Corralling Patent Trolls In East Texas
It can be tricky to pin down a patent troll.
That hasn’t stopped companies, Congress and the Supreme Court from trying. In part one of our story, we reported on why the so-called patent trolls go to the Eastern District of Texas. In part two, we focus on the struggle to change the system.
Ever since inventors in the U.S. began patenting their ideas two centuries ago, they’ve had to defend them.
In recent years, though, some companies claiming to defend patents have turned abusive tactics. SMU law professor Keith Robinson says the pejorative title, patent troll, is too simple. Instead, he uses the lawyerly term “non-practicing entities.”
“These are entities that own a patent, or several patents, and they sue other companies for patent infringement for using those patents with the idea that they are trying to extort a settlement fee,” he says.
The settlement fee could be as low as $1,000. That might not sound like much, but when the trolls sue dozens of companies at once, it adds up.
Nearly 2,000 patent lawsuits have been filed against 662 Texas companies between 2005 and 2014. Most of them were filed in the Eastern District of Texas. Almost every major tech company is involved in ongoing patent battles, but it’s smaller businesses, too.
For telecommunications company ADTRAN, patent lawsuits have become a major distraction.
“There are points in time where I will get three or four allegations a month,” CEO Tom Stanton says. “I’ll tell you that in 80 to 90 percent of the cases there is no infringement there.”
Stanton admits sometimes his company unknowingly infringes on technology that is patented. And when that’s the case, he has no problem paying a licensing fee.
“Inherently I don’t have a problem with — let’s call them patent aggregators or patent tolls — my issue has more to do with the practice and how they go about their business than their business models itself,” he says.
Here’s an example of the practices Stanton is talking about: In May, a patent lawsuit landed on his desk. Stanton says it was a vague accusation, and ADTRAN was lumped in with a few dozen other companies. Two days later, he says, he got a letter offering to indemnify him from the lawsuit — if he would pay $95,000.
Tom Stanton, CEO of ADTRAN, Inc. ADTRAN is a provider of telecommunications networking equipment and internetworking products.
“I know it’s going to cost me more than $95,000 to prosecute it all the way through,” he says. “Or, even though I have no idea what they’re claiming, I can go ahead and write them a check for $95,000. Nobody likes being taken advantage of in that way.”
Trolls or patent aggregators aren’t the primary problem with the system, Stanton says. They’re just bad actors taking advantage of a broken structure.
So how to repair the patent system? And who can do it? How do you make it more difficult for patent trolls to file frivolous lawsuits in Eastern Texas, but still allow prosecution of real patent poachers?
There are lots of ideas, but four real changes have already been made:
1. The America Invents Act
The America Invents Act was the first major reform to the U.S. patent code in almost 60 years, law professor Keith Robinson says. He says the legislation curbs trolling by making it harder for non-practicing entities to sue a whole bunch of companies at once.
2. Supreme Court Octane-Fitness Case
The second patent troll roadblock came from up high. Last year, the Supreme Court made it easier for district judges to call a lawsuit frivolous and demand the plaintiff pay for a defendant’s legal cost.
Robinson says this is powerful tool. It makes the trolls have skin in the game.
But judges in East Texas aren’t using this tool like judges in other districts. The National Association of Legal Fee Analysis reports that on average, courts are granting about 36 percent of motions for attorney’s fees — triple the rate before the Supreme Court case. In the Eastern District of Texas, not one plaintiff has been ordered to pay the defendant’s fees.
3. Patent Trial and Appeal Board
You can see the third weapon against frivolous patent lawsuits in Dallas inside a courtroom at the new satellite office of the U.S. Patent and Trademark Office.
This is where you’d come if you were sued for infringement and you didn’t think a patent should have been granted in the first place. The Patent Trial and Appeal Board was created following the passage of the America Invents Act. The head of the U.S. Patent and Trademark Office, Michelle Lee, says since these review boards opened in 2011, they’ve been extremely popular.
4. Stronger Patents
The fourth weapon against patent trolls and frivolous lawsuits is better patents. Michelle Lee says with so much abusive patent litigation going on “it is even more incumbent on the USPTO to issue patents that have extremely clear boundaries designated, so that businesses can make informed business decisions as to whether or not they can design around it, if they’re infringing, if they need to take a license, or if they need to settle the litigation.”
Lee hopes clearer patents, faster appeals and methods to recover lawsuit expenses will help companies spend less time fighting patent trolls in East Texas — and more time doing business.