Government Efforts to Counter Patent Trolls

A patent troll is a company that acquires intellectual property (typically patents) with the aim of suing other companies for infringement in order to ultimately force the target company to pay a cash settlement in order to avoid even more expensive litigation. Patent trolls are a serious and growing issue to the startup and emerging company community, since patent trolls can suck precious time and financial resources out of such companies.

In response, the White House has been pushing for reforms that would increase companies’ protection from patent trolls and reduce the effectiveness of their tactics. Specifically, President Obama initiated five Executive Actions (which took immediate effect) and made seven legislative proposals to Congress.

Among his executive orders, President Obama ordered:

– the PTO to require patent applicants and owners to designate and regularly update the “ultimate parent entity” in control of the patent or application
– additional training for patent examiners so as to provide additional scrutiny on functional claims, in order to avoid overly-broad claims in applications
– drafting of educational and outreach materials for target companies facing claims from patent trolls in order to help target companies better understand their rights and responsibilities before deciding whether to engage in the litigation process
– roundtables and workshops to study and publish data and information on the issue of patent trolls and abusive litigation
– an evaluation of the scope, process, and standards of exclusion orders, which bar the importation of infringing goods.

Furthermore, the White House recommended Congress pass legislation that would:

– require any party that sends an infringement notice and settlement demand letter or files and infringement suit to disclose the “real party in interest”, to better expose patent trolls who use shell corporations to obscure their activities
– permit district courts more discretion to award attorneys’ fees to prevailing parties as a sanction for abusive litigation
– expand business method patents to include more computer-enabled patents and allow more challengers to have patents reviewed before the Patent Trial and Appeals Board
– protect consumers and businesses who use off-the-shelf products in their intended uses
– bring the U.S. International Trade Commission’s standards for injunctions in line with that of district courts
– enable and incentivize public filing of infringement notice and settlement demand letters to allow them to be made accessible by the public
– provide the International Trade Commission additional resources to enable the hiring of additional qualified Administrative Law judges

Congress is already considering the second of the White House’s legislative suggestions. The SHIELD Act, currently in the House of Representatives, would require patent licensing companies who purchase and license patents in the open market — read: patent trolls — who lose patent infringement litigation initiated by them to pay the the defendants’ costs.

If you as a startup or emerging company receive a letter from a patent troll, you should consult with an attorney experienced in defending against patent infringement suits before responding. Some patent trolls are only in it for the quick buck, so the moment you lawyer up they may back off. Having an attorney from the beginning of the process will help you understand and protect your rights and your company — they will help you decide when it is worth it to fight, and when, unfortunately, it may not be worth it to fight.

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