With so many examples of frivolous lawsuits out there – fake fingertips in chili, a news station predicts the wrong weather, or the famous “hot coffee” lawsuit – it is not surprising that this epidemic is just as bad in the corporate world. Consider these scenarios:
- A company holding patents related to Wi-Fi routers sues scores of coffee shops, retailers and hotels because they have Wi-Fi hot spots.
- A company claiming to hold patents related to distributed computing threatens to sue small businesses that have internet-connected scanners.
Bizarre isn’t it? In recent times there has been an increase in such ridiculous patent litigations by small companies who have an economic interest in the patent, but are not actually using the patent to create their own products or services. These companies are termed as non-practicing entities (NPE) or patent trolls. The patents in question are mostly business method patents, a class of patents that disclose and claim new methods of doing business, including things like new types of e-commerce methods (such as dropdown menus or search boxes on a website), insurance, banking, tax compliance etc.
The America Invents Act passed last year laid the groundwork for modernization of patent laws in US. Continuing with the reforms, several new legislations are being introduced in congress, and prominent among them is the Stopping Offensive Use of Patents Act, which is subordinate to the Patent Quality Improvement Act that was introduced in May 2013.
One of the temporary features of the America Invents Act (AIA) allows experts at the Patent Trade Office (PTO) to review a challenged business method patent (limited to financial services) in a post-grant review. If the PTO finds any discrepancies, the patent can be deemed invalid. The legislature aims to expand this feature to include businesses outside the financial services industry and make this a permanent feature in the AIA.
If this new act is approved, businesses will definitely save lot of resources (time, money and energy) spent trying to fend off frivolous lawsuits. In 2011, patent trolls cost companies around $29 billion. Average settlement costs for a small or medium-sized company were $1.33 million, while an in-court defense costs on an average $1.75 million per case. The Stopping the Offensive Use of Patents Act will also place responsibility on the manufacturer (Wi-Fi router manufacturer) and not the end-user (businesses providing the Wi-Fi) to be patent compliant.
To prepare for the new act, the manufacturer and owner of the design needs to have a comprehensive due diligence process relative to its competitive patent landscape. This process and work needs to be an integral part of the methodologies for developing any new products or services. Establishing and maintaining a comprehensive IP strategy that aligns with the business strategy will provide a solid foundation for these firms to make strategic patent usage choices while minimizing litigations.