Stopping Bad Patents -- Senator Schumer Takes on the "Patent Trolls"

by McDonnell Boehnen Hulbert & Berghoff LLP

Schumer, CharlesIn what turned out not to be an April Fools' Day joke, Senator Charles Schumer (at right) of New York participated earlier today in a Google+ Hangout sponsored by the Internet Association.  According to their website, this organization represents the interests of several leading Internet companies, and is "dedicated to advancing public policy solutions to strengthen and protect Internet freedom, foster innovation and economic growth and empower users."  This is the same association that maintains the "Stop Bad Patents" website, which requests visitors to contact Congress about the so-called "patent troll" problem.  The event was described as both a discussion of the importance of Internet technologies to the economy, and how the "patent trolls" are threatening businesses.

Even though it should come as no surprise where Sen. Schumer stands on the issue, he took a fairly strong stand during the discussion, literally comparing non-practicing entities to blood-sucking leaches:

[T]hese people who create no wealth, no ideas, no value, are sort of like leaches on the system and they are just sucking out the vitality of companies large and small that are the future of America.  So, I would urge people -- you don't have to get into the details -- but just ask your legislator, your congressman and your senator in particular, particularly if you're in a state where it's somebody on the judiciary committee which is considering this, to get real patent reform done that stops the trolls early on and as they litigate.  And then you don't have to get into the details.  We want as strong a bill as possible, because these trolls are just, as I said, they're like hookworms, they're like leaches on the system.

(see "Stop Bad Patents with Senator Schumer," beginning at 22:17).  Sen. Schumer's quote was in response to a question about messaging, and specifically how to respond to "the people who defend the status quo," who "simply say that you don't want to reward inventors or that you are stealing inventions."  The problem with this exchange is that the question already presumed that rewarding inventors or the theft of intellectual property are not legitimate concerns.  Sen. Schumer's suggestion that the details are unimportant does a disservice to any meaningful discourse on the topic.  While no one is denying that there is a litigation abuse problem, unless the details are sufficiently explored, any resulting reforms are bound to have unintended consequences.

Sen. Schumer did reveal a few facts of interest during this event.  First, even though the Judiciary Committee is set to take up the bill again this Thursday, April 3, he commented that he was hopeful that "we can mark-up a bill as early as next week."  Therefore, even though they may be close to a compromise (as the Senators involved have recently hinted), it appears unlikely now that it will pass out of committee this week.  When pressed about whether Congress could get something done in this election year, Sen. Schumer pointed to April and May as the crucial months.  He did reveal some of his plans regarding amendments to the bill.  One unique proposal involves requiring "early arbitration before all the litigation," to determine upfront if you have a legitimate claim.  Of course, if such an arbitration goes beyond what is already available via a 12(b)(6) motion (which it is presumed that it would need to), then it would appear to be little more than a mini-trial before the litigation.  This would seem to increase the cost of litigation, not decrease it.  Also, such a provision would at least create a speed bump, if not a road block, to the legitimate assertion of patents, especially by smaller companies that may need the particular intellectual property protection for their very existence.  In other areas, Sen. Schumer highlighted the concerns of the small companies, especially with regard to the current fee-shifting proposals.  He made the perceptive observation that fee-shifting will not benefit small companies that cannot wait until the end of protracted litigation to recoup attorney fees.  It is unfortunate that the plight of the patent-asserting small companies do not appear to have been given equal consideration.  Finally, and not surprisingly, Sen. Schumer suggested that he would try to expand the CBM review procedure to all business method patents.

This Google+ Hangout, which was moderated by Jeff Roberts, law and policy reporter at Gigaom, did provide unique perspectives of the "patent-troll" problem from several of the participants that claimed to have experienced these abusive practices first hand.  First, Brad Burnham of Union Square Ventures discussed the "patent troll" problem from a venture capitalist perspective.  Mr. Burnham made the observation that it is generally the smaller companies that are the first targets, because they generally do not have the resources to fight back and therefore it is easier to extract a quick settlement.  With that said, Mr. Burnham was not sure that the proposed legislation would change his company's investment strategy, because according to him, the abuses are so pervasive that there would be no way to determine how any particular company would benefited from the reform.  In the same room with Mr. Burnham was Brian Chase, providing the perspective of a single company, Foursquare.  He echoed the concern that it can cost hundreds of thousands of dollars before you even get to a claim construction determination.  But, he added, there is an additional cost to small companies because of the time expended by critical individuals tied up with depositions and other discovery.  Leigh Freund, Vice President & Chief Counsel, Global Public Policy at AOL Inc., provided the perspective of a large media company.  Even though AOL might be a larger company, Ms. Freund pointed out that it has the same financial concerns as a start-up company.  She made the observation that AOL is active in acquiring smaller companies, the sort of companies that are impacted very seriously by these "trolls."  She believes that the money spent defending against so-called "trolls" would be better spent investing in technology (which, of course, would presumably be protected by intellectual property).  Finally, Jordan Breslow, General Counsel of Etsy, shared the experience of that small start-up defending against "trolls" almost from its inception.  He pointed out that these so-called "trolls" with questionable patents target companies that have money in their coffers, because it is economically rational to settle quickly instead expending the money to fight and win.  He expressed the opinion that the proposed legislation would have a significant impact on him and Etsy, because he would have a counter-threat against unfounded assertions, any pleading burdens would be higher, and he would ultimately have the capacity to recover fees.

As indicated, the Senate Judiciary Committee is scheduled to take up consideration of S.1720 (The Patent Transparency and Improvements Act) on April 3, 2014.  We will continue to monitor the progress of this bill, and report on any significant advances.


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McDonnell Boehnen Hulbert & Berghoff LLP

McDonnell Boehnen Hulbert & Berghoff LLP on:

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