The American patent system was enshrined by our founding fathers in the Constitution to promote innovation and the progress of science and the useful arts.1 Since that time, when functioning as originally intended, it has served to bolster U.S. entrepreneurship, economic advancement and employ millions of workers across the nation.2
As Members of Congress from New York’s Eighth District and the Twenty-Seventh District of Texas, we are privileged to represent emerging technology hubs comprised of the next-generation of American patent owners as well as established innovative companies. Throughout the last few years, companies of all sizes in the districts we represent and throughout the country have been threatened by irresponsible actors claiming patent infringement in bad faith. An Obama Administration study noted that so called patent assertion entities (also known as patent trolls) filed almost 60 percent of the patent lawsuits in the U.S. in 2012.3 U.S. Government Accountability Office (GAO) estimated that the number of defendants sued by these entities more than tripled from 834 in 2007 to 3,401 in 2011.4
The victims of these suits are now often small and medium sized business, including start-up technology companies in the growing innovation economy. According to one researcher from Santa Clara University, last year, 55% of patent litigation cases targeted businesses that make under $10 million annually.5 And patent litigation costs can be staggering. A 2011 American Intellectual Property Law Association study documented a range per patent case from $650,000 in small cases to up to $5 million in large disputes.6
For many startups, including those we represent, the choice is often between going to court and closing their doors. That is unacceptable. The outcome of lawsuits should be determined by the merits of a claim, not the cost of defending the court action. However, many small business owners, entrepreneurs and start-up companies are often compelled to settle rather than participate in prolonged and expensive litigation even when the infringement claim is baseless. This “it’s cheaper to pay them off” dynamic only encourages systemic abusers to press forward.
In addition to traditional technology companies, unsuspecting retailers like grocers and department stores are also being targeted, for instance, for using third-party software on their websites to help customers find store locations.7 Some patent assertion entities have even targeted city public transportation agencies for using software that informs travelers of real-time transit arrival notifications.8
Abusers also tend to haul defendants into specific jurisdictions that are perceived to be friendly judicial forums. According to the GAO, from 2007 to 2011, “an estimated 32 percent of patent infringement lawsuits were filed in 3 of the 94 district courts: the Eastern District of Texas, the District of Delaware, and the Central District of California.”9 While some federal courts have acted on their own initiative to implement model e-discovery rules10, to lower the cost of discovery, more needs to be done to ensure that certain districts are not havens for litigious mischief.
This is not to say that patent litigation is inherently problematic. On the contrary, patents are important property rights that owners have a right to buy, sell and enforce. Many, if not all, of the top technology companies could not have risen to their level of prominence without being able to fully apply their intellectual property. However, the patent infringement process should not be used as a playground for bad actors to advance baseless claims.
The explosion of abusive patent litigation diverts resources away from research and development, hinders innovation and stifles entrepreneurship. It also taints legitimate patent litigation and the right to enforce intellectual property rights. For these reasons, we supported passage of meaningful bipartisan patent litigation reform legislation in the House and we strongly urge our Senate colleagues to move forward with a similar measure.
The House took a very positive step in the right direction by passing H.R. 3309, the “Innovation Act.” We look forward to working with our distinguished colleagues on the Senate Judiciary Committee to send to the President a bill that strikes the right balance for all participants in the patent ecosystem and innovation economy.
1. The Constitution grants to Congress the power “[t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” U.S.Const., art. I. § 8, cl. 8.
2. U.S. Dept. of Commerce, Intellectual Property and the U.S. Economy: Industries in Focus (Washington, D.C.: March 2012).
3. Executive Office of the President, Patent Assertion and U.S. Innovation (Washington, D.C.: June 2013).
4. U.S. Gov’t. Accountability Off., INTELLECTUAL PROPERTY Assessing Factors That Affect Patent Infringement Litigation Could Help Improve Patent Quality, at 18 (August 2013).
5. Colleen Chien, Startups and Patent Trolls, Santa Clara Univ. Legal Studies Research Paper No. 09-12, at 1-2(Sept. 28, 2012).
6. AIPLA, Report of the Economic Survey 2011 (Arlington, VA.: July 2011).
7. U.S. Gov’t. Accountability Off., INTELLECTUAL PROPERTY Assessing Factors That Affect Patent Infringement Litigation Could Help Improve Patent Quality, at 23 (August 2013).
8. U.S. Gov’t. Accountability Off., INTELLECTUAL PROPERTY Assessing Factors That Affect Patent Infringement Litigation Could Help Improve Patent Quality, at 23 (August 2013).
9. U.S. Gov’t. Accountability Off., INTELLECTUAL PROPERTY Assessing Factors That Affect Patent Infringement Litigation Could Help Improve Patent Quality, at 24 (August 2013).
10. See Fed. Cir., E-Discovery Committee, Model Order Regarding E-Discovery in Patent Cases, available at https://www.cafc.uscourts.gov/images/stories/announcements/Ediscovery_Model_Order.pdf.