Will the third time be the charm? In the last five years, Congress has twice tried to fix the country’s dysfunctional patent laws only to see those efforts founder at the hands of shrewd lobbying by reform opponents.
Now, lawmakers are at it again, vowing to cut down the patent trolls who have made a mockery of a system that is supposed to promote innovation by instead turning it into a tool for economic extortion. Here’s a short look at the story so far, plus five factors that will determine if this year’s patent reform effort will fare any better than 2011 and 2014 — and a prediction of how it will all turn out.
A short, unhappy history of patent reform
Patents became a major problem in the early 2000s with the rise of so-called patent trolls, which are companies that don’t make tech products or provide services, but instead acquire old intellectual property and threaten expensive lawsuits against those that do.
The trolls (who prefer to call themselves “non-practicing entities,” or NPEs) soon grew rich by exploiting an economic asymmetry in federal law that makes it relatively cheap and risk-free to file a patent lawsuit but ruinously expensive to defend one. As a result, many companies have chosen to simply hold their nose and pay the trolls — those who didn’t often landed in the patent swamps of East Texas, where lawyers and plaintiff-friendly juries have built a cottage industry based around multimillion dollar verdicts. The trolls’ recent scalps in Texas include Google, which faces an $85 million jury award over push notifications on smartphones, and comedian Adam Carolla, who was browbeat into a settlement by a troll that claims to own podcasting.
The growing economic toll of the trolls, which came to target everyone from big tech companies to small coffee shops, eventually led to calls for Congress to pass laws to stop them. Proposed remedies included fee-shifting, which would undercut the economic imbalance that makes trolling so lucrative, and the creation of expedited review procedures to challenge the validity of so-called “business method” patents, which the Patent Office began issuing by the thousands after 1998, and which can grant 20-year monopolies on basic business practices.
While Congress did pass a reform law in 2011 known as the America Invents Act, it had virtually no effect since lobbyists for patent owners had gutted almost every key provision by the time President Obama signed it into law. Indeed, after 2011, the scale of patent trolling actually increased to the point where it became a source of national notoriety through mainstream media exposes, including a landmark radio documentary titled “When Patents Attack.”
As a result, Congress tried again in 2014 and came close to achieving meaningful reform with a proposed law called the Innovation Act, which passed the House of Representatives by a large margin, and which enjoyed bipartisan support from influential Senators like John Cornyn (R-Tx) and Chuck Schumer (D-NY), as well as President Obama. The law foundered last spring, however, when Sen. Patrick Leahy (D-Vt) abruptly cancelled a key vote. Leahy never offered an explanation for his decision to pull the plug, though it’s rumored he did so in order to win favor from trial lawyers and other key Democratic constituencies ahead of last year’s mid-term elections.
Now, patent reform is brewing in Congress for a third time. Last week, an unusually broad coalition of tech companies and main street retailers announced a campaign to “take back our system from trolls,” and the wind appears to be in their sails thanks to support from the Republican-controlled Congress and the White House.
While a proposed bill is expected to arrive next month, skeptics who have seen this movie before may wonder if patent reform will go 0-for-3 — either by failing to pass, or suffering an Innovation Act-style gutting. It’s too soon to know, but here is what will determine the answer:
5 questions that will make or break patent reform in 2015
1. Will there be one reform bill — or more?
Despite bipartisan support for “patent reform,” lawmakers in 2014 offered up a potpourri of different bills that drew supporters in different directions. This played into the hands of patent trolls, who were able to claim the mantle of “reform” for themselves by supporting the weaker legislation, which offered only cosmetic changes and none of the measures (like fee-shifting or discovery reform) that would threaten their operations.
2. Will tech and retail stick together?
On previous occasions, opponents have been able to portray patent reform as a pet project of Silicon Valley, and suggest reformers were no more than slick tech villains looking to ride roughshod over inventors.
Now, as patent trolls present a growing burden to the likes of restaurants and retailers, companies like Macy’s and JC Penney are standing side by side with big tech names like Google, Adobe and Oracle. According to a person close to the campaign, the tech and retail companies have agreed to an all-or-nothing approach, and committed to seven core reform principles as a condition of membership. But it remains to be seen if this will hold up once the lobbying dollars start flying around.
3. Will anyone fall for the “good trolls” versus “bad trolls” distinction?
In recent months, the strategy of big players in the patent troll space has become clear: head off reform by drawing a distinction between themselves and the small-time shakedown players who have been targeting mom-and-pop coffee shops. In the case of Intellectual Ventures, which is the largest and most famous NPE/patent troll, the company has been scrambling to create associations with startups and charities in an effort to downplay its core business.
Likewise, in an interview late last year, the CEO of Finjan Holdings — which looks, walks and talks like a patent troll — assured me that his company was not a patent troll, but that its reputation has been harmed as a result of people associating it with “bad actors.” Whether lawmakers will appreciate this distinction, or if they will continue to swallow the trolls’ “be careful not to harm innovation” shtick, is an open question.
4. Will Apple step up?
While tech companies like Google and Rackspace have been at the forefront of patent reform, Apple has been less vocal — even as it has groused about being the very favorite target of trolls. So far its name is not among the other tech giants, including Facebook and Amazon, who are anchoring the new “United for Patent Reform” coalition.
If Apple goes all-in pushing for reform, the iPhone maker’s powerful reputation among inventors and consumers could persuade any wavering lawmakers to drive a fatal stake into the patent trolls.
5. Will pharma stay on the sidelines?
In the past, the pharmaceutical industry has been one of the most powerful opponents to patent reform on the grounds that it could weaken incentives to develop new drugs. This has been a sticking point for reform because the justification for patents in pharma, where innovation is slow and incredibly expensive, is much different than in tech where innovations are often obsolete in a year or two.
This time, however, the source familiar with the patent coalition said that the pharma industry may stay out of the legislative debate — so long as the drug companies feel comfortable the measures are aimed at patent trolls and not pills.
Is reform for real? Handicapping the 2015 outcome
Patent reform proponents are optimistic 2015 is their year. Of course, this was also the case last year when the Innovation Act was one of the few pieces of bipartisan legislation that people predicted could pass in a dysfunctional Congress.
The difference this time, however, is it will be harder other Senate Democrats to throw wrenches in the process.
But the best indication that this really could be the year for genuine patent reform may come from Erich Spangengberg, a notorious patent troll, who boasted to the New York Times in 2013 about how he likes to “go thug” on those who resist his licensing demands.
Early this year, Spangenberg blogged that 2015 would be the worst year yet for his much-maligned industry. Many companies and consumers, who pay higher prices due the trolls, no doubt hope he’s right. My own prediction is that Congress will pass some sort of reform, but that real reform — which must include fee-shifting and the end of discovery abuse — is still a crapshoot.