Patent Assertion Problem Requires Congressional Action, Developers Say

Lawmakers have put forward several bills that could begin to address the issue, said stakeholders and patent attorneys. Several parties voiced support for a “loser pays” bill that would require the losing company in a patent lawsuit to cover the legal fees of the winning company. That provision is included in legislation from Reps. Peter DeFazio, D-Ore., and Jason Chaffetz, R-Utah, introduced in February. One app developer targeted by a PAE, Ditto CEO Kate Endress, said such a provision would “really make a difference” in her effort to fight against a PAE. Parties also backed a bill from Sen. Chuck Schumer, D-N.Y., that would expand a new Patent and Trademark Office procedure, the Covered Business Method (CBM) review, that lets entities ask the PTO to reexamine patents used in assertion that the office determines would benefit from review. Reps. Judy Chu, D-Calif., and Darrell Issa, R-Calif., have a companion bill in the House. But Russ Merbeth, chief policy counsel for the patent licensing firm Intellectual Ventures, which critics and some audience members described as a patent troll, said the bill was premature, since the CBM review procedure had been available for just a few months under the America Invents Act.

Broad patents, especially in the software industry, are the chief reason PAEs can assert patents so aggressively, said Lindberg and Steven Auvil, a Squire Sanders patent attorney. Patent examiners are hardworking and do the best they can, said Matt Levy, Computer and Communications Industry Association patent counsel. But the patents issued are “much too broad,” he said, especially in the software world. In the software realm, there isn’t a lot of settled terminology and patents tend to be more vague, said Auvil. That doesn’t give examiners space to issue patents they shouldn’t, said Jon Potter, Application Developers Alliance president. “A patent is a 20-year monopoly. It is beachfront property they are giving to a single individual,” he said. “If we're not absolutely convinced [that person’s idea is unique], the answer should be no.”

Rackspace, target of several litigation efforts from PAEs, spends five times more on patent litigation than on any other legal work, Lindberg said. He said the company had decided to start fighting back against the PAE claims for several reasons. “It makes me feel all warm and fuzzy because we're doing good in the world,” he said. “And you also have to take into account future costs. If you realize that what you're doing is setting yourself up to be a doormat, then everyone is going to treat you like a doormat. If you say ‘I'm going to stand up and fight back … I'm going to go after you in every particular,’ then even trolls sometimes learn."

"The best defense against these patent trolls is offense,” agreed Kevin O'Connor, CEO of FindTheBest.com, which bills itself as “the ultimate research hub” for making important decisions. The company filed a civil suit against a PAE under the Racketeer Influenced and Corrupt Organizations Act, claiming the PAE had engaged in extortion, he said. He joked later that even the Gambino family was easier to deal with than PAEs, saying a company he owned had been sued by a cleaning company the alleged crime family operated.

"Some business models may be taking advantage of folks,” Merbeth said. “But that’s not a business model we engage in,” he said of Intellectual Ventures, co-founded by longtime Microsoft chief technology officer Nathan Myhrvold. He said the firm was no longer in the business of selling many patents, but that it would continue to license the patents it held to others. “If a company, say a startup, has some IP [intellectual property] of its own that might cover something it’s producing, but they're concerned they might not have enough IP to cover all the functionality, they can come to us and license additional IP that will help the cover the gap, or buy IP from us,” he said.

Their remarks followed developers who had encountered PAEs. Ditto’s Endress said she hadn’t taken a salary for two years because of the money her company was spending fighting a PAE’s suit. Of the 14 companies that PAE sued for violating this particular patent, the other 13 have settled, she said. Tmsoft founder Todd Moore said the PAE suing him had disappeared when he began to speak up about the issue, but he remains concerned. “The more I learn, the more I'm just shocked about the current state of affairs, especially when it comes to software patents,” he said. He said he was lucky that he could still speak about his experience, because he hadn’t signed a settlement that included a nondisclosure agreement. “This stage would be filled with thousands of others, if they could come and tell their stories. But they can’t,” he said.

Moore said Congress should consider a law that would protect “micro-businesses” against patent assertion claims. “I can’t afford to fight these guys, and no one in my position can, so let’s just exempt anyone who makes less than $1 million, or whatever that number” should be, he said. Endress called for required transparency on demand letters, so companies have a better idea of who was being targeted for patent violations, and so small companies could consider sharing legal fees. She also offered support for a loser-pays provision. “Loser pays would really matter to me,” she said. “It would give me the ability to raise money [for legal fees], and I think just fundamentally change the incentive structure around patent trolls,” she said. She also proposed a process where small businesses could circumvent the legal discovery process and have an engineer or other arbiter “look at source code and make a judgment one way or the other.” For small businesses, avoiding the time and hassle of a suit could make a big difference, she said.