhode Islanders. The abusive tactics of patent trolls pose a very real threat to the growth of our own local innovation sector.
Our patent system was designed “to promote the progress of science and the useful arts” that would not otherwise occur. However, in the fast-moving Internet and software-driven economy, we are witnessing the opposite: patents are actually slowing innovation and serving the interests of exploitative trolls.
Many patent-infringement claims made by trolls are highly dubious, including suits claiming infringement for scanning documents, using WiFi routers, and for using store-locator and online shopping-cart features on websites. No longer just a problem for tech companies, patent trolls are now targeting banks, credit unions, retailers, hotels, restaurants and Main Street businesses that use these commonplace technologies.
Consider the case of one of the most audacious patent trolls, Innovatio IP Ventures. Innovatio owns a portfolio of patents that it claims covers any sort of WiFi implementation, and they have used this to sue coffee shops, grocery stores, hotels and many other business that offer WiFi to customers. What’s more, Innovatio frequently targets individual franchisees (rather than the corporate parent) that have no idea how to deal with a patent-infringement lawsuit. Instead of getting involved in a costly legal battle, these small businesses almost always settle for a few thousand dollars, which Innovatio gladly pockets and then moves on to the next target. While the majority of such infringement claims are likely frivolous and would not stand a chance in court, they still managed to cost U.S. businesses $29 billion in direct payouts and $80 billion in indirect costs in 2011 alone. Why? Because tech startups and many other small to midsize businesses are forced to settle these challenges out of court, as they lack the time and significant financial resource needed to fight back against patent trolls’ dubious infringement claims. That’s billions of dollars every year that could go toward developing innovative, new products and services that is instead going to patent trolls.
This is clearly not how our patent system was intended to work.
Fortunately, both houses of Congress are now working to address the patent-troll problem. Reps. Darrell Issa, R-Calif., and Judy Chu, R-Calif., have introduced the bipartisan STOP Act in the House while Sen. Charles Schumer, D-N.Y., introduced the Patent Quality Improvement Act in the Senate. These proposals would give small businesses and startups a better, cheaper alternative to patent litigation by expanding the Covered Business Method Program, currently limited to only “financial services” business-method patents.
The CBM program gets to the root of the patent-troll problem, weeding out the bad patents that are the trolls’ lifeblood. If broadened, the CBM program could be effective in helping businesses sued by patent trolls invalidate vague, obvious or overbroad patents in the PTO, rather than having to do so through expensive, multiyear litigation.
Prompt action on a number of fronts is needed if policymakers want to send an unequivocal message to patent trolls and help save productive businesses from their abuses. Congress must act quickly to keep these bad actors from further burdening our economy and negatively impacting innovation here in Rhode Island and across the country. •


Charlie Kroll is the founder and CEO of Andera Inc. and Kathie Shields is the executive director of the Tech Collective, Rhode Island’s technology-industry association.

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