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Innovation Act Aims To Disarm Patent Trolls

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Today, the ongoing war against patent trolls and the push for sorely-needed patent law reform took a massive step forward. House Judiciary Chairman Rep. Bob Goodlatte (R-VA) introduced the Innovation Act of 2013, a long-awaited, aggressive piece of legislation that aims to thwart patent trolls and their spurious lawsuits. Chairman Goodlatte and his staff have been working hard on this bill for several months. They sought and received input from literally hundreds of stakeholders, including American businesses, members of Congress, the US Patent Office, prominent patent lawyers, judges, trade associations and educators. This is a well-thought out piece of legislation.

Importantly, the Innovation Act has strong bipartisan support and is co-sponsored by Reps. Zoe Lofgren (D-CA), Jason Chaffetz (R-UT), Howard Coble (R-NC), Peter Defazio (D-OR), Anna Eshoo (D-CA), Lamar Smith (R-TX), Tom Marino (R-PA), Spencer Bachus (R-AL), George Holding (R-NC) and Blake Farenthold (R-TX). This is a powerful line-up of influential members of Congress, which gives the bill a great chance of getting through the House and eventually to President Obama, who is a strong proponent of anti-patent trolling legislation.

The Innovation Act of 2013 takes a multi-pronged approach to end litigation abuse by patent trolls. Once it is enacted, companies who find themselves in patent trolls’ crosshairs will have more weapons with which to defend themselves, and it is likely that many of the most abusive cases will no longer be filed.

One way it does this is by shifting the financial burden and requiring the loser in a patent case to pay the winner’s attorney fees and costs. This move takes away the trolls’ strongest weapon: the ability to extort a settlement because the costs to battle it in court are often too steep. If a troll sues and loses, the troll pays legal fees; it’s that simple.

The 51-page bill also adds a new level of transparency to the patent litigation process. First, it requires a patent holder, at the time the suit is filed, to offer more details around the patents in question and the claims. Trolls must provide information around what specific products infringe and how they infringe. Second, it requires patent trolls, who often hide under the cover of anonymity, to disclose the parties who benefit financially from the litigation.

Bills like the Innovation Act of 2013 can spark real change in Congress and have the potential to protect innovation while making it increasingly more difficult for patent trolls to manipulate the legal and patent systems to extort money from businesses large and small. Rackspace encourages developers, business owners and private citizens to support this bill by contacting their representative. The Application Developers Alliance has created a simple web tool to send a letter of support, or you can use the House of Representatives website contact tool.  Either way, please voice your support of this important cause.

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

Thomas Edison was a Patent Troll. If this bill becomes law, there will be damn few Edisons in the future. I’m an inventor and entrepreneur. So called Patent Trolls are essential to start up companies and innovation in general. Trolls help companies by converting an asset into cash that can be used to build products, extend markets and create new businesses. This function of Trolls also helps to drive valuations of start up companies and encourage investment into them because the investors can recoup losses by leveraging the patents in the event the company fails. If we damage this investor/inventor relationship any further, we will kill patents altogether.

avatar Paul Morinville on October 28, 2013 | Reply

Paul, your post is a good example of the thinking that falls under the trap that invention is personal, when indeed it is a collaborative process.
While Edison is known as the inventor of electricity and the light bulb, it was Tesla’s AC system and genius that powers the world. Edison’s light bulb, like most other inventions, was an incremental improvement on existing projects around the world. Guttenberg did not invent the press, as most people believed, a hundred years before that the Mongol empire was printing at large scale using movable type.
There are many who think we should abolish patents altogether. I am not yet convinced, but it is an idea we should consider. In today’s world, patents have failed to provide an economic benefit to companies, because they are seldom linked directly to the success of a company, or the widespread benefit of an innovation by society. the history of Motorola is a great example of that.
This post from Alan and the Bill are aimed at the companies that abuse the system, practice extortion, and do not create any wealth or innovation that benefits society.

avatar Gerardo Dada on October 28, 2013

The patent system has brought the longest period of continuous innovation in the history of man. Never before did an innovative period last more than a few decades. There are many societal advantages of the patent system that make it worth keeping. I can go into that, but let’s keep on point.

It is a good example of the thinking that invention is personal. It is personal. If I am going to spend years of my life and my fortune on developing my inventions in a market that is unknown, I want to protect my investment. If there is no protection, such that any monied competitor can out flank me and take the market, I will not do it and no one else will either – except those monied companies.

Patents do play a role in the success of a company. They support early stage valuation and help earn investment in new technologies. They provide a back door for investors in the event a start-up fails. There are hundreds of examples of companies that got their start based on patents.

Motorola? I’d like to hear more about that.

“companies that abuse the system, practice extortion, and do not create any wealth or innovation that benefits society”. That’s a complicated sentence that is worth breaking down.

I’ll start with abusing the system. Eli Whitney had a Patent Troll by your definition and was one himself. The patent system is specifically designed for investment in patents. That’s the point of the system. A patent is intended to be an investment grade asset that can attract investment. Unfortunately, unlike copyrights, most companies do not respect patent rights so litigation becomes necessary.

So I move to creating wealth. Investors put money into companies to build products often based on patents. Many of these companies invent tangential technologies not core to their product stack. Investors convert these patents into cash, which normally goes back into the company into core products. Investors also recover losses for investors when a company fails by converting the patents to cash. This backdoor residual value props the valuation of other patent based businesses.

Finally, does it benefit society? As previously stated, we live in the longest sustained period of economic and technological growth in the history of man. This coincides with the birth of the patent system some 400 years ago. In addition, somewhere around 80% of new job growth is created by small businesses and start-ups – these new jobs are not created by large businesses. Large businesses grow primarily by acquiring these companies.

The last point is this. You point out that “patents have failed to provide an economic benefit to companies”. Patents are not intended to provide companies with economic benefit – they provide society with economic benefit. That’s a whole different thing, and it’s working quite well.

avatar Paul Morinville on October 29, 2013

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