Over the two years since the last patent reform legislation passed Congress, the fight against companies that misuse patents as a business strategy has kicked up. Several bills pending in Congress would protect small firms targeted by these so-called “patent trolls.” Lobbying for new patent reform are a number of trade organizations, including the National Restaurant Association, the Consumer Electronics Association, and the National Retail Federation, along with big businesses like Yelp and organizations like the Credit Union National Association.
But the legislation proposed so far is controversial. Opponents say in their current forms the bills may hurt the businesses they are designed to help.
Patent trolls are individuals or shell companies that buy patents on broad technologies (often from bankrupt firms) and demand licensing fees, but never manufacturer a product related to the patent themselves. Often, a patent troll (also known as “non-practicing entity,” or NPE) will send threatening form letters to businesses that allegedly infringe on its patents. Rather than threatening to sue the manufacturers of equipment that violate the patent (for instance, a tech company that makes scanners), NPEs will often bring cases against small-business users (a company that uses the scanners in its office).
“My clients, and other small companies in Vermont, were getting these demand letters and they felt like they had to hire a lawyer to respond to them,” says Peter Kunin, deputy managing partner at law firm Downs Rachlin Martin PLLC. Kunin does pro bono work representing small and midsize firms sued by patent trolls.
Small and midsize companies could simply ignore the letter and toss it in the trash. But not if they’re trying to attract investors, Kunin says. “You have to disclose to your investors — angels, private capital — what the threats of litigation are, and that you aren’t being sued or being threatened with a lawsuit.” As a result, many small companies agree to pay licensing fees just to get trolls off their back, Kunin says.
And some letters do progress to a lawsuit. A 2012 paper from the Boston University School of Law found that 59 percent of the defendants in cases brought by patent trolls were small or medium-size firms.