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Immunize End Users From Patent Trolls

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On Thursday March 14, 2013 the House Subcommittee on Courts, Intellectual Property and the Internet held an important hearing entitled “Abusive Patent Litigation: The Impact on American Innovation & Jobs, and Potential Solutions.” Judiciary Committee Chairman Bob Goodlatte of Virginia summed up the patent troll problem perfectly in his prepared remarks:

Many of these PAEs (patent acquisition entities) file lawsuits against small and medium-sized businesses, targeting a settlement just under what it would cost for litigation, knowing that these businesses will want to avoid costly litigation and probably pay up.

PAE lawsuits claim ownership over basic ideas, such as sending a photocopy to email, podcasting, aggregating news articles, offering free Wi-Fi in your shop, or using a “shopping cart” on your website – something is terribly wrong here.

The patent system was never intended to be a playground for trial lawyers and frivolous claims. We need to work on reforms to discourage frivolous patent litigation and keep U.S. patent laws up to date. Abusive patent troll litigation strikes at the very heart of American innovation and job creation. That is why Congress, the Federal Courts and the PTO should continue to take the necessary steps to ensure that the patent system lives up to its Constitutional underpinnings.

One of the witnesses at the hearing, John Boswell, senior vice president and chief legal officer of SAS, a leading privately held software firm, stated that “patent trolls are business terrorists. Their weapons of mass destruction are software and business-method patents with fuzzy boundaries that can be asserted against many different products, many different companies, in many different ways.”

At Rackspace, the patent troll problem is our most pressing legal issue. Since 2010, our spending to combat PAEs has increased by 500 percent. We are fighting for software patent reform and are working closely with legislators to encourage troll-free innovation.

But changing the law to get rid of patent trolls will not be easy. The patent trolls and their lawyers are well-funded, and will fight vigorously to protect the status quo and their ability to victimize small businesses and start ups with their lawsuits.

Even so, technology users should be encouraged by the attention given to end users at the committee hearing.  “End users” are you and me: small businesses, developers, students, professionals, and other ordinary Americans who use technology in our daily lives.  We didn’t steal somebody’s idea. We didn’t copy someone’s patent. We bought a computer and downloaded some software. We bought a scanner.

Most of the witnesses and members of the committee at the hearing acknowledged the serious problem that threatens essentially everybody who owns a computer. Consider the “scanner trolls” referred to in Chairman Goodlatte’s statement which have sent out untold numbers of letters claiming patent infringement and demanding payment for the recipients’ use of a simple document scanner to scan documents to e-mail.

Just as bad, the “Wi-Fi troll” has filed several suits against retailers and other small businesses, claiming that their ordinary Wi-Fi networks infringe a group of seventeen patents. In the Wi-Fi troll case, Cisco Systems fought back and even filed a civil suit under the Racketeer Influenced and Corrupt Organizations Act, (“RICO”) which is used by law enforcement to expose and fight criminal activity and gives ordinary citizens the right to bring civil suits if they are harmed by racketeering activities.  The RICO case was thrown out, but Cisco’s efforts are to be commended.

These egregious examples are typical patent troll activities, and Congress has the power to bring them to an end. Congressman Blake Farenthold’s questioning was right on point and went straight to the heart of the issue. Congressman Farenthold offered a simple, workable solution to solve a big part of the problem:  immunize end users of commodity-type products from patent litigation. Under this approach, if a business (or individual) buys a computer or other piece of commodity gear and is using it in its intended way, it cannot be sued for patent infringement.

There is precedent in the law for this type of immunity. For example, Section 287(c) of the U.S. Patent Act, the Physician’s Immunity Statute, was enacted in 1997 to immunize physicians from infringement claims for practicing patented medical procedures.

Most small businesses and software developers cannot afford to hire a lawyer to defend them against lawsuits. Our legal system is just too expensive. Elected officials celebrate startups and small businesses as job creators and innovators. Unfortunately, for most small businesses, our patent laws are something to be feared, and an obstacle to success. This is not the right policy in 2013. The U.S. Patent Act should be amended to protect the hundreds of thousands of businesses that are subject to victimization by a handful of people who are taking advantage of a broken system.

Patent trolls, who employ few and create nothing but wealth for themselves and their lawyers, have made a mockery of an historic law designed to promote the progress of science and useful arts. It is time to fix this exploit. Immunizing end users as part of a legislative package to meet the objectives that Chairman Goodlatte set forth, to “continue to take the necessary steps to ensure that the patent system lives up to its Constitutional underpinnings” would go a long way to restore the confidence of American businesses in the patent system.

About the Author

This is a post written and contributed by Alan Schoenbaum.

Alan Schoenbaum is Special Counsel for Rackspace.

Prior to joining Rackspace in 2005, he was a partner at Akin Gump Strauss Hauer & Feld LLP in San Antonio, Texas. Alan has more than 25 years of experience in corporate and securities law and mergers and acquisitions. Throughout his legal career he has represented public and private growth companies, venture capital funds and their portfolio companies. Alan received his B.A. in English and his law degree from the University of Texas at Austin.


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3 Comments

” Consider the “scanner trolls” referred to in Chairman Goodlatte’s statement which have sent out untold numbers of letters claiming patent infringement and demanding payment for the recipients’ use of a simple document scanner to scan documents to e-mail.”

“Untold numbers of letters”, indeed. This, in my opinion, is the way to find out the real ugly underbelly of the troll society. Working now to find a way to get at that data.

The issue of end user liability is going to get really real just as soon as the trolls are thwarted on the deep pockets end. Once those deep pockets dry up or, as I continually and annoyingly advocate, TEAM UP to stop the troll nonsense, they’ll find somewhere else to go. The pockets of the end users may not be as deep, but they’re four or five times as wide.

“Congressman Farenthold offered a simple, workable solution to solve a big part of the problem: immunize end users of commodity-type products from patent litigation. Under this approach, if a business (or individual) buys a computer or other piece of commodity gear and is using it in its intended way, it cannot be sued for patent infringement.”

Giddyup.

Cheers (and HOOK ‘EM!!),

Steph

avatar Steph Kennedy on March 19, 2013 | Reply

Good post, you can also add that most of the real inventors will then have to supply their source code and if they refuse will be under federal subpoena to do so and that is very expensive for small businesses who have to deal against some of the largest law firms defending these trolls. By enticing large law firms to stay away from the trolls would also help.

avatar Nick on March 24, 2013 | Reply

Good start gentlemen. You are right on target. Now explain to me how people are getting patents on past art that is over 50 years old. They do this by hiring lawyers to blow smoke (legal garbage) and confuse the technical issues and the people reviewing the patent applications. Typical incompetent government hogwash.

If something isn’t done soon about the patent mess, this country is doomed.

avatar Ed Smith on September 30, 2013 | Reply

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