In a move that could eliminate many lawsuits brought by “patent trolls,” the U.S. Supreme Court has upheld the constitutionality of an administrative process that allows questionable patents to be reexamined at the U.S. Patent and Trademark Office without the need for expensive and time-consuming litigation.
NRF called the April 2018 ruling “a major step toward stopping patent trolls and their attempts to commit extortion against retailers and other businesses that have done nothing wrong.” NRF supports the administrative review process, and had filed a brief asking the justices to rule in its favor.
Patent trolls are a relatively new breed of litigants that now account for about two-thirds of patent lawsuits. The trolls typically do not invent anything or make products. Instead, they are firms that buy weak or obscure patents, then threaten to sue companies that use the technology involved unless they pay a licensing fee. The threats often involve technology or practices users don’t realize are patented or aren’t clearly linked to the patent in question. Patent trolls lose more than 90 percent of the cases that make it to trial. But the cost of defending companies against the claims is so high – the average case costs $2 million and can take 18 months – that many victims settle out of court. The cases cost legitimate businesses close to $30 billion a year in direct costs and $80 billion indirectly, amounting to close to $1,000 a year for the average household when passed on to consumers. There were 3,657 patent lawsuits filed in U.S. District Court during 2017, down from the all-time peak of 5,838 seen in 2015 but still higher than the 3,500 cases seen in 2011, the year Congress passed its most recent attempt to bring patent abuse under control. Counting cases handled administratively at the patent office, the total number of disputes in 2017 was 5,453, down from 7,631 in 2015.
Why it matters to retailers
Retailers are among patent trolls’ most frequent targets thanks to the industry’s increasing use of cutting-edge innovations, especially in online and mobile retailing. In one example, more than 40 online retailers whose smartphone apps include a link to privacy policies posted on their websites have been sued or threatened by a California company claiming to hold a patent on the practice. In another, companies that scan a paper document into a computer and then attach it to an e-mail have been asked to pay a fee. Adding an item to an online shopping cart and checking out has also been challenged as patent infringement. Whether retailers go to trial or settle out of court, the cases consume time and money that could be better spent creating jobs, growing the economy, and serving customers.
NRF advocates for fair patent laws
NRF urged the Supreme Court to uphold the administrative review of patent claims when oral arguments were held in 2017, saying the “sensible way” to resolve many disputes “is to allow the patent office to apply its expertise rather than incurring high litigation costs.”
The ruling in favor of the process came in Oil States v. Greene’s Energy Group, a case that examined the constitutionality of the “inter partes review” process. Under IPR, disputes can be heard by the agency’s Patent Trial and Appeal Board, an option than can resolve allegations more quickly and with less expense than full-blown patent litigation. NRF said in a brief that the process “has successfully eliminated and deterred litigation based on dubious patent claims and saved retailers and consumers millions of dollars annually.”
“The decision to grant a patent is a matter involving public rights,” the court said in its 7-2 decision upholding IPR. The process “is simply a reconsideration of that grant, and Congress has permissibly reserved the PTO’s authority to conduct that reconsideration.”
In an earlier case, the Supreme Court ruled in 2017 that patent lawsuits can be filed only in states where the defendant company is located rather than anywhere the company’s products are sold. In the past, 40 percent of all patent lawsuits in the country have been filed in the U.S. District Court in eastern Texas, which has a reputation for being friendly to patent trolls.
In Congress, both chambers held hearings on patent issues in 2017, but no action has taken place since then. The two major bills intended to stop patent trolls’ abuses that were hotly debated during the 2015-2016 session of Congress – the Innovation Act in the House and the Protecting American Talent and Entrepreneurship Act, or PATENT Act, in the Senate – were never reintroduced in the 2017-2018 session. Details of the two measures varied, but the legislation would have required that court papers be more specific, that judges decide early on whether a patent is valid, that losing patent trolls pay court costs, that rules be changed to reduce discovery costs and that lawsuits against end users who bought a product off the shelf be postponed while claims against the manufacturer are resolved.
Despite the absence of current legislation, NRF believes passage of a patent troll measure is still necessary because trolls “continue to prey on retailers at a rate higher than ever.” NRF has continued to hold a series of fly-ins for retailers to come to Washington and meet face-to-face with lawmakers on patent reform.
NRF co-chairs United for Patent Reform, a patent reform coalition that includes retail, restaurant, grocery, hotel and technology companies and associations among its members. The coalition is building on work done by NRF’s Patent Troll Working Group, and NRF is continuing to work closely with members of the House and Senate.