{"id":2044,"date":"2013-10-22T21:47:17","date_gmt":"2013-10-22T21:47:17","guid":{"rendered":"http:\/\/ncjolt.org\/?p=2044"},"modified":"2020-06-04T20:53:59","modified_gmt":"2020-06-04T20:53:59","slug":"patent-trolls-and-their-effect-on-the-modern-patent-system","status":"publish","type":"post","link":"https:\/\/journals.law.unc.edu\/ncjolt\/blogs\/patent-trolls-and-their-effect-on-the-modern-patent-system\/","title":{"rendered":"\u201cPatent Trolls\u201d and Their Effect on the Modern Patent System"},"content":{"rendered":"

Tuesday, October 22, 2013, by Daniel Choo
\nWhen the framers of the Constitution explicitly gave Congress<\/a> the power to establish a national patent system, there is little doubt that they did so with every bit of good intention.\u00a0 After all, the importance of providing inventors with temporary exclusionary rights over their inventions had been recognized long before the Constitution was even established<\/a>.\u00a0 But, like many things in life, good intention does not necessarily lead to positive results.\u00a0 And with the recent rise in the prevalence of \u201cnon-practicing entities\u201d (NPEs), many have begun to demand for significant overhauls to the existing patent system.
\nTraditionally, inventors relied on patents to protect their inventions from infringements and to promote further scientific innovations.\u00a0 However, this is not so with NPEs<\/a>.\u00a0 Because NPEs generally do not produce or manufacture their own products, they accumulate patents by purchasing them from distressed or bankrupt companies.\u00a0 Then, they use these patents to actively seek infringement suits against other practicing entities.\u00a0 NPE\u2019s primary objective is not to further scientific innovations but to generate economic revenue through patent licensing agreements and litigation.<\/p>\n

NPEs often freely use \u201cweak and vague patents to threaten product manufacturers . . . [with] frivolous infringement litigation.\u201d<\/p><\/blockquote>\n

In theory, such an approach seems rather creative and commendable, especially in today\u2019s stagnant economy.\u00a0 But many NPEs, obviously, are not called \u201cpatent trolls<\/a>\u201d for their ingenious business strategy.\u00a0 NPEs are fully aware of their advantageous position<\/a>; because they do not produce products of their own, there is no risk of being countersued.\u00a0 And so, NPEs often freely use \u201cweak and vague patents to threaten product manufacturers<\/a> . . . [with] frivolous infringement litigation.\u201d\u00a0 In response, these manufacturers usually have very limited options: they can invest both time and money to litigate the case with no guarantee of a victory, or they can agree to the exorbitant licensing terms.\u00a0 With such limited options, there is obviously very little motivation for these companies to continue to innovate.
\nMany advocates of NPEs argue that all the name-calling and harsh criticisms are highly unfair.\u00a0 NEPs are \u201csimply enforcing their legal rights<\/a>.\u201d\u00a0 The right to exclude others from practicing one\u2019s patented invention is the whole basis of the patent system.\u00a0 And the current system does not require that one actually manufacture or practice the patented invention before one can bring an infringement suit.
\nOpponents of NPEs do not necessarily object to this fact.\u00a0 Where these opponents draw the line is at the sheer volume of infringement suits brought by the NPEs.\u00a0 When compared to practicing entities, NPEs have filed \u201cmore than twice as many suits per patent and [have] assert[ed] each patent against more than four times as many alleged infringers<\/a>.\u201d\u00a0 This discrepancy cannot be credited to mere differences in the quality of patents as \u201cNPEs lose at a higher rate than product-producing companies when their infringement claims are [actually] adjudicated.\u201d\u00a0 Accordingly, these frivolous lawsuits not only tie up the courts unnecessarily, but legal costs resulting from such actions totaled over $29 billion in 2011 alone<\/a>, highlighting an obvious need for an immediate solution to the problem of NPEs.
\nA potential solution, which has been lauded by many since its enactment, is Vermont\u2019s \u201cBad Faith Assertion of Patent Infringement\u201d<\/a> statute.\u00a0 The statute\u2019s obvious strength is that it provides Vermont companies and businesses targeted by NPEs with the \u201cmeans to sue a patent enforcer who engages in dubious patent enforcement actions or licensing activities<\/a>.\u201d\u00a0 By doing so, the statute essentially levels the playing field between NPEs and the victims of their infringement suits.\u00a0 Now, if the targeted company prevails in its claim against NPEs, the company is entitled to both equitable relief and monetary damages \u201cin an amount equal to $50,000.00 or three times the total of damages, costs, and fees, whichever is greater<\/a>.\u201d\u00a0 With such risks at stake, NPEs will more likely give second thought before bringing frivolous infringement suits, at least within the state of Vermont.
\nHowever, despite the acclamations, the \u201cBad Faith Assertion of Patent Infringement\u201d statute is not without its share of potential issues, with the biggest relating to the issue of federal preemption.\u00a0 According to the Supremacy Clause of the U.S. Constitution<\/a>, any time a federal law is at issue with a state law, the federal law will prevail.\u00a0 And in cases involving patents, federal courts have complete jurisdiction<\/a>.\u00a0 As a result, those in opposition of the law argue that it is just a matter of time before the Supreme Court overturns the statute on the grounds of federal preemption.
\nProponents of the Vermont law<\/a>, however, argue that the issue is not nearly as clear-cut as those opposed to the law would suggest.\u00a0 First, as long as the Vermont courts apply the \u201cobjective baselessness\u201d standard established by the Federal Circuit in its decision in Globetrotter<\/i>, the issue of federal preemption is likely to have minimal relevancy.\u00a0 In other words, if it can be shown that the NPEs\u2019 assertion of patent infringement is \u201cobjectively baseless in the sense that no reasonable litigant could realistically expect success on the merits<\/a>,\u201d then the federal patent law would not preempt any allegation of NPE\u2019s violation of state law.\u00a0 In addition, advocates of the statute are also quick to note that federal preemption only becomes an issue when the federal and state laws are in direct conflict<\/a>.\u00a0 However, that is not the case here.\u00a0 In agreement with the federal patent law, the primary objective of the Vermont statute is to \u201cstrive[] to promote innovation and does not interfere with inventor\u2019s decision to file for U.S. patents and disclose information about their inventions to the public.\u201d\u00a0 Under these standards, the proponents of the law argue that the \u201cBad Faith Assertion of Patent Infringement\u201d statute is constitutional.
\nObviously, only time will tell whether the Vermont statute has any lasting effects on the problem of NPEs.\u00a0 But since its enactment, Nebraska<\/a> and New Jersey<\/a> have followed suit and implemented similar laws in their own respective states.\u00a0 And more importantly, there has also been recent movement at the federal level in trying to curb the negative effects of NPEs on the patent system.\u00a0 For instance, the Federal Trade Commission<\/a> announced just a few weeks ago that it will conduct a formal inquiry into the business practices of at least \u201c25 still-unnamed\u201d NPEs (Politico).\u00a0 In addition, House Judiciary Chairman Robert Goodlatte<\/a> recently released a draft of a proposal that would significantly make it harder for NPEs to file patent litigation alleging infringement.
\nRegardless of the future of the Vermont statute, one thing is certain: NPEs\u2019 days are clearly numbered.\u00a0 It will be just matter of time before patents are once again utilized for their intended purpose\u2014to promote scientific innovation and progress.
\n <\/p>\n","protected":false},"excerpt":{"rendered":"

Tuesday, October 22, 2013, by Daniel Choo When the framers of the Constitution explicitly gave Congress the power to establish a national patent system, there is little doubt that they did so with every bit of good intention.\u00a0 After all, the importance of providing inventors with temporary exclusionary rights over their inventions had been recognized …<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[51],"tags":[],"_links":{"self":[{"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/posts\/2044"}],"collection":[{"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/comments?post=2044"}],"version-history":[{"count":1,"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/posts\/2044\/revisions"}],"predecessor-version":[{"id":7560,"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/posts\/2044\/revisions\/7560"}],"wp:attachment":[{"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/media?parent=2044"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/categories?post=2044"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/journals.law.unc.edu\/ncjolt\/wp-json\/wp\/v2\/tags?post=2044"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}