Patent Troll Opponents Urge Action in Congress

WASHINGTON (CN) - Digit rights defenders took their attack on patent trolls to Congress, saying that bogus infringement suits stifle technical innovation.

Also known as nonpracticing entities, or NPEs, trolls are tech-world parasites that buy up intellectual property with no intention of developing a product. They have discovered that suing for patent infringement is more profitable.

Representing a coalition of entrepreneurs, investors and innovators, the Electronic Frontier Foundation and Engine Advocacy said trolls have cost the economy billions.

In an open letter last week to the House Committee on the Judiciary, the coalition voiced its support for the Shield Act, short for Saving High-Tech Innovators from Egregious Legal Disputes, a bipartisan bill drafted by Rep. Peter DeFazio, D-Oregon, and Rep. Jason Chaffetz, R-Utah.

This law would require trolls who lose in court to pay the defendant's legal costs, which the EFF says can often run into the millions.

The trick is not ending up in court in the first place, since trolls often count on their small-business targets settling out of court, according to an article in The Atlantic written by associate editor Jordan Weissman.

"Patent trolls have flourished over the last few years largely because it's easier and cheaper to bring a patent case today than it is to defend against them," he said.

A study by professors at the University of Texas and Stanford found that about 90 percent of cases brought by trolls end in a deal, Weissman said.

"That's crucial to their business model," Weissman said. "The fact is that when their cases do go to trial, trolls overwhelmingly lose. The Texas-Stanford study found that when suits don't settle, trolls win just nine percent of the time. A PricewaterhouseCooper study found that they prevail about 24 percent of the time - somewhat more impressive, but still not great odds. These companies are essentially betting that they won't have to justify their junk demands in court."

With the Shield Act, patent-troll targets would be more inclined to fight in court, increasing complications and risk for trolls.

The Electronic Frontier Foundation and Engine Advocacy Letter urges Congress to "consider measures that shift incentives away from those who game the system and toward an innovative economy and competitive market."

"As President Obama acknowledged earlier this month, patent trolls, 'essentially leverage and hijack' patents originally issued to others in an effort to 'extort' money through litigation," the letter states. "Young, innovative companies are increasingly targets of these lawsuits. While big companies paid much of the $29 billion in direct costs resulting from activities by patent trolls in 2011, the costs made up a larger share of small companies' revenue. In fact, the majority of companies targeted by patent trolls have less than $10 million in revenue.

"Without startups, there would have been no net job growth in the United States over the last two decades."

Supporters of the letter include investor Mark Cuban; Reddit co-founder Alexis Ohanian; managing directors of prominent venture capital firms the Foundry Group and Union Square Ventures; Techstars founder David Cohen; and Paul Sieminski, general counsel to Auttomatic, which is the company behind the popular blogging platform Wordpress.

In a statement through the foundation, Cuban called problem rather significant.

"We have a shameful situation in this country, with patents and patent litigation hurting both competition and innovation," Cuban said. "The time for Congress to act is now."

Weissman, the Atlantic editor, likened lawyers for patent trolls to personal injury lawyers who advertise on television and work on commission, "meaning they only take a cut of what they win."

"Defense lawyers, on the other hand, ask for their pay up front, and usually bill by the hour," Weissman's article states. "As a result, a single troll can file a barrage of lawsuits without putting much skin in the game, while the small companies they tend to target - about 55 percent of the businesses sued make less than $10 million a year - are forced to mount a costly defense that saps their finances with each passing day."

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