also hold patents based on their research—patents that they will never use, as do so-called garage inventors, who lack the financial and other resources to use their patents for manufacturing. These kinds of patent holders often sue to protect their patent rights—and fall within the patent troll definition—but are not the villains at which the reform bills are aimed. Opponents of the legislation argue that the reforms will actually stifle invention by hindering the efforts of these companies, universities, and individuals to obtain compensation for their inventions.
Well, Excuse Me—It’s a “Patent Assertion Entity”
The Federal Trade Commission (FTC) uses a more neutral term for a patent troll: a “patent assertion entity” (PAE). The FTC, among others, points out that PAEs don’t behave like normal businesses. For example, in the course of the usual patent infringement lawsuit, the targeted company may be able to counter-sue the patent holder for infringement of another patent. Thus, lawsuits between traditional companies often end up with the plaintiff licensing its patents to the defendant company and, in turn, taking a license for that company’s technology. By contrast, patent trolls or PAEs don’t manufacture anything. Thus, because they aren’t using any patented technology themselves, patent trolls are not vulnerable to infringement counter-suits. In addition, trolls make a practice of concealing the real parties of interest through shell entities, so that a defendant does not know whom to counter-sue. Finally, trolls have no industry reputations to maintain, so they have less incentive to engage in crosslicensing or to avoid lawsuits. The cost? One study reported that trolls cost the U.S. economy $29 billion in 2011. Toy manufacturers accounted for a portion of that obscene damage.
The White House and Congress Will Act
By any name, these non-commercial patent entities have provoked the White House, Congress, and others to
MARCH/APRIL 2014
action. The House passed the Innovation Act, H.R. 3309, on December 5 of last year, and the Senate is considering the Patent Transparency and Improvements Act, S. 1720. The White House has urged Congressional action and has issued executive orders, including reforms in the U.S. Patent and Trademark Office itself and in enforcement by the International Trade Commission, as well as an education program to help arm businesses against patent trolls. Several states, including New York, have taken action, either through their attorney general or by legislation. To complicate matters, Congress is considering this legislation in advance of a Supreme Court decision on one of the key provisions of the reform bills: fee-shifting in patent cases, in which the traditional American rule that each side pays its own legal fees no longer applies. Instead, fee shifting requires that the loser pay the reasonable legal fees for both sides, as in European courts. Fee-shifting in patent cases is now discretionary, and, in cases before the Supreme Court, the appeals court declined to shift fees to the losing party.
Troll Control?
Patent reform is a ticklish subject to toy with, because patent rights are enshrined in the U.S. Constitution. As the Patent and Copyright Clause provides, “The Congress shall have Power To … promote the Progress of Science and use-
THE TOY BOOK • 53