Patent Litigation and the Continuing Need for Robust Reform Legislation

Tomorrow, the House Judiciary Committee will hold a hearing to review recent Supreme Court cases in patent law. Do not let the wonky subject matter fool you—this is an important hearing that should help set the groundwork for much-needed legislation that will finally fix the patent troll problem.

To understand what’s at stake, you have to understand a bit about patent reform and why it’s become such a critical issue to the startup community. In the past decade, patent litigation initiated by non-practicing entities—so-called patent trolls—has increased tenfold. This increase has been primarily targeted at tech companies, and the data show that the smallest of those companies—most often, startups—are in fact targeted the most frequently. This led to the recent push for patent reform. And last year, we made some real progress: not only did we come close to passing legislation, but the FTC took up the issue, as did more than 20 states, who introduced or passed legislation, or whose attorney general investigated, and in some instances sued, patent trolls. Even more, the Supreme Court stepped in, deciding six cases unanimously, each of which should help fix a broken patent system.

That’s the good news. The bad news is that opponents of patent reform now claim that because of those victories at the Supreme Court, we no longer need patent reform legislation.

They couldn’t be more wrong.

First, the most important of those cases—Alice v. CLS Bank and Nautilus v. Biosig—deal with patent quality. In other words, tightening the standards around what can and can’t be patented, an update that’s critical to eliminating trolls who thrive on low-quality patents  But it will take years, if not decades, for the impact of these cases to actually be felt. Patents last for 20 years, and the Patent Office has been in the business of granting approximately 40,000 software patents annually, which means at least hundreds of thousands of them currently exist. The vast majority of these patents won’t be reevaluated under Alice and Nautilus unless someone actually challenges that patent, either in court or at the Patent Office. Those challenges can cost tens or hundreds of thousands of dollars. So we don’t expect to see the number of bad patents falling dramatically any time soon.

Second, these cases do not address the patent troll’s other most favored weapon: the outrageous costs of patent litigation. Patent litigation is notoriously expensive, costing each side easily into the millions of dollars in legal fees, not to mention other valuable lost resources, like employee time. Trolls exploit this, often successfully demanding payments to go away instead of going to court. While one important Supreme Court case, Octane Fitness v. Icon, addressed at least some of this problem, it’s so far had limited effect. The Court held that a judge could make a loser pay a winner’s legal fees in “exceptional” cases, but, unfortunately, troll cases are no longer “exceptional.”

Despite help from the Supreme Court, we still need real, robust patent reform that will give judges discretion over when to grant fees, increase transparency in lawsuits and demand letters, even out the burden of litigation on both parties, and help protect technology’s innocent end users.

We’ll be watching tomorrow’s hearing closely to make sure that opponents of patent reform—those who benefit from a broken system—don’t mislead members of Congress and the public by overstating effect of the Supreme Court’s recent docket. We are thankful the Court has stepped in and sent a strong message that the system is broken. But lasting change that repairs the patent system for good will require an act of Congress.

Patent Reform: We’re Ready for Round II

Today, a bipartisan group of House members re-introduced the Innovation Act, an important piece of legislation that would directly address a patent troll problem that has ballooned out of control, costing our economy tens of billions of dollars annually.

You might recall that last year similar efforts got incredibly close to becoming law (In fact, the last time the Innovation Act was introduced, it passed the House with a 325-91 vote!), before stalling out at the eleventh hour in the Senate. We were disappointed at the time, saying then:

"This news is devastating to the welfare of startups who will continue to face the threat of patent trolls. That no agreement could be reached, especially in light of the efforts being made across the committee to find common ground, is also bad news for the economy where annual losses from patent troll litigation are billions of dollars."

More importantly, though, we noted then that the hard work we did transformed the political framework, and said to you, our community: “you changed the conversation from a wonky, back room discussion of legal tenets, to real world examples of harm. With your continued support, and the support of our friends in Congress, we can be on the winning side.”

Well, that time is now.

Despite some important progress in the courts and from the states on patent reform, trolls continue to be a serious threat to the innovation and startup ecosystem. Which is why we need comprehensive legislation to really fix the problem.

The reason why is fairly simple. Patent trolls are “successful” because they are armed with two weapons: low-quality patents, usually covering software-type inventions, that are nearly impossible to understand; and the ballooning costs of patent litigation (it can costs each side easily into the millions of dollars to fight a patent suit in court). Most of last year’s progress, especially an important case called Alice v. CLS Bank, dealt with the first problem, trying to improve patent quality. While that’s good news, it has—at least in the short term—only limited effect.

The Alice ruling can only be helpful in three distinct circumstances: 1) for new patents being issued by the Patent Office; 2) in litigation where a defendant attempts to invalidate the patent at issue; or 3) in one very specific proceeding at the Patent Office called a covered business method review (CBM). Let’s unpack each for a second:

• It’s critically important to have better standards for patentability going forward, but currently, there are approximately 2.24 million active patents in the United States. More than a million of those represent a software-type invention. And each of those patents has a lifespan of 20 years. The potential damage from this existing world of patents alone is enough to warrant legislation.
• As mentioned above, litigation can easily cost each side millions of dollars in legal fees, not to mention years of distraction from a business’ core function. Which makes the barrier to startups essentially impossible to overcome.
• CBM review is a great program, allowing affordable and efficient review of existing patents at the Patent Office. Yet it is currently limited to patents that touch financial products or services and—unless the law changes—the entire program is set to expire in 2020.

What’s more, none of this touches the out-of-control patent litigation system. Which is precisely why we need the Innovation Act. The Innovation Act, and other comprehensive efforts like it, use a combination of provisions to level the playing field, giving defendants more affordable access to make their case in a federal court. These provisions include common-sense reforms like requiring transparency when filing a lawsuit or issuing a demand letter (who are you? what patents do you own? what product do you claim infringes those patents?); shifting fees to winners when a losing party brought a particularly baseless lawsuit; shifting some of the costs of discovery, usually the most expensive part of litigation; and creating a vehicle for suppliers and manufacturers to help protect their customers when those customers become the trolls’ target.

Of all the good work we’ve done so far, the most important piece was earning a seat at the table. For the first time the startup community has a critical voice in this important debate. It is important that we use it and let Congress know the time has come to make the Innovation Act law.

2014 Year in Review - Copyright in the Courts, Legislation on the Horizon

This post is one in a series of reports on significant issues for startups in 2014. In the past year, the startup community’s voice helped drive notable debates in tech and entrepreneurship policy, but many of the tech world’s policy goals in 2014, from net neutrality to patent reform, remain unfulfilled. Stay tuned for more year-end updates and continue to watch this space in 2015 as we follow the policy issues most affecting the startup community.

As is only fitting in a policy area where the law consistently fails to keep pace with technological developments, we are not much closer at the end of 2014 to an overhaul of the nation’s copyright laws than we were in the spring of 2013 when Register of Copyrights Maria Pallante asked Congress to begin work on the “Next Great Copyright Act.” Despite the lack of large-scale reform efforts, 2014 was a fascinating year in copyright issues, with hints at prolonged policy debates to come.

Perhaps chastened by the SOPA/PIPA debacle, Washington took a cautious, deliberate approach to copyright reform efforts this year, getting a lay of the land from a multitude of stakeholders in a series of hearings, roundtable discussions, and panels hosted by the Judiciary Committee, the Copyright Office, and the USPTO. These fact-finding missions covered everything from the DMCA notice and takedown process to the application of the first sale doctrine in digital media. In July, we participated in one of the USPTO multi-stakeholder panels to discuss how massive statutory penalties for secondary copyright infringement can chill innovation and encourage copyright trolls. That policymakers took such a keen interest in soliciting opinions from interested parties about how copyright law needs to change in the coming years suggests that the contours of new copyright legislation will start to take shape in 2015.

While legislators pondered potential reforms, the judiciary was hard at work dealing with cutting edge copyright cases (and, unfortunately, coming to some troubling conclusions). In April, we filed an amicus brief with the Supreme Court in its review of Aereo’s TV streaming business. The Court ultimately ruled that by distributing free over-the-air broadcasts to Internet subscribers via dedicated miniature antennas, Aereo was infringing broadcaster copyrights. In doing so, the Court ignored the plain text of the statutes at issue, employing what amounted to a smell test: Aereo looked like a cable TV service, so it should be governed as one, subject to a compulsory license regime. The ruling injected even more uncertainty into a notoriously vague body of law, opening up avenues for idiosyncratic judicial opinions to shut down new technologies that are in textual compliance with existing statutes.

Even more concerning for startups everywhere, the Federal Circuit in May issued its opinion in the Oracle v. Google case, holding that software APIs—bits of code that allow different applications to communicate and work together—are copyrightable. The implications of this decision are far-ranging, threatening to undermine the competition and open exchange of ideas that helped drive the rapid growth of software and applications. Requiring entrepreneurs to enter into licenses in order to use common APIs will make it significantly more difficult to create widely compatible applications, leading to an increased balkanization of software services and applications. As interoperability decreases, so too does application innovation and consumer choice. Google has appealed to the Supreme Court, and we joined an amicus brief urging the Court to take the case, arguing that allowing companies to claim copyrights on APIs would greatly harm software innovation.

Recent weeks have seen even more salacious copyright news, with leaked documents from the MPAA suggesting that the so-called “copyright wars” of a few years back may return in a big way. The MPAA has apparently been working on reinterpreting the DMCA to accomplish some of the same nefarious goals that SOPA was meant to facilitate (e.g., DNS site blocking), and it has roped several state Attorneys General into taking up its cause of holding content-neutral websites accountable for copyright infringement rather than the folks actually engaging in the “piracy” the content industry so detests. As the SOPA/PIPA fight showed and these leaked documents confirm, the content industry has little regard for the collateral damage its anti-piracy efforts would do to non-infringing activities.

In light of these reports, it seems more and more likely that Congress will begin putting pen to paper on a Copyright Act update in 2015, and it’s crucial that the technology and startup communities help set the agenda, rather than merely reacting to the demands of the content industries. Key on that agenda is restoring sanity to the copyright damages regime, strengthening and clarifying safe harbors for companies that aren’t engaging in direct infringement, and ensuring that the costs of complying with secondary liability rules aren’t prohibitively expensive for startups. The SOPA/PIPA debate showed that the Internet community is paying attention to changes in copyright policy; the next great copyright debate must show that the tech world is ready and willing to advance a proactive agenda that fosters the next wave of innovative technologies.

Patent Reform: We Must Capitalize on 2014’s Momentum to Win in 2015

This post is one in a series of reports on significant issues for startups in 2014. In the past year, the startup community's voice helped drive notable debates in tech and entrepreneurship policy, but many of the tech world's policy goals in 2014, from net neutrality to patent reform, remain unfulfilled. Stay tuned for more year-end updates and continue to watch this space in 2015 as we follow the policy issues most affecting the startup community.

Patent reform—a highly technical and wonky area of the law—is having a moment. A long-overdue moment. While we didn’t accomplish our primary goal in 2014, namely, passing patent reform legislation that would fix a dangerous and expensive patent troll problem, we did make important strides toward leveling a playing field that had been, up until recently, completely skewed in favor of incumbent industries.

In fact, 2014 saw some really important changes to the U.S. patent laws, pretty much all of which benefitted the startup community.  For instance, the Supreme Court has been very active in patent reform—issuing six unanimous rulings last year, each of which came down in favor of the tech industry and/or patent reformers. The most important of those was a case called Alice v. CLS Bank, in which the Court tightened the definition over what can and can’t be patented, which has already resulted in fewer bad patents. This is good news, because a low-quality patent is one of a troll’s favorite weapons.

Even more, 20+ states have taken on patent trolls and the FTC continues to investigate the issue as well. Which is why we’ve argued that, despite the hold-up on Capitol Hill, our community is actually winning the patent reform debate.

That said, there is much work left to do. One of a troll’s favorite weapons might be low-quality patents, but the other is the outrageous cost of patent litigation. To fight a case to verdict can easily cost a defendant millions of dollars and can take years—resources unavailable to many startups and small inventors. This leaves a startup facing a patent threat with two really bad options: waste time and money in court, a terrible distraction from growing a business; or to settle, essentially paying the troll to go away and emboldening it to act again.

Which brings us to legislation. Only Congress and President Obama can fix the lopsided nature of patent litigation and create the proper incentives for troll targets to fight back. The good news is that bills in both the House and Senate appear poised to move in early 2015. Even better, the President has been very supportive of these efforts in the past. The bad news is that the usual opponents of reform—the ones who benefit from the status quo—are gearing up for a big fight.

We’re confident that the momentum gained in 2014 will help push patent reform over the finish line in 2015, but it will not be an easy fight. Continue to watch this space to learn how you can help join our efforts.

Congressional Hearing Highlights Troubling Practices at the Patent Office

Bad patents hurt innovation. This is especially true when they end up in the hands of patent trolls, who often use them indiscriminately to extort settlement payments. While we are glad to hear the Patent Office (PTO) has been increasing its efforts to improve the patent examination process and, in turn, patent quality, a recent government oversight hearing in Congress on telework abuse brought to light several PTO management practices that can’t help but hurt progress toward increased patent quality.

Some background on the joint House Judiciary and Oversight hearing: The PTO has long been recognized as a leader in telework, allowing employees the flexibility to work from home, and has leveraged it recruit and retain examiners. A few years ago, serious allegations surfaced regarding time and attendance fraud and ineffective oversight regarding the telework program. In response, the PTO conducted an internal investigation and issued a report in July 2013. Unfortunately, that report was considerably watered down from a more critical draft report, which—perhaps not surprisingly—was never released.

At the hearing, Oversight Chairman Issa, who has a few dozen patents of his own, emphasized the importance of patent quality; he even joked that he was sure some of his patents were invalid. Judiciary Chairman Goodlatte and Congressmen Connelly and Cummings zeroed in on PTO practices that hinder quality, and called for a reassessment of performance metrics to ensure that quality is not sacrificed to quantity. We couldn’t agree more.

Chairman Goodlatte and others expressed concerns about the examiner “count system,” which creates a series of incentives for examiners, essentially giving them credit for accomplishing certain tasks, e.g., approving a patent application. The count system is often criticized for pushing examiners to not give patent applications the time they really deserve and, as a result, issue unworthy patents. There have been efforts to reform the count system, however any real change has gotten mired in negotiations with the Patent Office Professional Association, otherwise known as the Patent Examiners Union.

Another issue that came up was "end-loading” of work by examiners at the tail end of each quarter and how that practice undermines quality. Supervisors, who have limited time to review the quarter’s work, cannot effectively monitor the quality of work submitted when it comes in a flood of end-of-quarter submissions. Apparently, the practice is rampant. At the hearing, PTO representatives reported that they were in discussions with the Union to address end-loading, but no details were provided as to how or when that would happen.

The patent system in this country is not working, and startups and small inventors, faced with a growing patent troll problem, shoulder the resulting costs. As Congress and the courts work to fix the problem, the Patent Office, too, must do its part. The mismanagement that came to light during the recent congressional hearing leads directly to more low-quality patents, which are a patent troll’s favorite weapon.

The good news is that President Obama recently nominated Michelle Lee to direct the Patent and Trademark Office. Michelle Lee, who currently acts as the agency’s deputy director, would not only be the first woman and first minority to hold that post, but she has a background rare in a long lineage of PTO directors: a patent lawyer from Silicon Valley who has worked for and at companies who operate in the software space. For all these reasons, and more, we strongly support Michelle’s nomination, and recently said so in a letter to Senators Leahy and Grassley.

We’re hopeful that under strong leadership, the PTO can clean up the problems that plague it and, in turn, return to its core mission of issuing patents that actually incentivize innovation instead of hindering it.

Alice Ruling Not Enough to Stop Patent Trolls

This post originally appeared in Roll Call.

The House and Senate bills were both carefully crafted to shift the playing field just a bit — to make it easier for small companies and individuals to defend themselves against patent threats while holding patent holders accountable for the lawsuits they file. Despite loud complaints from the traditional patent holder community, the bills’ provisions were actually quite modest, such as a requirement that patent holders set forth the basic framework of their case — who owns the patent, what product allegedly infringes the patent, and what parts of the patent are at issue. Or reasonable limits on discovery, usually litigation’s most burdensome and expensive phase that hits an operating company much harder than a non-practicing entity who has little to no information about its so-called business practice to share.

To be honest, I didn’t think the proposed legislation went far enough. But it represented an important compromise to fix a very serious problem.

Perhaps, most importantly, there was nothing in either bill that would prohibit a patent holder with a strong patent and a legitimate claim of infringement from bringing a lawsuit. Ownership of a patent alone should not be a blank check to, as President Obama said, extort money out of an operating company. This is not to say that patents do not have a place in today’s economy or to condone infringement. It is to say, however, that the current system is skewed way too heavily in favor of patent owners and this has to change.

We will only see this change through legislation. Strong champions of real patent reform — President Barack Obama, Sens. John Cornyn, R-Texas, and Charles E. Schumer, D-N.Y., and Rep. Robert W. Goodlatte, R-Va. — know this. So do the countless victims of patent trolls. Which is why the prospects for reform look especially good in the 114th Congress. It can’t come soon enough.

Copyright Damages: A Capricious System That Stifles Innovation

The last time Congress enacted significant new copyright legislation, only about one quarter of U.S. households had Internet access. It’s not surprising, then, that the current copyright regime isn’t exactly suited to our digital age. Copyright law is meant to provide incentives for creators and innovators. This principle is in the Constitution, which gives Congress the power “to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.” In other words, we give creators limited monopolies over their works—patents and copyrights—in order to encourage them to create.  

Lately, however, this concept has started to backfire. Laws meant to foster innovation have in fact discouraged technological innovation by imposing the threat of ruinous financial penalties on entrepreneurs for engaging in perfectly legal activities that lawmakers couldn’t have envisioned when drafting the Copyright Act.

Copyright law can be confusing, particularly because many of the ways we create and share content today didn’t exist in the 1960s and ’70s, when Congress wrote most of the current Copyright Act. But, one aspect of the law is clear: a court may levy damages of up to $150,000 for each instance of infringement. This means that you could be on the hook for $150,000 for illegally downloading a single song, or for reusing or repurposing content in a manner that you believed was totally legal—until you found out it wasn’t.

The uncertainty resulting from this huge potential liability touches innovators of all kinds, not just traditional content creators. If you’re a startup and host any third-party content, you could find yourself unwittingly facing the threat of outrageous damages. Even if what you’re doing is legal, just starting your business may not be worth the risk.

Recognizing the need to reform copyright law to better protect the new types of creativity that technological changes have allowed, Congress held several hearings in recent weeks evaluating different aspects of the copyright regime, from term lengths to music licensing to the first sale doctrine. Most recently, and perhaps most importantly, the Judiciary Committee held a hearing to discuss possible changes to the nature and scope of the remedies available in copyright infringement actions.

Under virtually all U.S. laws, plaintiffs can only collect money from defendants to the extent that they were actually injured by the illegal activities. Copyright law, however, is different: plaintiffs don’t have to show any economic injury from infringement whatsoever in order to collect money from defendants. Instead, a copyright plaintiff can ask the court to award a fixed amount of money—between $200 to $150,000 per work infringed—whether or not the plaintiff was actually harmed. Juries have significant discretion to award damages within this range, and, as juries are wont to do, they often issue awards that are wildly unpredictable and many times larger than the plaintiff’s actual injury.

While it’s certainly important to deter blatantly infringing conduct, the chilling effects of these large statutory damages have unintended consequences. Copyright law doesn’t have a lot of bright lines separating conduct that is infringing from conduct that isn’t; this flexibility is necessary to ensure that new, beneficial modes of creative expression aren’t outlawed under statutes that couldn’t predict future innovations. This, of course, means that it’s often difficult for innovators to know with certainty whether their conduct is infringing or not, and the threat of hundreds of thousands of dollars in damages for failing to accurately predict what a judge or jury will say will necessarily deter a lot of non-infringing conduct.

For example, the rules surrounding liability for companies that provide content distribution services (e.g. BitTorrent, YouTube, etc.) are decidedly unclear. The law does provide “safe harbors” for content intermediaries, but those harbors are hardly safe if, like YouTube, you have to spend seven years and untold millions in court to determine whether you’ve qualified. The risk of a high statutory damages award, even if it is unlikely that any infringement has occurred, can be enough to discourage entrepreneurs and investors from entering the market.

The disincentivizing effect of massive statutory damages awards isn’t limited to startups hosting third-party content. The rules regulating software copyrights are incredibly confusing, even for copyright experts. Considering so much software development revolves around building off preexisting code, uncertain copyright liability is a risk for virtually any entrepreneur who wants to innovate by transforming existing code. In the wake of the Oracle v. Google ruling, using simple APIs to ensure interoperability raises the risk of huge statutory damages liability, even if the use of such APIs causes no damage at all.

The existing statutory damages framework seems to have lost sight of the ultimate purpose of all copyright laws: “To promote the Progress of Science and useful Arts”—essentially, to promote innovation. When considering changes to the Copyright Act, Congress must reconsider the statutory damages framework to make sure that discouraging infringement doesn’t also discourage innovation by subjecting entrepreneurs to undue risk from the threat of irrational statutory damages awards.

Supreme Court’s Latest Patent Decision Reins-in Federal Circuit, Again

Today, the Supreme Court issued its latest  9-0 opinion, once again reining in the Federal Circuit’s consistently overbroad interpretations of patent law. The ruling, in Alice v. CLS Bank, deals with the question of what can and cannot be patented. Put simply, the Court held that unpatentable “abstract ideas” do not miraculously become patentable when they are merely tied to general purpose computers or generic hardware. Our patent laws already do not allow the government to issue patents on laws of nature, natural phemonen, and these so-called abstract ideas because we do not want to grant monopolies on things that belong to everyone. This concept is incredibly important because it deals directly with whether or not software is an unpatentable “abstract idea”. Is software an abstract mathematical algorithm? Or is it more?

Traditionally, software was always unpatentable. But that changed in the mid-1990s when the Federal Circuit issued a string of rulings allowing for software patents. In this 20-year experiment, we’ve seen serious abuses of the patent system, starting with poor quality patents, leading directly to the patent troll problem. Armed with these low-quality software patents, trolls have been able to wage a war on small businesses and individuals, costing our economy billions of dollars a year.

Despite this, the Federal Circuit (the appellate court that has jurisdiction of all patent cases), has been unwilling and unable to fix the quality problem with software patents. Which brings us to today’s ruling. Alice v. CLS Bank involved patents covering a computer system that helps with closing financial transactions by avoiding settlement risk (the risk that comes with any financial transaction if one party cannot uphold its end of the bargain). During the case’s tortured history, the Federal Circuit upheld those patents, and then later invalidated them. The last Federal Circuit opinion was 135 pages long, and the judges could only agree on 55 words.

So the Supreme Court took the case (along with five other patent cases this term -- an unprecedented number), and today, all nine justices invalidated the patents. Invalidating them wasn’t a surprise -- these patents were of particularly poor quality -- but the Court did make some important statements about patents and abstract ideas that should reign in the worst software patents.

First, it unequivocally stated that if you have an idea so abstract that it cannot be patented, simply tying it to a “generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention."

Second, it stated that tying an abstract idea to “purely functional and generic” hardware similarly will not make the idea patentable.

This legalese is important. Most of the worst software patents do exactly what the Court said they can’t: present a general idea (e.g., hedging risk, one-click shopping, etc.) and say, because this idea is done on a computer, or a generic piece of hardware, it is not just an idea anymore. As computers play an ever-growing part in our everyday lives, you can understand the flaws in this logic. Today, the Supreme Court stopped it in its tracks.

Now, it’s true that the Court didn’t comment directly on “software” patents. But it did say that if you’re going to patent a software invention, it must be tied to something more specific than a general purpose computer or a generic piece of hardware. You can’t just run a generic piece of software on a general purpose computer and then stop everyone else in the world from doing the same for 20 years. Because, as we said at the outset, these types of ideas belong to everyone. They are fundamental building blocks of today’s technology, and society benefits when everyone can use them.

So we applaud the Court’s decision today, along with five others this term, for reminding the Federal Circuit Court that owning a patent monopoly is not an inherent right. Instead, patent law must be a delicate balance between granting patent owners limited and worthy monopolies, while leaving the rest of us with a vibrant public domain of ideas and technology on which to build.

We Didn’t Fail on Patent Reform: An Open Letter to the Media, Congress and Tech

This post originally appeared in re/code

Last month, Sen. Patrick Leahy unceremoniously pulled patent reform off the Senate Judiciary calendar -- denying a good piece of compromise legislation a vote -- reportedly under pressure from Sen. Harry Reid, who was reportedly under pressure from the trial lawyers’ lobbying arm. This took many of us who have been working hard to fix a dangerous patent troll problem by surprise. And not a pleasant one.

I’ve taken some time to reflect in the aftermath of this failed bill. I’ve looked for a lesson, a single take-away. None exists. But some points must be made, to the media, who I think have largely missed the point; to D.C. insiders, whose failure to make patent reform happen will have real consequences; and to the tech community, whose hard work has paid off but who still faces an uphill battle in navigating policy and politics.

First, to the media who report that tech is “D.C.’s biggest loser” and highlight “Silicon Valley's lost year in Washington”: you’ve got your story wrong. For starters, if you’re living in the same political universe that I am, it should be clear that this Congress is notorious for getting nothing done. It should come as no surprise that tech’s causes are not miraculously turning into legislation. No one’s are.

Still, so-called tech issues are driving political debates at all levels of government. The movement for patent reform has already had a serious chilling effect on patent trolls, and it’s far from over, as courts and states keep chipping away at the troll “business model”. And other issues that tech traditionally cares about -- immigration, privacy reform like an update to ECPA, government surveillance, and net neutrality -- dominate headlines. Many have turned into social movements that are not at all limited to the “tech community,” and each will continue to shape policy in this do-nothing Congress, and hopefully in the more productive ones that come next.

Second, to D.C. policymakers: when you failed to even put patent reform to a vote in the Senate you taught many proponents of reform what all too many knew already, that politics is “pay-to-play” and that deep, entrenched interests make it nearly impossible to get anything meaningful done in D.C. What many of you failed to recognize, however, is that the so-called “tech community” is actually becoming the American electorate at large. Soon, there will be no distinction between the “tech community” and the rest of the country. As today’s digital natives turn 18, they all become tech voters. The politicians who understand that, and work to legislate policies that help technologies and the startups who create them thrive, will be the future of this country.

Finally, to tech. Two messages: the work you did and the community you built to support patent reform did help. But we need to do more.

The Difference A Year Can Make: A Court Grants FindTheBest Attorneys’ Fees

For those of you who thought patent reform is dead: it’s not.

Sure, the comprehensive piece of legislation we need to put an end to a dangerous patent troll trend has stalled, but the fight against those trolls continues.

Remember when startup FindTheBest found itself facing a patent troll threat a year ago? A “company” called Lumen View Technology claimed that its patent covered a “computer implemented method to match the preference data inputted by at least two parties who input preference data into the website.” Lumen went on to sue FindTheBest, along with about 20 other companies, claiming that they all infringed that patent. There are a couple of big problems here. First, FindTheBest’s website undisputedly does not use match preference data. Second, it turns out the patent itself was invalid.

Late on Friday, a federal judge in New York ruled that Lumen will be on the hook to pay FindTheBest’s legal fees and costs, calling this case a “prototypical” one for making the loser pay. What’s interesting is that it’s also a prototypical patent troll case. For instance:

• Lumen continually threatened FindTheBest with expensive litigation if it did not agree to pay Lumen a licensing fee.
• Lumen threatened to raise the cost of settlement the longer FindTheBest continued to defend itself.
• Lumen did not conduct even a basic pre-suit investigation before it sued FindTheBest.
• As the Court found, “Lumen’s motivation in this litigation was to extract a nuisance settlement from [FindTheBest] on the theory that [FindTheBest] would rather pay an unjustified fee than bear the costs of the threatened expensive litigation.”
• The Court also found that Lumen’s tactics were “part of a predatory strategy aimed at reaping financial advantage from the inability or unwillingness of defendants to engage in litigation against even frivolous patent lawsuits.”

And this all brings us back to patent reform. Even as recently as a few months ago, courts very rarely granted attorneys’ fees in patent cases -- in fact, it happened so infrequently that it really wasn’t even considered a possibility. But the Supreme Court recently changed that in a case called Octane Fitness v. ICON Health & Fitness. There, the Court held that a losing party in a patent case might be forced to pay the other sides fees and costs (which can easily stretch into the millions of dollars range) in certain cases where a party either brings a particularly bad case, or acts unreasonably when litigating it.

Last week’s ruling was one of the first tests of the Supreme Court’s Octane ruling. And it showed that typical troll behavior -- like Lumen’s -- is enough to trigger fee-shifting. So, finally, the trolls can be held responsible for their actions.

This outcome was a direct result of all the hard work our community did on patent reform. We raised awareness of a dangerous problem that led the Supreme Court take an unprecedented five patent cases this term, and undoubtedly to this ruling.

This country still needs comprehensive patent reform legislation, and we’re going to keep fighting for it. And that legislation will still need a stronger fee-shifting provision than currently exists to make sure that it’s applied evenly across the country. But, in the meantime, parties facing patent trolls have a powerful new tool to fight back.

Congress Must Not Abandon Meaningful Patent Reform

This post originally appeared in Roll Call. 

The Senate’s decision to pull the plug on meaningful patent reform legislation leaves a serious, costly problem unsolved.

Patent litigation abuse is rampant and it’s getting worse. According to the first annual “2013 Patent Litigation Year in Review,” by the respected legal data analytics firm Lex Machina, patent cases hit record levels last year with 6,092 such lawsuits filed in U.S. District Courts, a 12.4 percent increase over 2012. Meanwhile, the average damages awarded increased by 28 percent to $34.7 million.

Most new patent cases were filed by ten plaintiffs that purchase patents — not to commercialize them — but to file lawsuits against companies that make use of these so-called inventions.

Known as “patent trolls” — or more politely, as “non-practicing entities,” patent assertion entities,” and “patent monetizers” — these perpetual plaintiffs buy up broad, vague patents and then claim their wide-ranging applications.

Armed with these patents, these entities sue operating companies that make and sell things, arguing that their patents cover those products and services, and demanding that the companies pay up. These companies can range from the most innovative major corporations to the small businesses that are end-users of basic technologies, such as shopping cart software or Wi-Fi routers.

The patent trolls’ not-so-secret strategy? Because of the high costs and great risks of a lawsuit, many companies will simply settle, paying them to go away. This is especially true for startups and small businesses that cannot afford to fight the trolls in federal court. In short, the trolls always win.

Carefully targeting where as well as who they sue, the patent trolls file their legal actions in the U.S. District Courts where they have reason to believe they stand the best chance of winning large judgments. In fact, patent trolls filed a growing number of their new cases in just two district courts: the Eastern District of Texas, with 1,495 cases, 20 percent more than in 2012, and the District of Delaware, with 1,366 cases, 33 percent more than in 2012.

These trolls tend to rely on old patents with questionable applicability to modern technology. A patent lasts for 20 years, but we all know that technology moves much more quickly than that. So it should come as no surprise that of the 4,917 patents at issue last year, 61 percent — 3,032 — had not been the subject of lawsuits over the past decade or more.

Not surprisingly, all of the top ten filers of patent cases in 2013 were patent trolls. In fact, the top three — ArrivalStar, Wynncom and Thermolife — each filed more than 100 cases. And six of the ten most frequently asserted patents — the subject of lawsuits by ArrivalStar — covered systems for tracking and monitoring vehicles. In many instances, ArrivalStar’s targets weren’t the companies who pioneered those systems, but the small municipalities who try to provide their citizens bus-tracking software, or the U.S. government for U.S.P.S.’s package tracking software.

These litigation tactics — using old and vague patents, and focusing on certain courts — do not add any value to the economy. Instead, they extract valuable resources from companies that could, and should, be commercializing new products and services, building their businesses, creating new jobs, hiring new workers, and otherwise contributing to American competitiveness and prosperity.

That is why it is so important that Congress not abandon efforts to pass comprehensive patent reform legislation that will protect productive businesses and rein in the patent trolls.

As this study of patent litigation reveals, the America Invents Act — passed just a few years ago — simply was not effective enough. Since 2011, we have seen a record number of patent lawsuits filed, and the average damages awarded have reached a new high.

Every day that goes by without reform costs our economy money. Annually, that number stretches into the billions. And every day, American businesses are targeted with spurious claims of infringement, requiring that they shift their focus away from growing their businesses.

Once and for all, it’s time to stop the patent trolls from taking their toll on American innovation, American businesses, and American jobs. Congress should not give up on patent reform. The cost of inaction is simply too high.

Hacking the Patent System

See the new white paper.

For many startups, the patent system is a necessary evil. Getting a patent can easily cost tens of thousands of dollars, and getting sued by a patent troll can cost millions. Despite these costs, and the other lost resources that come with them (lost employee and engineer time, stress, etc.), many startups find themselves feeling like it’s good business to file for patents. Traditionally, this was for a couple of reasons: 1) to use defensively if another company threatened a lawsuit (e.g., you sue me? I’ll sue you right back); or 2) to secure investment.

Over time, both of those rationales have proved to be false. First, owning a patent is no defense for a patent troll suit. Since a patent troll usually neither makes nor sells anything, it can’t be threatened with a lawsuit. Second, more and more investors report that they don’t care about their portfolio companies owning patents.

We think these broken rationales are proof of a patent system that has become unmoored. And recently we’ve been working hard to fix that through legislation -- you might have heard the news yesterday that the latest attempt at comprehensive patent reform died in the Senate.

This now leaves startups with a few bad choices: participate in the patent system and spend tens or hundreds of thousands of dollars (excluding the cost of enforcing those patents!), or don’t, but still find yourself facing lawsuits and other threats that come with sitting the system out.

So, together with EFF and OIN, we’re releasing a white paper prepared by Marta Belcher and John Casey from the Juelsgaard Intellectual Property Clinic at Stanford Law School. The paper is for startups and small businesses that want to understand some of their non-traditional licensing options. As we say in the paper:

“The traditional model of patent licensing—whereby a company pays a patent owner to license an invention that the company legitimately uses—has been hijacked by non-practicing entities (“patent trolls”) and other aggressive patent holders who assert overbroad patents that never should have been granted in the first place. Within this broken patent regime, companies are increasingly hacking the system—that is, finding alternatives to the traditional patent licensing model in order to both promote open innovation and protect the companies themselves. These patent system hacks can be organized into two broad categories: (1) defensive patent aggregators, which pool member companies’ resources to defensively purchase patents for the group and to fight patent trolls, and (2) patent pledges, whereby companies opt to openly and defensively license their patents to others.”

One example of an alternative is Twitter’s Innovators Patent Agreement (IPA). The IPA is simple: like most companies, Twitter asks its employees to assign their patents to the company. But, in exchange, Twitter promises it won’t use that patent to sue anyone, except for defensive purposes. Importantly, this promise travels with the patent, so even if Twitter sells it, the new owner cannot offensively sue without the permission of the original inventor. This kind of deal helps in hiring, since many software engineers scoff at software patents. It also helps Twitter’s brand, as a company that has taken a strong stand against a broken patent system.

This paper is intended as a guide to more solutions like this. Some might work for you, and some might not, but we think any commitment to patent defense is a step in the right direction.

Patent Reform off the Table For Now. What’s Next?

Yesterday, Chairman Leahy effectively ended our best hope of real patent reform by taking strong compromise legislation off the calendar. According to his statement, “there has been no agreement on how to combat the scourge of patent trolls on our economy without burdening the companies and universities who rely on the patent system every day to protect their inventions.” We disagree. There was agreement between stakeholders -- especially those for whom reform is most needed.

This news is devastating to the welfare of startups who will continue to face the threat of patent trolls. That no agreement could be reached, especially in light of the efforts being made across the committee to find common ground, is also bad news for the economy where annual losses from patent troll litigation are billions of dollars.

While this is certainly a step backwards, it’s worth noting all the progress we have made.

The fact that we have reached this point at all can be attributed in large measure to the actions of the tech community and the work of Sens. Charles Schumer (D-NY) and John Cornyn (R-TX). These two senators, who often find themselves ideologically opposed, put their differences aside and worked together to defend the startups and small business being crushed by the scurrilous practices of patent trolls. We are thankful for their work.

And, while we might not see caps on discovery costs, transparency of ownership, or fee shifting this year, we will not stop fighting to empower startups against patent trolls. Bills are still alive in the House and Senate that would curb deceptive demand letter practices. Right now, we have a good Senate bill and a weaker, but workable, House bill that are moving forward. We’ll also continue to work with the Patent Office in its efforts to modernize and improve its internal processes; with the Federal Trade Commission in its efforts to investigate patent trolls and protect consumers from the trolls’ worst behaviors; and with the states that are working hard to keep their local economies troll-free and business-friendly. This is not to say that we don’t still need comprehensive reform; it is to say, however, that we have made progress.

Thanks also goes to all of you for being a part of this conversation, and making this issue such an important one. The fact that all of these government bodies -- along with the Supreme Court, who heard five patent cases this term -- are involved in fixing the problem is really something. The intellectual property system is not easy to understand, but you still took a stand because you saw the toll patent litigation abuse was taking on your businesses. And in standing up to patent trolls, you made a difference.

You got the Innovation Act through a rancorous and partisan House of Representatives on this issue with a 325-91 vote. You forced the hands of trolls themselves and pushed them further than they have been pushed before with your efforts in the Senate. And, perhaps most importantly, you changed the conversation from a wonky, back room discussion of legal tenets, to real world examples of harm. With your continued support, and the support of our friends in Congress, we can be on the winning side.

Is This Our Last Chance For Patent Reform?

Over the last few years I have written about how badly we need patent reform more times than I care to recall. Here I am in September 2011, upon passage of the America Invents Act, stating that it "wholly fails to address many of the biggest problems plaguing the patent system, especially the problem of patent trolls." Or last year, when I called on the tech community to “strike while the iron is hot” to get patent reform done. I’ve explained time and again how the system doesn’t work and why we need to fix it, and I have been joined by so many other leaders in the tech community: founders, investors, and policymakers.

Many of us have been watching Capitol Hill closely since August 2012 when Reps. Peter DeFazio and Jason Chaffetz introduced the first SHIELD Act, the first bill to take on the troll problem. Since then, the President has compared the patent troll business model to extortion and called for reform in his most recent State of the Union address; the House passed the Innovation Act, which the White House publicly supported; the Federal Trade Commission has said it will undertake an in-depth investigation into the patent troll business model; and 42 states’ attorneys general have called for legislative reform.

Every day that goes by without reform costs our economy money. Annually, that number stretches into the billions. And every day, startups are targeted with spurious claims of infringement, requiring that they shift their focus away from growing their businesses.

So why haven’t we passed patent reform yet?

The answer depends on who you ask. Some blame Senate Democrats on the Judiciary Committee, who, under Chairman Patrick Leahy, hold the power to make it happen. (Sen. Leahy is responsible for deciding what bills the committee votes on, and up until now, no comprehensive patent reform bill has made it to a vote.) Others claim that certain provisions -- like fee shifting -- have made a deal impossible.

The truth is, it doesn’t matter. The Senate goes on recess after this week, and then we’re into the summer when things in D.C. notoriously slow down. And after Labor Day, congressional members will be distracted with the November midterm elections. All this adds up to a short window to get this done. We have been waiting long enough. The pieces are all in place. The time for patent reform is now.

Want to help? Go to fixpatents.org and call your senators today. Let them know that you’re watching, that you care, and that you expect them to finish the job and pass patent reform.

SCOTUS Decision in Octane Fitness: A Good Step But Fee Shifting Legislation Still Needed

With today’s decision in Octane Fitness v. Icon, and a companion case, the Supreme Court became the latest branch of government to state unanimously that abusive patent litigation and patent trolling needs to be curtailed. The White House and a large bipartisan majority in the House of Representatives have also been unequivocal on this point. Patent litigation abuse is a complex problem requiring a multi-pronged solution that must include legislation as well as administrative and judicial action.

The Supreme Court’s unanimous decision recognized the burden that abusive patent litigation places on productive U.S. companies and the need to address the problem. It also took an important step in articulating what advocates of reform have been saying all along: the litigation playing field is tilted in favor of plaintiffs and has enabled patent litigation abuse.

The Court’s decision will make it easier to shift fees to the loser in “exceptional” cases, but that is only one part of the solution. Courts must have the discretion to fee shift not only in “exceptional “ cases, but also in cases where the Court determines the conduct or position of the non-prevailing party was objectively unreasonable. Legislation to this effect is essential if we are to discourage abusive litigation in any meaningful way.

The Innovation Act passed by the House establishes a rebuttable presumption of fee shifting in favor of the non-prevailing party whose conduct or behavior was found to be unreasonable. Now the Senate must act too. The heavily negotiated Schumer-Cornyn compromise is a balanced bill after years of discussion about how to address the patent troll problem. It strikes the right balance on fee shifting. It’s time for a markup of this bill.

Every day that goes by without legislation hurts innovation and costs the economy millions of dollars, as evidenced by the news reports of trolls launching a flurry of suits last week in anticipation of legislation.

The Court is to be commended for lowering the very high bar that previously existed for awarding fees in exceptional cases, and for recognizing the important role that fee shifting must play in deterring patent litigation abuse. The Senate must act to empower the Courts to fee shift in all cases where the non-prevailing party’s conduct or position was unreasonable – not only in “exceptional cases” which is all that the current law allows.

Setting the Record Straight on Patent Reform

I’ve been involved in the debate about patent reform for a long time, and I’m thrilled to see that we are close to finally passing real legislation that will combat the patent troll problem. A Senate compromise is imminent, and we cannot let those who benefit financially from a broken system derail these efforts. Now is the time for real reform to curb the impact of patent trolls on America’s startups and our economy.

The widely reported Schumer-Cornyn compromise would provide a clear path forward against behavior that costs small businesses and the U.S. economy at least $29 billion a year (or more) in lost capital. These shadowy entities make nothing, provide no benefit to the wider economy, and do not advance America’s innovative, entrepreneurial spirit.

Claims that the current Senate compromise would gut the ability of “small inventors” to assert their rights as patent holders lack a fundamental basis in fact, but they are being levied loudly and distractingly by groups backed by large-scale assertion entities and multinational corporations with large patent portfolios. To be clear, there is nothing in the current proposal that would stop a legitimate patent holder from bringing a meritorious case for infringement. More than 6,000 patent holders and allies agreed by signing a letter; making it harder to patent owners to assert their legitimate claims for infringement is counterintuitive and not something our organization would fight for. Assertions to the contrary, made by those seeking to retain their rights to make offensive use of their patent portfolios, are wholly without merit.

Let there be no doubt: the startup community needs real patent reform. As a whole, it endorses the kind of strong reforms found in the Schumer-Cornyn compromise. Small, innovative startups bear the brunt of the patent trolling trend.Those startups who are targeted often have less than $10 million in revenues, and they are in no position to hire a patent lawyer to understand the scope of the threat they face — let alone pay the millions of dollars it would cost to take case to court. Even worse, startups are too often short on talent, so they do not have the luxury of using their current employees to read and understand vague patents with “fuzzy boundaries”.

We are asking the United States Senate to seize this opportunity. Let’s make this the week we beat back patent trolling. We are looking at serious, well-ordered compromise legislation -- worked out tirelessly by staff and Senators. We urge you to pass it on to the President, and let American innovation continue to lead the charge in rebuilding our economy.

The Senate and Patent Reform: The Time Is Now

This post originally appeared in RollCall.

Recently, word from the Senate Judiciary Committee is that negotiators have reached a bipartisan agreement in principle on the key elements of a comprehensive patent reform bill. They are reportedly vetting and nailing down language and preparing the package for mark-up when the Senate returns. A deal appears close to being done, and it’s looking more like the House’s Innovation Act, which bodes well for final passage.

Yet time is of the essence as the clock is ticking on this Congress. Patent litigation abuse by trolls, entities that acquire patents for the sole purpose of shaking down actual inventors with dubious infringement claims, is a very real tax on innovation. A New York Times editorial calling on the Senate to move forward with robust legislation made it clear that abusive patent litigation costs the US economy billions of dollars a year. And, although we can debate the exact scope of the problem, there is no question that the patent trolling phenomenon is growing, and that it now targets retailers, small businesses, independent inventors,start-ups and consumers. Moreover, it has tarnished the reputation of the patent system at a time when innovation is such a critical driver of economic growth and global competitiveness.

Recognizing that patent trolls leverage the high risk and high cost of litigation to extract nuisance settlements, the House passed the Innovation Act by a lopsided 325-91 margin in December.

As the Senate Judiciary committee struggles to come to terms on some thorny provisions, they should bear in mind what Chairman Leahy said just last week: Patents are government-issued monopolies and the abuse of patents in litigation is qualitatively different and consequently warrants a higher level of congressional scrutiny. When bad actors send demand letters or file suits without any real basis for believing that their patent is infringed, they are abusing the system. This problem is exacerbated when many of the patents being asserted by trolls are vague or abstract software and business method patents that should not have been issued in the first place.

Current law and practice stack the deck in favor of trolls, who typically send out scores of form demand letters which make vague and unspecified assertions of infringement and request “licensing fees” while threatening litigation. The troll renders itself litigation-proof by creating shell companies with no assets, but a threatened start-up is faced with a dire choice: give in to what President Obama aptly called ‘extortion” or risk litigation, which would drain critical energy and resources from a fledgling business which can ill afford the cost or distraction of litigation.

To stem this tide, the committee should press ahead to finalize a package that will redress the existing imbalances in the patent litigation system. The bill must include provisions for:

• Transparency of ownership post-issuance and throughout the life of the patent
• Specificity in demand letters
• Heightened pleading standards that require the identification of claims asserted to be infringed. Any bona fide claim of infringement should be able to meet these reasonable standards, which even provide an exception in cases where the plaintiff is unable to access all the information
• Capping discovery costs by enabling the court to determine what the disputed patent covers and the scope of the claims before allowing broad-ranging, expensive, and potentially irrelevant discovery. This will prevent trolls from driving up costs in order to gain leverage in litigation
• End-of-case fee shifting in favor of a prevailing party while maintaining the court’s discretion to deny fee shifting if the losing party’s actions and conduct were objectively reasonable
• Provisions that enable the real party in interest to be held liable for any costs assigned to shell entities.

To be sure, infringement is also a very real threat to inventors and startups, so the Senate should take care to ensure that nothing in the legislation prejudices the ability of patent holders to commercialize patents or assert legitimate claims. The proposals that have been reportedly agreed upon reflect a keen sensitivity to balancing these interests and the bipartisan negotiators should be commended for taking such care in walking that fine line.

This legislation needs to be balanced but it also needs to be effective, so potential unintended consequences should not be exaggerated in an effort to water down or derail the bill. The bill, like any legislation, should be evaluated by its intended and likely effects, not by reference to potential consequences which are exceptional or unlikely.

It is clear that the current state of affairs enables abuse and is tilted too far in favor of litigation plaintiffs, who can essentially sue on a wholesale basis with impunity. The fulcrum needs to be restored to a position of balance so that the patent playing field is level for all innovators. The Senate Judiciary negotiators appear to have arrived at a fair and balanced set of reforms. Let’s hope the Senate seizes this chance to improve and strengthen the patent system.

Pushing Patent Reform Through Senate Recess

We found out late last week that the Senate is pushing back a key vote on patent reform for the third time in a row. Early reports decried this as the beginning of the end of patent reform, but in fact the opposite is true. From everything we’re hearing, the Senators have reached a deal on the key provisions of comprehensive reform and plan to use their upcoming recess to smooth everything out.

Good news first: the bill looks likely to include the following strong provisions that generally align with the House Innovation Act:

Fee shifting: Meaningful fee shifting will discourage the most egregious actors — those without meritorious cases — from suing in the first place; and joinder provisions are necessary to make sure that the real party in interest — the one that really owns the patent — can be held liable for the trolling activities of shell entities are also essential. In other words, no more hiding behind shell companies.

Heightened pleading: Patent trolls benefit from asymmetry of information. They can file suits with vague and limited information, leaving companies with no choice but to consult a lawyer about the scope of the threat they face. Most startups don’t have an in-house lawyer at all, let alone one who specializes in patents.

Those bringing suits should set forth the basic framework of their case — who owns the patent, what product allegedly infringes the patent, and what parts of the patent are at issue. This would, at minimum, give startups a basic and common-sense understanding surrounding the threat, allowing them to make more informed decisions on how to proceed.

Discovery reform: Discovery is one of the most onerous and expensive parts of patent litigation. Reasonable limits on initial discovery will help incentivize startups to fight the trolls in court. This will, by default, incentive those trolls to only bring meritorious suits.

Demand letter reform: Patent trolls can legally send vague licensing demands, full of threatening legalese, and startups are again left with no information to understand the scope of the threat they face. Demand letters should include concrete information on the patent holder’s claim to give recipients needed information; and demand letters sent in bad faith should be actionable. 

Customer stay exception: Startups can sometimes find themselves facing expensive litigation for a product they obtained from someone else, or they might find their customers facing suits for using their products. In either instance, startups need tools — like robust stays — so manufacturers and suppliers can step in and join the defense.

So far, so good. The not-so-great-news, however, is that the Senate is now out on a two-week recess — and two weeks is a lot of time for opponents derail what appears to be a really good deal.

Most opponents can be clustered into two groups: D.C. insiders who oftentimes know their way around the legislative process much better than the small businesses and innovators who are being targeted by trolls; and large, well-resourced businesses (including the trolls themselves!) that have invested significant resources in the current broken patent system and fear losing some of that investment value.

So,  those of us who care about ending the reign of the patent troll need to speak up. Go to fixpatents.org, call your Senators NOW and tell them it’s time for real patent reform.

Finally, a word of caution: we’re reasonably optimistic that the bill we’ll see after recess will be a good one. But the process has been largely opaque and until we see final language we don’t know for sure what this deal will look like. We’ll be watching closely, however, and will keep you up to date in this space and on social media (Follow us on Twitter and Facebook).

Thanks to your help, we're closer than we’ve been in years to fixing a broken patent system that has been hurting inventors, startups, and the promise of technology. Now is the time to get this done.

Meet Peter Pappas, Engine Advisor on IP

I’m really excited to launch Engine’s Senior Fellows Program. Starting with Peter Pappas as our Senior Advisor on intellectual property and other policy issues, we plan to expand the program with fellows on net neutrality, women in tech, and other relevant areas that affect the startup community.

Peter, who made his first public appearance with us at a patent reform panel in San Francisco, and then joined us in DC for Startup Day on the Hill, is the former chief of staff at the USPTO where he worked with Director Kappos and the White House on policy initiatives. In this position, Peter was intimately involved in the formulation, and passage, of the 2011 America Invents Act. And since then, he has been working with the USPTO and the White House on additional patent reform legislation that targets patent litigation abuse and fills in the gaps that were not addressed by the AIA.

Having advisors is essential for us as we continue to conduct existing policy work, and enter into new debates. Peter’s experience and expertise are particularly crucial right now, as we push the Senate to pass comprehensive patent reform.

Speaking of which, here is Peter's first op-ed for us on why we need to restore a patent system that support true innovation.

Watch Peter introduce himself and tell us why he’s excited to be here!

The Biggest Threat to Patent Reform: The Apple/IBM/Microsoft Coalition

This article originally appeared in VentureBeat

There’s a new coalition in D.C., and big players like Apple, DuPont, Ford, GE, IBM, Microsoft, and Pfizer have all signed up. Unfortunately, launched on the day the Senate was supposed to take up the latest effort to reform the patent system, the coalition’s sole purpose appears to be an effort to derail the important strides we’ve made toward fixing the patent troll problem via the proposed Innovation Act legislation.

So what is it about the Innovation Act (and other legislative proposals being discussed in the Senate) that this coalition thinks will harm both their businesses and ability to build innovative products?

These companies were all startups themselves once, and protecting startups that cannot afford to protect themselves from patent trolls is at the heart of the Innovation Act. The startups being targeted by patent trolls have less than $10 million in revenues. They are in no position to hire a patent lawyer to understand the scope of the threat they face — let alone pay the millions of dollars it would cost to take case to court. Even worse, startups are too often short on talent, so they do not have the luxury of using their current employees to read and understand vague patents with “fuzzy boundaries”.

Today’s trolls send out scores of demand letters that make vague assertions of patent infringement while requesting “licensing fees” of $100,000 or more.

The cost of trolling, on the other hand, is minimal. Trolls also typically render themselves litigation-proof by creating shell companies with no assets, should they fall into legal trouble from a wrongful suit.

We need real reform that will stem the tide of the troll epidemic, while maintaining protection for patent holders to enforce their legal rights. This is precisely what the current proposals would do.

Fee shifting

It is nearly impossible for a startup to find the resources to fight a patent suit. The promise of seeing some of that money back at the end makes securing the resources easier.

Meaningful fee shifting will discourage the most egregious actors — those without meritorious cases — from suing in the first place; and joinder provisions are necessary to make sure that the real party in interest — the one that really owns the patent — can be held liable for the trolling activities of shell entities are also essential. In other words, no more hiding behind shell companies.

Heightened pleading

Patent trolls benefit greatly from asymmetry of information. They are able to file suits with vague and limited information, leaving companies with no choice but to consult a lawyer about the scope of the threat they face. Most startups don’t have an in-house lawyer at all, let alone one who specializes in patents.

Those bringing suits should set forth the basic framework of their case — who owns the patent, what product allegedly infringes the patent, and what parts of the patent are at issue. This would, at minimum, give startups a basic and common-sense understanding surrounding the threat, allowing them to make more informed decisions on how to proceed.

Discovery reform

Discovery is one of the most onerous and expensive parts of patent litigation. When startups face companies solely in the business of licensing and litigation (e.g., oftentimes a patent troll), they find themselves facing outrageously expensive motion practice that has little to no impact on their adversary.

Reasonable limits on initial discovery will help incentivize startups to fight the trolls in court. This will, by default, incentive those trolls to only bring meritorious suits.

Demand letter reform

Patent trolls are legally able to send vague licensing demands, full of threatening legalese, and startups are again left with no information to understand the scope of the threat they face.

Demand letters should include concrete information on the patent holder’s claim to give recipients needed information; and demand letters sent in bad faith should be actionable. Those senders should not be able to take advantage of the patent system and extort money from high-growth companies that are rebuilding the economy.

Customer stay exception

Startups can sometimes find themselves facing expensive litigation for a product they obtained from someone else, or they might find their customers facing suits for using their products. In either instance, startups need tools — like robust stays — so manufacturers and suppliers can step in and join the defense.

The harm resulting from the patent troll epidemic does not just impact startups; it creates an environment where startups have a negative impression of the patent system and are therefore significantly less likely to positively engage. A recent study from the National Sciences Foundation found that in the information sector (which includes software, Internet, and Data processing) only 10 percent of companies found utility patents either “very” or even “somewhat” important.

We need comprehensive patent reform to level the playing field for all innovators so they are no longer victimized by a litigation system stacked in favor of trolls. The legislation must realign the patent system with its founding principles — to incentivize innovation and the progress of technology. This includes protecting patent owners’ rights along with the rights of those facing patent threats. To be clear, there is nothing in the Innovation Act, or other proposed legislation, that would stop a legitimate patent holder from bringing a meritorious case for infringement.

To wit: our government grants patent holders a 20-year monopoly. Asking those who benefit from such monopolies to do basic minimal research before filing or threatening a lawsuit, or to actually inform the public about who really owns a patent is not onerous — it is part of a fundamental bargain between a patent holder and the public, and is probably something every responsible patent holder is already doing.

So why are companies like Microsoft, IBM, GE, and Ford trying to slow down this legislative process? Simply put, spending millions of dollars on patent resources has proved a good way to make money and to shut out their competition — high-growth, disruptive, and nimble startups. We must not let these entrenched interests get in the way of fixing a broken system.