Since 2011, Overstock.com, from my home state of Utah, has been targeted by 28 so-called patent “trolls,” seeking to enforce vague patents. Often these trolling lawsuits come from shell corporations that don’t make or sell anything. Because Overstock refuses to settle such abusive suits, it ends up spending millions of dollars in litigation costs.
Mark Griffin, Overstock’s senior vice president and general counsel, explained why the company prefers to go to court, saying that patent trolls eventually find companies that litigate such claims “unappetizing.” He said “while we have the highest respect for intellectual property rights, we don’t settle abusive patent suits—we fight.”
Overstock has the means to fight back, but many cash-poor Silicon Valley startups are not as fortunate.
Small to mid-size companies are attractive targets to patent trolls because they don’t have the resources to defend themselves in court. And no fledgling company can ever expect to attract investment dollars if it’s mired in costly patent litigation. Indeed, patent trolls are crippling growth across all sectors of our innovation economy—from small businesses to America’s largest companies. That is why I am working with my colleagues on legislation to stop these patent trolls in their tracks. This week, hearings will begin in earnest to address this issue and I am confident we can come up with a solution.
There is broad agreement—among both big and small businesses—that any serious solution must include:
• Fee shifting, which will require patent trolls to pay legal fees when their suits are unsuccessful;
• Heightened pleading and discovery standards, which will raise the bar on litigation procedure, making it increasingly difficult for trolls to file frivolous lawsuits;
• Demand letter reforms, which will require those sending demand letters to be more specific and transparent;
• Stays of customer suits, which will allow a manufacturer’s case to move forward first, without binding the end user to the result of that case;
• A mechanism to enable recovery of fees, which will prevent insolvent plaintiffs from litigating and dashing.
Some critics argue that these proposals will help only large technology companies and might even hurt startups and small businesses. In my discussions with stakeholders, however, I have repeatedly been told that a multi-pronged approach that tackles each of these issues is needed to effectively combat patent trolls across all levels of industry. These stakeholder discussions have included representatives from the hotel, restaurant, retail, real estate, financial services, and high-tech industries, as well as start-up and small business owners.
Enacting legislation on any topic is a major undertaking, and the added complexities inherent in patent law make passing patent reforms especially challenging. Crucially, we will probably have only one chance to do so for a long while, so whatever we do must work. We must not pass any bill that fails to provide an effective deterrent against patent trolls at all stages of litigation.
It is my belief that any viable legislation must ensure that those who successfully defend against abusive patent litigation and are awarded fees will actually get paid. Even when a patent troll is a shell company with no assets, there are usually other parties with an interest in the litigation who do have assets. These parties, however, often keep themselves beyond the jurisdiction of the courts. They reap benefits if the plaintiff forces a settlement, but are protected from any liability if they lose.
Right now, that’s a win-win situation for these parties, and a lose-lose situation for America’s innovators.
Because Congress cannot force parties outside a court’s jurisdiction to join in a case, we must instead incentivize interested parties to do the right thing and pay court-ordered fee awards. This is why we must pass legislation that includes a recovery provision. Fee shifting without recovery is like writing a check on an empty account. It’s purporting to convey something that isn’t there. Only fee shifting coupled with a recovery provision will stop patent trolls from litigating-and-dashing.
There is no question that American ingenuity fuels our economy. We must ensure that our patent system is strong and vibrant and helps to protect our country’s premier position in innovation.
I am confident that Congress can work together to solve these complex issues and to pass legislation soon that will protect American innovation, especially among the small to mid-sized businesses and startups that need such protection the most. I hope my congressional colleagues will consider these points as we begin in earnest to legislate to curb patent trolls.
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