from the help-us-scotus dept
The Supreme Court has a chance to help banish patent trolls back under the bridge where they belong. In the fall session, the Court will hear Oil States Energy Service v. Greene’s Energy Group – a case that has massive implications for the future of patent law and U.S. innovation.
Patent trolls (sometimes called non-practicing entities, or NPEs) don’t actively create any goods or provide any services. Instead, they go after those who do, filing bogus patent infringement lawsuits. Ultimately, their goal is to frighten businesses into settling outside of court, collecting as much money as they can.
More than 80 percent of trolls’ victims are small and medium-sized businesses, and the cost to defendants to fight a patent-infringement lawsuit can easily reach $1 million. That’s why it’s often more cost-effective to simply pay off the trolls.
“Trolls often aggressively push for extortionate settlements that far surpass the value of the [intellectual property] because they know many companies will choose to settle, rather than get embroiled in an expensive and drawn-out lawsuit,” Ira Blumberg, a former patent-troll lawyer, explained: “Their actions can wreak havoc on tech companies of all sizes.”
Patent trolls cost the U.S. economy $80 billion each year, or about $1.5 billion a week. The billions of dollars wasted in this way are funds that can’t be invested in research and development or in hiring the innovative talent needed to develop new products and grow the U.S. economy. In fact, a Harvard Business School study found that companies that settle with or lose to trolls lower the amount of money they invest in R&D by 25 percent on average.
Fortunately, there’s a way to help thwart the trolls, provided the Supreme Court upholds the ruling of the Federal Circuit Court in Oil States Energy Service v. Greene’s Energy Group. The case involves inter-partes review (or IPR) – the process used by the U.S. Patent and Trade Office to determine whether a patent under question was issued based on merit. If not, the patent can be rescinded. The process is similar to a trial: Lawyers make their case to the Patent Trials and Appeals Board (PTAB), and three highly qualified administrative patent judges hear their case and come to a decision.
This process is expensive, but it’s considerably less costly than going to court. Startups and small businesses cannot afford the millions that a patent lawsuit costs, but some of them can afford to challenge a bad patent via an IPR proceeding. If the Supreme Court fails to uphold the Federal Circuit Court’s ruling, American small businesses would no longer have an accessible avenue to challenge dubious patents.
The PTAB has a solid track record of fair rulings. A troll might take the case to the Federal Circuit after not getting the result they hoped for in an IPR, but the court rarely reverses the PTAB’s ruling. A study from Law360 looked at Federal Circuit appeals in 2016, and found that the court affirmed 75 percent of the decisions made by the PTAB and overturned just three percent. (The other 22 percent were remanded back to the PTAB).
Oil States Energy Service, a multinational oil and gas company, however, wants to end IPR and hand decisions about patents back to the courts, arguing that IPR is unconstitutional and that these cases should only be heard in a court of law with a citizen jury. If the Supreme Court decides in Oil States’ favor, trolls will be able to continue extorting small businesses and those businesses will have no realistic way to fight back. That means that American entrepreneurs will be forced to waste money on frivolous troll lawsuits rather than investing in R&D and creating jobs.
Earlier this year, the Supreme Court cut off one avenue that trolls use to shake down innovators by requiring that patent cases be brought in the court where the defendant is located. This should discourage trolls from concentrating cases in favorable venues like the Eastern District of Texas. The decision was a significant step in the right direction. The Supreme Court should again rule in favor of entrepreneurs in the Oil States case.
Despite the court’s focus on patent issues, however, Congress must ultimately take a stand and act to strengthen our patent system to stop trolls for good. The House passed legislation in 2013 that would help prevent patent trolls from continuing to harass companies, but the bill died in the Senate. Since then, the problem, already bad, has only worsened: Patent troll suits have spiked 500 percent over the last ten years, and 2015 was the second-highest year on record for patent lawsuits, with trolls making up 66.9 percent of suits. Every delay allows the problem to grow and prevents tech companies from investing their money in creating jobs and innovation.
The tech industry accounts for seven percent of the U.S. GDP and supports 6.7 million U.S. jobs, but trolls continue to slow innovation with frivolous lawsuits. The Supreme Court should take advantage of this remarkable opportunity to challenge the trolls and defend American ingenuity by upholding IPRs. Our innovation economy depends on it.
Gary Shapiro is president and CEO of the Consumer Technology Association (CTA), the U.S. trade association representing more than 2,200 consumer technology 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