Patent assertion entities in the spotlight

The past few weeks have seen several new ways in which regulators are trying to address patent assertion entities (PAEs) – often referred to in the media as “patent trolls” — through legislation, regulation, and in one case litigation.

In March, Congress began to consider a new bill, know as the SHIELD Act, that proposes to allow defendants who prevail in patent lawsuits to recover costs from the plaintiff in certain situations. As noted in a previous IP Spotlight post, the SHIELD Act has some weaknesses that can hurt both patent holders and defendants, but it may be a first step in broader legislative action.

In April, the U.S. Department of Justice (DOJ) published a set of public comments on a joint DOJ / Federal Trade Commission (FTC) investigation of PAE activities. The comments followed a December 2012 workshop in which the FTC and DOJ explored the impact of PAEs on innovation and competition.

In May, the state of Vermont attacked PAEs on two fronts. First, the state passed a new law (H. 299) that prohibits bad faith claims of patent infringement. Second, Vermont’s Attorney General filed a lawsuit against MPHJ Technologies asserting that MPHJ violated state consumer protection laws. Interestingly, the Vermont actions do not target patent lawsuits so much as they target demand letters that are deemed to be “deceptive” or sent in “bad faith.”

Finally, on May 30, the FTC participated in a Washington Legal Foundation panel discussion about PAEs. Among the comments by participant FTC attorney Lisa Kimmel were that the December DOJ / FTC workshop was part of a “broad investigation by both agencies” about both the positive and negative impacts of PAE activities on the overall economy. Ms. Kimmel noted that the status of the patent holder is not as important as the effect of the patent holder’s activity on the economy.

Will any of these efforts cure the PAE problem? Not likely. The America Invents Act restricted multi-defendant patent litigation, but instead of reducing litigation it actually increased the number of patent lawsuits by spurring patent holders to file multiple cases in the same court on the same day. (And courts often consolidate such cases anyway.)  

Also, identifying the “cure” will depend on how one defines the problem.  The high cost of patent litigation — and the tactics of many PAEs that can cause defendants to spend more in legal fees than in licensing fees — are certainly a problem. However, several PAEs engage in research and development activities. Because the U.S. patent system is designed to encourage and reward those activities, regulators need to be cautious that their efforts do not remove those rewards.  

Efforts that address costly legal tactics — mass-mailed demand letters, lengthy litigation maneuvers without meaningful settlement discussions, and similar activities — may have the best chance for long-term success.  The complexity of the problem makes it clear that none of the recent actions are likely to have a major impact on their own.

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