Protection of intellectual property is a major element in the highly competitive world of information technology. The scope of protection affects not only providers such as software developers but also the users of software products.
Software patent litigation has increased significantly, according to a just-released report from the federal Government Accountability Office. The report should reinforce efforts by the software sector to rectify what developers consider to be abuses of the patent system. Those efforts include improved licensing procedures covering intellectual property at the U.S. Patent and Trademark Office. They also involve enactment of federal legislation designed to curb patent law abuses such as shifting more of the court costs of patent infringement lawsuits to the instigators of litigation.
However, the GAO did not directly address the need for legislation.
“The GAO report demonstrates that abusive patent litigation is out of control, and that patent trolls and low-quality patents are to blame,” said Michael Beckerman, president and CEO of the Internet Association. “Abusive patent litigation is a hidden tax on our economic recovery that is hurting both consumers and entrepreneurs.”
GAO Documents Deficiencies
In the report, the GAO discussed deficiencies in all types of patent protection and concluded that the PTO could do a better job of issuing patents. The GAO recognized that patent licenses should be relatively narrow in scope; patents that are broadly defined and almost generic in nature provide the greatest opportunity for bringing infringement lawsuits and feed the litigation process. The GAO also recommended that in the future, the PTO should incorporate information from litigation trends in assessing and granting patents so as to minimize the chances for abuse.
The GAO also specifically noted a trend that software patent litigation has increased dramatically, partly as a result of the “troll” phenomenon. Patent trolling involves acquiring patents from parties who hold intellectual property rights but who do not intend to ever produce a product or provide a service covered by a patent. The trolls who acquire the patents also have no intention of marketing the product or service. Instead they find organizations that have engaged in activities covered by the patents and threaten those organizations with infringement lawsuits. Often the trolls will simply accept a settlement payment in lieu of a court decision — a practice many contend is tantamount to extortion.
In addition, companies in dire financial straits that were never able to exploit their own ideas in a successful business often sell their dormant patents to trolls, who then follow the same claim-threatening strategy. Trolls are frequently referred to as patent monetization entities.
Among the GAO’s findings were the following:
- PMEs represented only about 20 percent of all patent litigation cases from 2007 to 2011. More than 65 percent of cases were filed by operating companies that originally developed technology.
- Software-related patents were used to sue 93 percent of all defendants in cases brought by patent trolls between 2007 and 2011, showing that PMEs tended to sue more defendants per suit than other litigants. This indicates that trolls are increasingly including software user groups such as retail chains.
- About 84 percent of PME lawsuits from 2007 to 2011 involved software-related patents, while only 35 percent of operating company lawsuits did.
“The GAO report further supports the need for federal action to address concerns about patent litigation abuse,” Keith Kupferschmid, general counsel and senior vice president at the Software & Information Industry Association, told the E-Commerce Times. “Like predecessor reports, the GAO report identifies numerous concerns with the patent litigation system including the high-cost of patent litigation, the potential for large patent damage awards, poor quality of certain patents and recent increases in the amount of patent litigation.”
The GAO “got it right that software and business method patents make up much of the problem, as many of them should never have been issued and they are the patents used most often by patent trolls,” John Boswell, senior vice president and general counsel at SAS, told the E-Commerce Times. “Many of the changes being implemented at the PTO regarding improving patent quality are good and necessary.
Legislation Is Critical for Reform
Still, reforms of the PTO process don’t address the issue of outstanding patents that form the basis of current and potential litigation, industry representatives contend.
“Unfortunately, PTO reforms will not help with the patent troll problem, as those changes do nothing to get rid of the multiple thousands of bad patents in existence now,” Boswell said. “If the PTO from today forward issued 100 percent bulletproof patents, it would still take 20 years for the bad patents to get out of the system.
“We do not agree that focusing on the PTO is the right approach,” added Boswell, who advocates enactment of legislation that would curb the ability of trolls to bring lawsuits.
He concedes that defenders of trolling could point to GAO’s lack of addressing litigation reform to justify the practice, but in his view, that would be “a terrible outcome of the report,” he said.
“Even if only 24 percent of the lawsuits are brought by nonpracticing entities, that is still thousands of lawsuits costing billions of dollars being extracted from our economy through legalized extortion,” Boswell asserted. “It is unfortunate that the GAO report seemed to miss that larger point.”
Targeted Groups Launch Campaign
The GAO’s finding that PME-generated lawsuits tend to include a large number of defendants is an indicator that trolls not only target entities within the software developer sector but technology customers as well, since patent-protection laws include users as subject to intellectual property law. Retailers with thousands of outlets provide an inviting litigation target.
“The intentional misuse of the patent system by patent trolls not only crowds our courts with unnecessary lawsuits but also hampers retailers’ adoption of technology aimed at improving the customer experience,”said Matthew Shay, president and CEO of the National Retail Federation. “Retailers are among the most frequent targets of patent trolls due to the industry’s use of cutting-edge innovations.”
The Internet Association, the National Retail Federation, the National Restaurant Association and the Food Marketing Institute have just launched a public awareness campaign related to their concerns about patent abuse litigation.
Yet simply by highlighting the problem — regardless of its stance on solutions — the GAO has likely put some credibility and heft into the need for a variety of remedies, including legislation.
“There is general agreement in Congress that we have a problem with abusive patent litigation,” Tim Molino, director of government affairs at the Business Software Alliance, told the E-Commerce Times. “The GAO report confirms it.
“That helps bolster the case for legislation that curbs abusive litigation tactics,” he concluded, such as bills that have been put forward by Rep. Bob Goodlatte (R-Va.), Rep. Ted Deutch (D-Fla.) and Sen. John Cornyn (R-Texas).