This piece was originally published in Recode.
HBO’s Silicon Valley this week took on an issue that is all too familiar to startups across the country, the threat of frivolous patent litigation. In the show the startup, Pied Piper, breaks into the top 500 on the app store and almost immediately, the company receives a demand letter stating that they are violating an existing patent. Pied Piper soon discovers they are being sued not by another well intentioned startup, but an unscrupulous attorney, or a patent troll. The troll in the show explains that he buys up vague patents at auction and “print money” suing startups for settlements. Despite the fact that Pied Piper eventually outsmarts the patent troll, the startup ends up paying more in attorney fees than it would have cost to just settle. While the show is meant to be humorous, this is the reality for many startups, prohibiting them from investing in engineers, marketing and job creation.
Hollywood is doing its part to bring light to this shady practice, but Washington needs to do more. One body in Washington is doing its part. Recently the Supreme Court gave startups facing patent trolls a real reason to celebrate with the TC Heartland Inc. v. Kraft Foods Group Brands LLC decision. On May 22nd, the justices unanimously ruled that patent owners can only bring patent infringement lawsuits in districts where the defendant is incorporated or has a regular and established place of business.
While the troll suing Pied Piper was located in California, it would have been more realistic to have received the demand letter from a shell company in Eastern Texas. Over the past decade, nearly 40 percent of all patent cases in the United States have been filed in in Marshall and Tyler, Texas, two places known for their plaintiff-friendly decisions and sky-high court costs. Litigating in a far-flung Texas district is prohibitively expensive for cash-strapped and time-crunched startups, so troll victims usually decide to settle, even if the suit itself is clearly meritless.
Startups and small businesses account for over 55 percent of patent troll defendants and TC Heartland ensures that they can litigate in jurisdictions where they already have representation. This is why venue reform has been a top priority for startups and the tech community in the patent debate for years, but there are other important fights looming in Washington.
Playing Defense
In recent years, Congress, the courts, and the United States Patent and Trademark Office (USPTO) have made tremendous gains in advancing patent quality. Since so much of the patent trolling problem stems from the abundance of vague, overbroad patents, startups must focus on defending these gains. In particular, we must fight to preserve another recent Supreme Court ruling from a case called Alice v. CLS Bank. That ruling, which found that a basic idea that takes place on a computer cannot be patented merely because of that connection to a computer, has proven to be invaluable to startups and small business. Not only does Alice promise to limit the issuance of the bad patents that trolls can exploit, but it provides a crucial tool for those startups and small businesses to defend themselves in court when facing threats based on low-quality patents.
Many startups rely on patents to protect their intellectual property, but allowing low-quality patents to flood the system not only enables trolls file abusive lawsuits, it also delegitimizes the entire patent system. Patent reform supporters, like the tech industry, must fight back against any legislation that would weaken the important gains realized under Alice v. CLS Bank.
Playing Offense
Additionally, there are areas where startups need to remain engaged on patent litigation reform. For a startup, the average patent lawsuit costs upwards of a million dollars. Even if a startup wins, that is money the company will never get back and often means life or death for a fledgling business. To help bring down these costs, Congress still must address common sense reforms like shifting fees when a plaintiff brings egregiously frivolous suits and staying patent suits filed against end users. So long as the patent litigation process imposes unreasonably high costs for defendants, startups will be forced to accept extortive settlements rather than fight back against abusive claims.
Ultimately, startups and tech can take a short victory lap after TC Heartland, but should not see the decision as a license for patent reformers to take a backseat in the legislative process. Venue reform was the one piece of comprehensive legislation that had broad support in Congress, so while the court’s decision frees up capacity for patent reform advocates to tackle other problems with the patent system, the hard fights are still to come.
For Pied Piper and the nonfictional startups in this country, we have only just begun to see meaningful improvements to the patent system, and it is essential that the startup community continues to defend these wins and fight for additional progress.
Photo Credit: HBO
