Businesses Are in Patent Trolls’ Crosshairs

Editor’s Note: The following commentary was submitted by Gary Shapiro, president and CEO of the Consumer Electronics Association.

ARLINGTON, Va. – Peer-to-peer commerce site Etsy has more than 50-million users, comedian Adam Carolla has one of the most popular podcasts of all time, and Hudson-based fabric-and-crafts company Jo-Ann Stores has roughly 850 outposts across the country. But it’s not just immense success that ties them together – all three are victims of patent trolls.

Every year, thousands of innovators and businesses large and small are blindsided by bogus patent-infringement claims. They’re victims of a growing epidemic spreading across the country that amounts to legalized extortion.

Patent trolls – also known as patent-assertion entities – acquire patents solely for the purpose of sending demand letters or filing lawsuits against companies the trolls accuse of violating those patents. As a result, innocent businesses and entrepreneurs are forced to either pay the trolls to go away or spend millions in legal fees for their day in court.

Patent-litigation suits are easy and inexpensive to file, and sending a threatening demand letter costs as little as the price of a postage stamp. Meanwhile, every dollar spent defending against these meritless lawsuits is one less dollar that small businesses can invest in technological innovation, growing the economy and creating jobs.

About 80%of victims are small and medium-sized businesses – and that’s no accident. The average company victimized by trolls’ lawsuits has annual revenues of $11 million a year. Trolls realize that unlike large corporations, smaller businesses – especially startups – typically don’t have the means to hire legal teams to defend them and will agree to settle out of court to avoid costly litigation.

The situation is so bad that everyone from Ohio Attorney General Mike DeWine to HBO “Last Week Tonight” host John Oliver has jumped into the debate. In 2013, DeWine commended the Federal Trade Commission for its plan to conduct a wide-ranging investigation on patent trolls. And earlier this year, Oliver described the problem as “insane” and said something needs to be done.

Oliver is right, and Congress has worked out fair, bipartisan solutions. Two reform bills – the Innovation Act in the House and Protecting American Talent and Entrepreneurship (PATENT) Act in the Senate – would discourage trolls from filing frivolous lawsuits, help small businesses fight back and make sure that inventors who do need to defend their property rights in court can do so without any extra roadblocks. Each bill earned overwhelming committee approval in June.

Neither of these common-sense bills has received a full floor vote yet – and they never will, if patent trolls get their way. But, just in case, trolls are stepping up their efforts to cash in before Congress intervenes. In the first half of 2015, patent lawsuits filed in district courts jumped 11 percent over the same period last year. More than two-thirds patent-infringement suits in 2105 were initiated by trolls, and nine in ten of the suits involved high-tech companies.

Bogus patent claims drain our economy of $80 billion dollars a year and bleed time and resources from America’s growing, innovative companies. Trolls’ lawsuits typically drag through the court system at a snail’s pace – 2.7 years, on average – all the while tying up small businesses’ resources. Real reform to prevent patent litigation abuse will require changing the economic incentives of patent suits, shifting the burden of frivolous claims to the trolls and away from innovators and entrepreneurs.

The fee-shifting provisions of the Innovation Act and the Patent Act will ensure patent trolls must pay defendants’ legal fees if those trolls bring bogus lawsuits and lose their cases. Provisions in both bills will also make it easier to collect legal fees from patent troll shell companies, reducing the likelihood trolls will simply declare bankruptcy and disappear if they lose lasuits.

Congress now has an opportunity to seize this moment of bipartisanship and stop predatory patent trolls from further extortion of our country’s legitimate businesses. We can’t allow special-interest groups to stop the real progress our lawmakers have made on this issue.

Whether they’re selling fabrics or funny jokes, earn millions or billions in revenue, represent the new sharing economy or hold tried and true brick-and-mortar stores, American businesses deserve protection from baseless legal threats. Congress must send patent trolls back under the bridge and allow American businesses the freedom to deliver innovation, create new jobs and shoulder our country’s economy.

The author, Gary Shapiro, is president and CEO of the Consumer Electronics Association, a trade association that represents more than 2,000 consumer electronics companies. He is the author of the New York Times best-selling books, NinjaInnovation: The Ten Killer Strategies of the World’s Most Successful Businesses and The Comeback: How Innovation Will Restore the American Dream

 

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