Patents were originally seen as legal mechanisms to protect an inventor’s creations, with the ultimate hope that this kind of protection would encourage innovation. Indeed, patents one through three, four, or even five million might have lived up to the lofty ideals that the Patent Act of 1790 envisioned. However, US Patent No. 6,599,460, a highly contentious patent that has led to a flurry of legal activity surrounding the injection molding used to make disposable plastic cups, unearths a much more sinister use of patents. Instead of being used by the original inventor to protect his creation, Patent 460 was sold to a notorious patent litigator, Sorensen Research and Development Trust, which uses the patents it buys from inventors, not to safeguard intellectual property, but to use it as a litigation tool against every party it possibly can. These companies, known as “patent trolls”, acquire patents from inventors solely for the purpose of litigating and licensing.
Besides undermining the aims and objectives of patent law and forcing the United States Patent and Trademarks Office to reconsider a significant number of patents, patent trolls cause serious economic problems for established corporations and other businesses alike. In fact, recent studies on patent litigation estimate that patent trolls cost the U.S. about $29 billion last year, with one quarter of all costs being legal fees. This is a substantial amount of money that could otherwise be used to fund innovation and development, but is instead being used to pay often-times unnecessary legal fees, with large companies paying an average of $7.27 million per lawsuit and small companies averaging $1.33 million for every suit brought by a troll.
Although patent trolls, also referred to as “Patent Assertion Entities,” have serious financial and emotional impacts on large corporations, it is the start-ups which are hit the hardest. Professor Colleen Chien conducted a well-known study on this phenomena and her results support the assertion that start-ups and small companies are disproportionately affected by patent assertion entities, as over 50% of responding companies who have revenue of less than one million dollars report that they have been adversely affected by litigation brought by patent trolls. This is an especially troubling situation, not just because of the negative effects on litigation, but because small companies and start-ups are some of the primary job creators in today’s economy.
However, the systemic threats that patent assertion entities pose to both innovation and commerce have promoted national lawmakers to action. In August of this year, Representatives Peter DeFazio and Jason Chaffetz introduced the Saving High-Tech Innovators from Egregious Legal Disputes Act (SHIELD ACT) in an effort to prevent frivolous lawsuits from crippling, or even threatening to cripple, start-ups. The legislation’s central provision would require that any plaintiff who brings suit against a defendant would be liable for the defendant’s legal costs if the court deems that the suit “did not have a reasonable likelihood of succeeding.”
However, the act was designed only to define what software patents are and protect companies from litigation relating to software patents, an area of the law that has not been updated in over six decades, and is, thus, not applicable to other types of patents. Although this will not end or even deter the litigation surrounding patents like Patent No. 460, it is an attempt by the legal system to update a hopelessly outdated patent system, and the protections that it enacts could easily be expanded to protect a greater range of patents in the future.
* Cory Howard is a second year law student at Wake Forest University School of Law. He holds a Bachelor of Arts in International Affairs. Upon graduation, Mr. Howard plans to pursue a career in corporate law.