Column: Vermont Leads War Against Patent Trolls

Sunday, November 17, 2013

There’s a silent drain on businesses across the country: patent trolls. These companies do not make or create anything. They exist solely to prey on legitimate and productive businesses through the threat of litigation. And they’re doing real harm to our economy, to the tune of $80 billion every year.

Trolls thrive off a simple business model. They buy up overly broad patents that purport to cover common practices such as scanning documents to email or providing Wi-Fi for customers. Then they send letters to businesses that use these practices demanding that they pay a licensing fee or face a lawsuit. Because of the high cost of going to court, it’s easier for most companies to just pay up and make the trolls go away than fighting them on the merits of the case.

Vermont has led the way in the fight against patent trolls. In May, state Attorney General William Sorrell filed the first lawsuit against a patent troll by an attorney general in the country. That same month, the Legislature passed, and Gov. Peter Shumlin signed, the first-in-the-nation law allowing victims of trolls to counter-sue. The new law defines what constitutes a “bad-faith assertion of patent infringement” and allows victims to seek relief, damages, legal fees and punitive awards of $50,000, or three times the total of damages, costs and fees, if that sum is greater. While these significant changes have knocked the trolls on their heels in Vermont, the federal government now needs to step in to end this practice once and for all.

Technology companies, including members of The Internet Association such as, Facebook, Google and Yahoo, have been targeted by patent trolls for years. But the trolls recently have expanded their targets to include grocery stores, restaurants, mom-and-pop retailers and even charities.

Growing consumer-brand companies, including King Arthur Flour of Norwich, have been targeted by trolls over and over. The business model for trolls is so attractive to those looking for an easy way to coerce payments from businesses, without consideration of whether they infringe a patent, that King Arthur even received a threat from a newly formed subsidiary of one of its existing vendors — a threat that demanded simply a litigation-avoidance payment. King Arthur refused, as is its practice, to pay the demand. Company officials have witnessed an increasing amount of time at conferences and CEO gatherings spent discussing trolls, their threats and available responses. In other words, the cost of dealing with trolls is not limited merely to the billions spent in responding to their threats, but also in the time demanded of executives to deal with the problem — time that would otherwise be devoted to growing their companies and creating jobs.

This same story has played out with businesses large and small, in every sector of the economy, all across the country with increasing frequency. According to the White House, patent trolls issued approximately 100,000 of these letters last year. But by expanding their universe of targets beyond software and technology companies, the trolls have inadvertently built momentum for reform that will put a stop to their practice of legalized extortion.

State-level efforts — particularly those in Vermont — have helped to spur action at the federal level. In June, President Obama issued a series of executive orders cracking down on trolls and called on Congress to act. Since then, a number of bills have been introduced in both the House and the Senate, some with bipartisan support. Sen. Patrick Leahy, D-Vt., has been a leader in taking on the trolls and is working with his colleagues to craft bipartisan legislation to stop these abusive practices.

The momentum for reform can also be seen here as Vermont’s business leaders urge Congress to act. Champlain College recently hosted a forum on patent abuse in which we both participated. The forum, featuring Rep. Peter Welch, D-Vt., leading patent scholars and Vermont business leaders, focused on both the consequences of the troll problem as well as proposed reforms.

While there are a number of proposed solutions being considered, two stand out as critical. The first is to change the incentives in the litigation process, to discourage frivolous lawsuits by ensuring that the trolls have something at stake. One way to do this would be to make the losing party pay the court fees of the winner, so that trolls have some skin in the game. The second is to give victims of patent trolls a way to challenge the validity of the patent used in a patent-holder’s claim at the Patent and Trademark Office rather than in court. This would give businesses targeted by trolls a cheaper and more efficient way to fight back, and would help weed out the bad patents that trolls rely on.

Businesses in Vermont and across the country can’t afford to keep paying off patent trolls. Vermont has led the way in fighting back. But the only way to stop them once and for all is for Congress to act now.

Steve Voigt is president and CEO of King Arthur Flour. Michael Beckerman is the president and CEO of The Internet Association.

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