Tomorrow, the House Judiciary Committee will hold a hearing to review recent Supreme Court cases in patent law. Do not let the wonky subject matter fool you—this is an important hearing that should help set the groundwork for much-needed legislation that will finally fix the patent troll problem.
To understand what’s at stake, you have to understand a bit about patent reform and why it’s become such a critical issue to the startup community. In the past decade, patent litigation initiated by non-practicing entities—so-called patent trolls—has increased tenfold. This increase has been primarily targeted at tech companies, and the data show that the smallest of those companies—most often, startups—are in fact targeted the most frequently. This led to the recent push for patent reform. And last year, we made some real progress: not only did we come close to passing legislation, but the FTC took up the issue, as did more than 20 states, who introduced or passed legislation, or whose attorney general investigated, and in some instances sued, patent trolls. Even more, the Supreme Court stepped in, deciding six cases unanimously, each of which should help fix a broken patent system.
That’s the good news. The bad news is that opponents of patent reform now claim that because of those victories at the Supreme Court, we no longer need patent reform legislation.
They couldn’t be more wrong.
First, the most important of those cases—Alice v. CLS Bank and Nautilus v. Biosig—deal with patent quality. In other words, tightening the standards around what can and can’t be patented, an update that’s critical to eliminating trolls who thrive on low-quality patents But it will take years, if not decades, for the impact of these cases to actually be felt. Patents last for 20 years, and the Patent Office has been in the business of granting approximately 40,000 software patents annually, which means at least hundreds of thousands of them currently exist. The vast majority of these patents won’t be reevaluated under Alice and Nautilus unless someone actually challenges that patent, either in court or at the Patent Office. Those challenges can cost tens or hundreds of thousands of dollars. So we don’t expect to see the number of bad patents falling dramatically any time soon.
Second, these cases do not address the patent troll’s other most favored weapon: the outrageous costs of patent litigation. Patent litigation is notoriously expensive, costing each side easily into the millions of dollars in legal fees, not to mention other valuable lost resources, like employee time. Trolls exploit this, often successfully demanding payments to go away instead of going to court. While one important Supreme Court case, Octane Fitness v. Icon, addressed at least some of this problem, it’s so far had limited effect. The Court held that a judge could make a loser pay a winner’s legal fees in “exceptional” cases, but, unfortunately, troll cases are no longer “exceptional.”
Despite help from the Supreme Court, we still need real, robust patent reform that will give judges discretion over when to grant fees, increase transparency in lawsuits and demand letters, even out the burden of litigation on both parties, and help protect technology’s innocent end users.
We’ll be watching tomorrow’s hearing closely to make sure that opponents of patent reform—those who benefit from a broken system—don’t mislead members of Congress and the public by overstating effect of the Supreme Court’s recent docket. We are thankful the Court has stepped in and sent a strong message that the system is broken. But lasting change that repairs the patent system for good will require an act of Congress.
