With patent litigation cases reaching an all-time high in 2013, exponential growth in the number of filings is on the radar for the heads of large companies, like Tom Sager, general counsel of chemical producer DuPont. Sager is among the ever-expanding roster of GCs that are galvanizing around the issue of non-practicing entities (NPEs), commonly referred to as “patent trolls,” and joining hands with state attorneys general from around the U.S. to diminish the power of NPEs.
In short, patent trolls are companies that buy broadly worded patents, sometimes from firms that go bankrupt, with the intent of suing other companies for illegally infringing on these patents—and they have nothing to lose when they sue others for infringement. While intellectual property is highly valuable to large companies, NPEs are moving away from targeting enterprises by moving downstream to prey on small businesses.
As state AGs are charged with protecting the public from fraud, misrepresentation and deceptive trade practices, a strong case can be made that certain patent trolls are engaging in highly questionable trade practices, according to Alan Schoenbaum, senior vice president and general counsel of Rackspace Hosting, Inc.
“For example, some patent trolls send out hundreds or thousands of demand letters that allege infringement without any real justification,” Schoenbaum says. “These frivolous, coercive demands are in the crosshairs of progressive AGs in several states.”
The cost to society
The White House estimates that lawsuits from trolls have nearly tripled in the last two years, rising from 29 percent of all infringement suits to 62 percent. In a separate study, Boston University researchers estimated that in 2011, more than 2,100 companies were forced to mount 5,842 defenses in lawsuits from patent trolls, up from 1,401 in 2005, at a cost of $29 billion—a whopping $22 billion increase.
In December 2013, the House approved the Innovation Act spearheaded by House Judiciary Chairman Bob Goodlatte (R.-Va.). The bill would require patent holders who file lawsuits to disclose more information upfront on the patents involved and the nature of the alleged infringement.