Intra-Conservative Debate Over Patent Reform Heats Up

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Peter Fricke Contributor
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A number of conservative groups came out sharply against patent reform legislation introduced in Congress last week, but other conservatives are now defending the proposal.

In a paper released Tuesday by the Heartland Institute, a free-market think tank, Steven Titch asserts that the activities of so-called patent trolls—organizations that stockpile patents solely for the purpose of filing infringement suits—”have the effect of thwarting legitimate innovation and discouraging competition, both of which are essential to a thriving economy.”

Most patent trolling, Titch says, is perpetrated by “non-practicing entities” (NPE’s), companies that “acquire and stockpile as many patents as they can, watch the industry for entrepreneurs and start-ups that have developed a similar idea, and then attack with an infringement claim,” all without any intention of ever putting any of their patents to productive use.

Closely related are “transformer trolls” — companies that retain their patent portfolios after exiting a given market in order to generate a side stream of revenue through infringement claims.

Virginia Republican Rep. Bob Goodlatte announced in a press release last Thursday that he would re-introduce the Innovation Act, a bill that passed the House with bipartisan support in 2013, but stalled in the Senate, in an effort to curb those types of abuses.

Some conservative patent experts, though, contend that patent trolls are not as big of a problem as advocates of patent reform make them out to be. (RELATED: Reform Bill Takes Aim at Patent Trolls, Pisses Off Conservatives Instead)

Intellectual Asset Management Magazine reports that although law firms turned to “exceedingly profitable patent trials” in the immediate aftermath of the recession to make up for lost corporate and financial clients, “that work has been drying up for some time.”

Recent academic research, IAM claims, has found that after a drop in filing numbers in 2014, the current rate of patent litigation filings is roughly equivalent to what it had been five years earlier.

Titch responds that of the 6,500 patent lawsuits filed in the U.S. in 2013, frivolous claims “accounted for 67 percent of them, up from 28 percent five years ago,” and received a median damages award of $4.3 million.

“The patent abuse industry takes an enormous toll on U.S. consumers,” Titch adds, pointing out that, “The median cost of defending a patent claim is $600,000 in cases where less than $1 million is at risk.”

Cumulatively, he claims, “frivolous patent litigation costs U.S. businesses $29 billion a year in direct costs and $80 billion in indirect costs.”

Moreover, he warns that foreign governments are also beginning to “exploit the weaknesses in our patent system,” with China, France, Japan, South Korea, and Taiwan all having established patent trolling agencies known as “sovereign patent funds” (SPF’s). (RELATED: Republicans Vow to Take On Patent Trolls in Next Session)

Titch describes SPF’s as “a new form of protectionism and subsidization of private enterprise,” explaining that, “instead of slapping tariffs on imported products that compete with homegrown industries, governments are dubiously applying patent law to extract a ‘tax’ on any product that threatens the nation’s commercial interests.”

To address both the internal and external vulnerabilities in our patent system, Titch concludes, Congress should “craft legislation that demands higher and more specific standards for the establishment of infringement.”

One such avenue would be to pass the Innovation Act, which would require plaintiffs to disclose the owner of the patent in question and provide courts with their legal reasoning at the start of infringement cases, as well as force the plaintiff to pay the defendant’s legal fees when a case is declared frivolous.

The bill is certain to face political hurdles, though, because many conservatives remain suspicious that it is largely consistent with the type of patent reform President Obama has long supported, and warn that it would excessively weaken patent protections, thereby hindering innovation. (RELATED: Patent Reform Splitting Republicans, Business Community)

Titch retorts that patent reform can actually help spur innovation “by changing the cost-benefit ratios of litigation so frivolous patents are deterred but plaintiffs with legitimate cases are still able to bring a case.”

“Patent reform offers Republicans a chance to illustrate their willingness to work with Democrats,” he notes, while at the same time “providing political cover for Democrats who want to vote with Republicans on the matter.”

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