Abusive patent litigation is a festering problem that costs the American economy billions of dollars. This week President Obama proposed promising reforms to rein in lawsuits filed by businesses that buy patents with the intent of suing individuals and businesses for using or selling products that they claim violate their patents.
Such firms, often called patent trolls, have no interest in creating products or services; they make money by using legal threats to induce others to pay them a licensing fee or to settle their suits. One firm threatened to sue 8,000 coffee shops, retailers and hotels that used Wi-Fi networks to provide Internet service to their customers and demanded they pay a one-time fee to settle the claims.
The patent system encourages innovation by giving inventors a temporary monopoly on their creations. But, in recent years, as patent applications increased, the Patent and Trademark Office has struggled to keep up and has granted many patents that were poorly documented or too broad. This has encouraged lawsuits by companies that have bought patents and even between large technology firms like Apple and Samsung. Because defending patent cases is expensive and time-consuming, many defendants feel compelled to settle such cases even if they are without merit. One study found that such cases and threats cost businesses $29 billion in 2011, and much of that was borne by small- and medium-size firms.
The administration has proposed changes that should help fix at least part of the problem. It is asking Congress to restrict lawsuits against consumers and businesses that use technology. Another proposal would make it easier for judges to award attorney fees to defendants who prevail in frivolous patent cases. The administration wants to make it tougher for businesses to get the government to ban the import of products that may rely on disputed patents. Obama also will issue an executive order to improve the training of patent examiners.
Some companies like Microsoft have expressed concerns that one of the president’s proposals to subject software patents to greater scrutiny might make it harder to patent some technologies. It is hard to judge those claims because the proposals include few details. The biggest unresolved question is what the administration and Congress plan to do to make sure the patent office has enough resources to ensure patent applications get thorough scrutiny.