Companies that exist only to buy technology patents and then sue other companies for infringement could see their actions limited if the federal government passes several pieces of legislation.
The White House on June 4 stated it is actively taking on the problem of litigation by companies known as Non Practicing Entities (NPEs) or “patent trolls,” which do not produce or create any products but buy patents and then file suit against any companies that use the technology covered by the patents. The government said it is proposing both legislative reforms and executive action to reform the system.
Included is U.S. Sen. John Cornyn’s Patent Abuse Reduction Act. The federal court in the Texas Republican’s home state has one of the largest dockets for patent infringement suits in the country.
Cornyn, a member of the Senate Judiciary Committee, said his bill would require plaintiffs to disclose the substance of their claim and reveal their identities when they file their lawsuit. It would also shift the responsibility of the cost of litigation to the losing party.
"Abusive patent litigation, led by a growing number of 'patent trolls' in search of a quick payday, threatens the innovation patents were created to protect," Cornyn said in a prepared statement. "These reforms will deter patent litigation abusers without prejudicing the rights of responsible intellectual property holders."
East Texans Against Lawsuit Abuse praised Cornyn’s efforts.
“This proposal is a breath of fresh air for East Texas,” said Diane Davis, executive director of the Longview-based tort reform group. “Patent trolls have abused our local courts for years, and we are thrilled to see our leaders take this issue seriously and offer real solutions that Texans should support.”
Davis noted that the federal court’s Marshall Division of the Eastern District of Texas has been called the “center of the patent litigation universe.”
The excessive litigation, Davis pointed out, has earned East Texas a spot on Watch List of the 2011-2012 Judicial Hellholes report from the American Tort Reform Association.
“Patent trolls do exactly as their name implies: they aggressively file lawsuits to enforce a patent against an alleged infringer, often with no intention to use the patent to manufacture or market the product themselves,” Davis said in a statement. “Their targets are often innovative and successful companies, and the lawsuits typically result in a huge pay out for the patent troll while costing jobs and saddling local courts with frivolous lawsuits.”
She said the Patent Abuse Reduction Act could put an end to the troll’s tactic of drawing out the litigation until they agree to settle out of court.
Cornyn’s bill also received support form the Texas Association of business.
“Adding transparency and this kind of financial responsibility will deter many of these people, who are simply looking to make a quick buck from filing this sort of frivolous litigation in the first place,” Bill Hammond, TAB director, said.
The legislative proposals announced by the president on June 4 include making demand letters more transparent, expanding the U.S. Patent and Trademark Office’s transitional program for covered business method patents, making it more difficult to target small businesses and individuals, allowing more discretion in awarding attorney fees and changing the rules for hiring qualified Administrative Law Judges.