Intellectual property: Stalking trolls

The first U.S. patent, issued to Samuel Hopkins on July 31, 1790, for an innovative way of making “pot ash and pearl ash” (Photo credit: Wikipedia)

Intellectual property: After being blamed for stymying innovation in America, vague and overly broad patents on software and business processes could get the chop

AT LAST, it seems, something is to be done about the dysfunctional way America’s patent system operates. Two recent developments suggest calls for patent reform are finally being heard at the highest levels. First, in 2013, defying expectations, the House of Representatives passed (by an overwhelming majority) the Innovation Act, a bill aimed squarely at neutralising so-called patent trolls. These are individuals or companies who buy up lots of patents and then use them to extract payments from unsuspecting victims. Second, the US Supreme Court agreed to rule on what is the most contentious issue of all: which inventions are actually eligible for patent protection.

Frivolous lawsuits filed by trolls cost American companies $29 billion in 2011 alone. Trolls (known in the legal world as “patent assertion entities” or “non-practising entities”) do not make anything, but send out thousands of “demand letters” to companies that allegedly infringe what are often vague and overly broad business-process and software patents. In recent years their targets have spread from high-tech firms to universities, retailers, hospitals, charities and even consumers. The trolls demand a settlement fee, which many of the victims pay rather than face the punitive cost of litigation—$2m or more these days.

Concern that the flood of frivolous patent suits in America is hobbling innovation and competition has caught Congress’s attention. Startups threatened by such actions frequently have to withdraw from the business or go bust. Bigger companies that choose to fight spend tens of millions of dollars on litigation that could otherwise go on research and development.

In a sense, the legal bullying by trolls is a symptom of a wider complaint: the poor quality of many patents granted by the US Patent and Trademark Office (USPTO) in the past decade—especially those covering computer software and business transactions (themselves often based on software algorithms). One such patent covers simply upgrading computer software over the internet. That is admittedly useful, but hardly novel or non-obvious—the three fundamental requirements for eligibility adopted by patent jurisdictions everywhere.

Numerous corporations have started using their portfolios of poorly defined software patents to prevent rivals from entering the market. Witness the series of lengthy legal disputes between Apple and Samsung. Too often, it seems, software patents operate not as an incentive for innovation, but as a barrier to entry and a tax on new-product development. This is not what patent law was intended to do. Although the USPTO has been mainly at fault, America’s courts have not helped.

One of the worst offenders has been the US Court of Appeals for the Federal Circuit, the appellate court that rules on patent disputes, among countless other things. Unlike its specialised counterparts in Europe and Japan, the Federal Circuit, with its grab-bag remit, has never acquired expertise in patent jurisprudence. As a consequence, it has issued some bizarre software rulings.

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