The United States Patent and Trademark Office is updating its rulebook — and that’s bad news for entrepreneurs.
Earlier this month, the Office proposed new rules to “build on and codify existing precedence and guidance on Director’s discretion” towards patent appeals in an effort to reduce financial and time costs. If passed, the new guidelines would limit who can bring cases to the Patent Trial and Appeal Board (PTAB), give “discretionary denial” to the Director dismiss cases, and create a pay-to-win-like system where litigants can purchase high word-count limits in their cases. That is, litigants can fork over more cash in order to get more of a say in their cases. All of these adjustments would benefit “patent trolls” who exploit the law and extract cash from honest entrepreneurs by filing frivolous lawsuits to the tune of $29 billion each year.
Rather than cutting corners for patent trolls, the Patent Office needs to protect American innovators from these frauds by increasing scrutiny for patent applications, improving procedural rights for the entrepreneurs in appeals cases, and requiring transparency from patent requests.
Patent trolls are companies that purchase patents solely to sue creators for money — not produce or innovate based off of them. Exploitable patents are typically those that are too broad in scope that can generate lawsuit threats, but that will usually be shot down if it makes it to trial or are too difficult to enforce. In-app purchasing technology is ripe for patent-troll exploitation because any app on the Apple or Android marketplaces uses it, it’s easy for app creators to not recognize they’re using the technology, and the patent itself is so broad and nonspecific that it’s ripe for lawsuits.
It’s easy for such fraudulent lawsuits to proliferate when the Patent Office approved 382,559 patents in 2022 alone. Some patent trolls purchase patents from bankruptcy cases and claim to be “innovators” when they’re actually just exploiting someone else’s work. So these patent trolls operate like modern-day highwaymen: They threaten entrepreneurs with frivolous lawsuits and offer a settlement just below what it would cost to litigate, so businesses cough up and pay the “go away” fee. 90% of patent troll lawsuits are settled or abandoned.
Companies are tired of these shenanigans. Shopify and Hertz have been two of the most vocal, pointing out that companies settling or losing patent troll cases reduce their research and development spending an average of over $160 million in the two years after the case. There’s room in the patent office to both protect new ideas and discourage parasites from taking advantage of the system.
In the early 2010s, a series of reforms were enacted to protect genuine patent filers against the trolls. Inter Partes Review (IPR) emerged so that ordinary people could file challenges to an existing patent which were then examined by the PTAB and evaluated if the patent was still valid or should be revoked This process has been affirmed by the Supreme Court, who also ruled against a patent troll in the 2014 case Alice Corp v. CLS Bank International which found that broad, abstract ideas could not be patented, and thus could be subject to removal.
But this progress has stalled, and unfortunately these most recent changes will make honest innovators even more vulnerable to patent trolls.
Perhaps the worst recent development is the NHK-Fintiv Rule which established a wide basis by which the PTAB could deny IPR, including “proximity of the court’s trial date to the Board’s projected statutory deadline for a final written decision,” as well as the absurdly broad “other circumstances that impact the Board’s exercise of discretion.” This rule penalizes entrepreneurs and puts more of an onus on them to prove they are being scammed.
If the reasoning for this rule is to lower the burden on the Patent Office, then officials should reform their application review process. Patents vary from loosely defined to more formal and intricate ideas. One study found that if all examiners spent the same 19 hours on examining a typical patent as the standard GS-7 examiner does, the overall grant rate of patents would decrease by 60,000-80,000 patents annually.
Transparency within the process is also gravely needed. Many patent troll companies hide behind convoluted legal networks and set up fronts to disguise their main intention to sue. A small business being sued has no direct way of finding who they’re being sued by or for what without spending time and money. Simply requiring patent owners to provide their identity to the Patent Office during a dispute lowers the administrative burden of these cases and may even discourage trolls from filing their lawsuits.
Other ways to discourage patent trolls could be to tweak the legal process. If a lawsuit is declared frivolous, then the assertion entity should pay the court fees involved. Or the Patent Office should be more adept at identifying what is a low-quality or broad patent and recognizing that a company is patent trolling, dismissing such cases early.
The line between “intellectual property” and “trolls disguising themselves as such to make a quick buck” is thin, but the Patent Office and the legislators that support it need to step up and strengthen the legal processes that protect honest investors from crooks scamming the system.
