December 11, 2013, 3:18 PM

‘Patent troll’ legislation moves ahead in Congress

Retail experts say they expect a good U.S. House bill that might protect e-commerce will improve in the Senate. Last year, so-called patent trolls sued more than 2,400 technology-focused companies, including many in e-retailing, according to one company.

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Pending federal legislation designed to restrict “patent troll” lawsuits should bring some relief to retailers hit by patent-infringement cases, though there is more legislative work ahead, patent litigation experts at the National Retail Federation said today.

With a patent reform bill passed overwhelmingly in the U.S. House of Representatives last week, and with pending legislation in the Senate and support from the White House, “we’re happy to see that so much Congressional attention and the Obama Administration’s attention on the issue,” Beth Provenzano, the group’s senior director of government relations, said in a conference call with news media today. The National Retail Federation is a trade organization for retail chains and, through its Shop.org division, online retailers.

The House last week voted 325-91 to approve the Innovation Act, which includes several measures designed to stem the volume of patent lawsuits that have been filed in recent years by so-called patent trolls against retailers and other users of patented technology and business methods. Patent trolls, more politely known as non-practicing entities, are companies that own patents to technologies and business methods developed by others—such as online shopping carts or the use of quick response codes in mobile commerce marketing—that they typically own solely for the purpose of filing patent lawsuits. Patent trolls typically don’t develop or directly use their patented technologies and business methods. Instead, they acquire patents from the developers and then file patent infringement lawsuits, or threaten to, to either win royalties or out-of-court settlements from companies that they claim make use of their patents.

Last year alone, patent trolls sued more than 2,400 technology-focused companies, including many involved in Internet retailing, according to RPX Corp., which buys patents to protect its clients from getting sued. RPX has also said that such lawsuits against e-commerce companies have numbered in the hundreds in recent years, affecting even more than 2,400 companies.

Patent-infringement cases can easily run up millions of dollars of legal costs through several years of litigation, Provenzano says. One cause of such high expenses, she adds, is that patent trolls will issue to lawsuit targets vague letters that fail to clearly state their demands and their basis for filing the suit, resulting in cases dragging on while legal costs pile up as defendants prepare their cases. “These suits can cost up to $5 million and take two to five years to litigate,” she says.

One of the goals of backers of the pending patent legislation is to force plaintiffs in patent cases to issue clearer demand letters. Although the House bill addresses demand letters, such as by requiring plaintiffs to identify patent holders, Provenzano says the NRF is working with Senate legislative staffers to ensure detailed demand letters are also required in Senate bills and final legislation. The Innovation Act, or H.R. 3309, includes the following requirements, according to a statement issued by chief sponsor Rep. Bob Goodlatte (R, VA), chairman of the Judiciary Committee:

● That plaintiffs disclose who the owner of a patent is before litigation, “so that it is clear who the real parties behind the litigation are. This will ensure that patent trolls cannot hide behind a web of shell companies to avoid accountability for bringing frivolous lawsuits.”

● That plaintiffs explain in detail why they are suing particular companies in their court pleadings. It also requires procedures to reduce the cost of legal discovery in patent litigation, “so that patent trolls cannot use the high cost of discovery to extort money from small businesses and entrepreneurs.”

● That courts decide whether a patent is valid or not early in the litigation process, “so that patent trolls cannot drag patent cases on for years based on invalid claims. This prevents invalid patents from being used to extort money from retailers and end-users.”

● When parties bring lawsuits or claims “that have no reasonable basis in law and fact,” the bill requires judges to award attorneys’ fees “to the victims of the frivolous lawsuit.”

Provenzano says the National Retail Federation is hoping that the House legislation will be strengthened in the Senate, where several bills have been submitted, including the Patent Transparency and Improvements Act introduced with bipartisan support by Senators Pat Leahy (D, VT) and Mike Lee (R, UT). Legislative hearings on that bill are expected to begin next week in the Senate Judiciary Committee, which Leahy chairs.

Among improvements the NRF hopes to see, Provenzano adds, are more clarification in how plaintiffs must clearly state their initial demands regarding a patent, and clarification over how patent lawsuits can cover business methods, such as how businesses conduct transactions over the Internet or post content to web sites regarding their products and services.

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