A group of patent lawyers in Washington said at a panel discussion today that Congress should solve the problem that patent trolls pose to innovation, and urged legislators to pass the SHIELD Act to protect American companies from meritless lawsuits.
Organized by the Computer & Communications Industry Association, the event was held on Capitol Hill a day after representatives Peter de Fazio (D-Ore.) and Jason Chaffetz (R-Utah) introduced a bill to force patent trolls, more formally known as non-practicing entities, to take financial responsibility for what their many critics say are their frivolous lawsuits. According to a recent Boston University study, trolls cost operating companies $29 billion in direct costs in 2011.
"The dramatic rise in abusive patent litigation…imposes significant costs on American businesses, threatens innovation, and is ultimately detrimental to economic growth,” said Senator Mike Lee (R-Utah) at the event.
Much of this burden falls on small and medium-sized companies. The same study found that 82 percent of the defendants in such suits had less than $100 million in revenue. Seth Brown, the head of litigation at LivingSocial, a company started in a Georgetown apartment which now employs over 4,000 people worldwide, said they are still in a start-up mode and have experienced the "pernicious" effects of patent trolls.
Unlike last year's version of the SHIELD Act, this year's bill applies to all types of patents. If a troll decides to bring a patent case and loses, it will be its responsibility to pay all associated costs and attorneys' fees. Independent investors, businesses and universities would not be required to pay the opposing party's fees in a lawsuit even if they lose.
Alan Schoenbaum, senior vice president and general counsel at Rackspace, an IT hosting company, said dealing with patent trolls is time consuming, extremely costly, and harms innovation.
Erik Lieberman, regulatory counsel for the Food Marketing Institute, said it is not just "a high-tech issue, but a general business one," citing a supermarket being sued for using clickable menus on its website as an example. "Patent trolls are a huge problem for our industry…costing retailers and wholesalers millions of thousands in legal fees, settlements, and other resources each year."
Edward Goodmann, policy and research manager at EngineAdvocacy, said patent trolls also make entrepreneurs unsure about how to build their business more effectively. "Engineers, developers, people who run startups and entrepreneurs do not understand what really this thing means," he said. "The system is not transparent or understandable to the people building the technology."
Brown, who has litigated patent case in China, said this is just an American problem. "We hear about the Chinese who do not respect patents; that was not my experience at all."
All the panelists, including Julie Samuels, a patent lawyer with the Electronic Frontier Foundation, said patents are often too complicated and too overbroad to be understood.
Samuels said what happens is that startups, companies and individuals who receive demand letters give in and prefer to pay rather than take the risk to engage in a legal battle. "We think they are just paying the trolls to go away because who wants to deal with litigation?" she said.