So-called patent trolls force tech companies to spend money on lawyers instead of innovation, and the U.S. Congress needs to discourage infringement lawsuits from patent-collecting companies, a group of tech and business representatives said.
The number of infringement lawsuits filed by non-practicing entities (NPEs) -- patent owners that don't sell products -- is exploding, and tech entrepreneurs often pay settlements to these companies instead of racking up millions of dollars in legal costs, said Ed Goodmann, policy and research manager at Engine Advocacy, a trade group representing tech startups.
Demand letters threatening legal action from patent trolls -- also called NPEs or patent assertion entities -- distract a tech company from its core business, added Seth Brown, head of litigation at Living Social, a daily-deal website based in Washington, D.C.
When facing patent lawsuits, Living Social must pull its most experienced developers from their duties and "force them to sit in a room with a bunch of boring lawyers," Brown said during a Capitol Hill discussion about patent trolls on Thursday.
U.S. product-making companies mounted more than 5,800 defenses against patent troll lawsuits in 2011, four times the number they defended against in 2005, according to the Computer and Communications Industry Association, the tech trade group sponsoring the patent discussion.
An in-court defense against a patent troll lawsuit costs a small or medium-sized business nearly US$1.8 million, while an average settlement costs $1.3 million, CCIA said.
While five of the six panelists at the CCIA event represented the tech industry, NPEs are becoming a problem for other businesses as well, said Erik Lieberman, regulatory counsel at the Food Marketing Institute, a trade group representing grocery stores. In recent months, many grocery stores have been receiving licensing demand letters for common technologies they use, including Web search menus and Wi-Fi routers, he said.
Lawsuits by NPEs are "legal extortion," Lieberman said.
The CCIA panel didn't include any representatives of NPEs.
Even though Congress passed the America Invents Act, a patent reform law that makes it easier to challenge issued patents, more action is needed because of the growing problem of lawsuits by NPEs, the panelists said.
Brown and Julie Samuels, a patent attorney with the Electronic Frontier Foundation, both praised the Saving High-Tech Innovators from Egregious Legal Disputes (SHIELD) Act, introduced by two lawmakers on Wednesday. The bill would allow judges to force NPE plaintiffs in patent infringement lawsuits to pay the court costs of the defendant, if the plaintiff loses the case.
The SHIELD Act would make the "troll business model a lot less attractive," Samuels said.
While the SHIELD Act could help with lawsuits, it wouldn't protect many small businesses and startups, said Alan Schoenbaum, senior vice president and general counsel at Web hosting company Rackspace. Many small businesses "can't even afford to go to court," he said.
Schoenbaum called on Congress to find other ways to protect small businesses from NPE lawsuits.
Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's e-mail address is email@example.com.