Death to Patent Trolls

Jordan Weissmann writes at The Atlantic:

It’s hard to think of any business more inherently obnoxious than a patent troll. These are the tech-world parasites that buy up troves of intellectual property, not so that they can make a product, but so that they can turn around and sue successful companies for patent infringement with the aim of nabbing a quick and profitable settlement. They’ve infested the courts over the last decade, and by one count are now responsible for more than half of all U.S. patent cases, potentially costing American businesses some $29 billion a year.

So kudos to Oregon congressman Peter DeFazio, who Thursday morning introduced a bill aimed squarely at putting the trolls out of commission. His smart and simple legislation, called the SHIELD Act, would force trolls that lose in court to reimburse the companies they sue for their legal fees, which can amount to millions of dollars. That might not sound particularly bold. But it’s a carefully calibrated step that could go a long way to containing the the troll problem by driving up the cost — and risk — of bringing flimsy patent cases. 

I like it.

Trolls have flourished over the last few years largely because it’s now easier and cheaper to bring a patent case than it is to defend against one. Much like personal injury lawyers who advertise on TV, the attorneys who represent trolls often work on contingency, meaning they only take a cut of what they win. Defense lawyers, on the other hand, ask for their pay up front, and usually bill by the hour. As a result, a single troll can file a barrage of lawsuits without putting much skin in the game, while the small companies they tend to target — about 55 percent of the businesses sued make less than $10 million a year — are forced to mount a costly defense that saps their finances with each passing day. 

We’re lucky that generally we’re too small to target, but we have had a few.

There’s also a more subtle way DeFazio’s bill throws a kink into the troll business model. At the start of each patent suit, the plaintiffs will have to show that they are either a university, the original inventor of the patent, or a company sincerely trying to turn it into a commercial product. If they can’t, they will be officially deemed a troll, and be required to post a bond to cover the defendant’s costs, should they lose a case. That will tie up their money, which in turn will make it more cost-intensive to bring lots of suits while simultaneously cutting their return on investment. 

Hopefully he can get it past Congress.

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