Commentary

Adding Punch to Senator Cornyn's Patent Reforms


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Sen. John Cornyn (R-Texas) has revived the debate on patent trolls by promising to reintroduce his Patent Abuse Reduction Act. Cornyn has rightly recognized that the current system makes it too easy to file questionable infringement actions, burdens defendants with unnecessary document production, and does not adequately penalize a party that loses on frivolous claims.

As it stands, our patent litigation system encourages companies that never invent anything to buy up patents and lurk in the shadows, waiting to sue people who actually try to produce something. Companies like that are called non-practicing entities (NPEs)—more commonly, patent trolls. Trolls obtain patents not for the purpose of producing an invention or a technology, but for the sake of lucrative lawsuits. They garner all the benefits of patent protection, but offer society no benefit. They are parasites.

Many patent trolls don’t even bother to hire any workers—apart from trial lawyers. Some don’t even have offices—just P.O. boxes in friendly legal jurisdictions. They produce nothing of value, and have very little invested in the patents themselves. They simply exist to shakedown companies that might actually try to hire people and make things.

Researchers at the Boston University School of Law have calculated that from 1990 through late 2010, patent troll lawsuits were responsible for over half a trillion dollars in lost wealth (in 2010 dollars).

Cornyn’s proposed legislation requires trolls to plead claims with specificity, limits the scope of discovery, makes it easier for defendants to join interested parties in the litigation, and shifts litigation costs to the losing party if the underlying claim was questionable. While all these proposals are worthwhile, they nonetheless fail to address central problems of patent trolling.

So how do we stop the trolls? Here’s one idea: Require companies that want to file patent suits to prove that they are actively participating in the relevant industry. Trolls without plants, equipment, employees, or significant investments in the patents would not be allowed to bring infringement suits. This would not bar the courthouse to legitimate NPEs—such as research universities—that can show substantial investments in engineering, research and development, or licensing related to the patent. But it would make life much more difficult for the trolls.

The United States International Trade Commission (“ITC”), formerly known as the United States Tariff Commission, has imposed a similar requirement in cases alleging patent infringement against manufacturers of imported goods. Outside of this international trade setting, there is no “industry” requirement. The imposition of an industry requirement for patent plaintiffs suing in federal district court could be a game-changer.

Here’s another idea: Patent law could borrow from trademark law and require that a plaintiff prove the intention of “use.” A person or entity may file a trademark application based on the intent to use the mark in commerce. This means that the applicant must have bona fide, demonstrable intention to actually use the mark—that is, to sell products to the public with the mark attached. The rights to a trademark can be lost if the holder abandons or stops using the mark.

Likewise, patent holders who never show any intention of using the technologies covered would lose their right to sue. Trolls would undoubtedly try to devise nominal uses of the technology to meet the use requirement, but the courts could evaluate the alleged use and determine if it represents a good faith attempt to practice the invention or is merely a minimal effort meant to secure an open courthouse door.

If America is going to thrive in the twenty-first century, we must place a premium on innovation. Right now, innovation is being stifled by the trolls. To bring the situation under control, Congress should consider an industry or use requirement before allowing NPEs to bring patent infringement suits against actual producers of things of value.


William J. Watkins, Jr. is a Research Fellow at the Independent Institute and author of the Independent Institute books, Crossroads for Liberty, Reclaiming the American Revolution, and Patent Trolls. He received his J.D. cum laude from the University of South Carolina School of Law and is a former law clerk to Judge William B. Traxler, Jr. of the U. S. Court of Appeals for the Fourth Circuit.


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