Patriot Scientific

A law designed to improve the quality of patents and reduce litigation has made it to the U.S. Senate, eliciting strong opinions on the way.

Many tech executives say the nation's current patent system doesn't support innovation, in large part because of the rise of patent infringement lawsuits.

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The proposed bill "will restore balance to the patent litigation system, and it will help put patents back where they belong," said Mark Chandler, general counsel for network gear king Cisco Systems (NasdaqGS:CSCO - News).

Patents should be forces for innovation, not litigation and extraction of damages, Chandler says.

Cisco is a member of the Coalition for Patent Fairness, a group of more than 160 organizations, including tech firms, financial services companies and trade associations.

Forum Shopping Criticized

Other coalition members include Hewlett-Packard (NYSE:HPQ - News), Microsoft (NasdaqGS:MSFT - News) and Time Warner (NYSE:TWX - News). The group supports the proposed bill.

Patent infringement lawsuits have jumped since 1990, says Chandler. That year, he says, there were 921 cases with 1,526 individual defendants nationwide. In 2007, there were 2,953 cases with 8,045 defendants.

He also cites a trend called forum shopping, in which plaintiffs seek favorable venues to file such a lawsuit.

The jump in cases and the forum-shopping trend are signs that the system is out of whack, he says.

Though Chandler didn't use the term, many critics say a big part of the problem is the rise of so-called "patent trolls." The term refers to patent-licensing firms that often end up taking legal action. Critics say trolls seldom if ever actually create any inventions worthy of patents themselves.

In mythology, trolls were ugly and malicious. In one legend, a troll hides under a bridge in an attempt to catch the goats that pass above. Patent trolls are also portrayed in unflattering terms.

"Trolls are well-financed businesses that bring patent claims against large companies or well-funded startups for the express purpose of extracting settlements," said Charlene Morrow, who heads the patent litigation group at Silicon Valley law firm Fenwick & West. She has represented companies sued by so-called trolls.

Morrow supports patent reform legislation, which in its current form is Senate Bill 1145, the Patent Reform Act of 2007, sponsored by Sen. Patrick Leahy, D-Vt. A similar bill was passed by the House and sponsored by Rep. Howard Berman, D-Calif. The Leahy bill is now in committee.

One reason Morrow supports the proposed reform is a provision that seeks to end forum-shopping.

"It eliminates an aspect of the game-playing by requiring patent plaintiffs to sue only in those places where a defendant is doing substantial business," she said.

Morrow also approves of a provision in the bill that limits damages.

"The idea is that most patent trolls can only get a reasonable royalty for damages because they don't make any products," she said.

Kelly Hyndman, an intellectual property attorney, has defended corporate clients against "trolls," but he dislikes the expression.

"I don't like the term, because (the plaintiff troll) might actually own the bridge," said Hyndman, an attorney with Washington, D.C., law firm Sughrue Mion.

That is, some who take such legal action are justified in trying to protect their inventions, he says.

"Those people who own those rights, I call them inventors. And the people who invest, I call them entrepreneurs," Hyndman said. "I don't call them trolls."

The pending legislation reflects a predictable change in the national attitude toward the patent process, he says.

"The general feeling in Congress is that the pendulum has gone a little too far in the direction of patent holders' rights," Hyndman said.

But that is not so, say patent licensing companies such as Acacia Technologies Group (NasdaqGM:ACTG - News), based in Newport Beach, Calif.

"The legislation is really designed to advantage a small number of high-tech companies that routinely use the intellectual property of smaller companies, universities and research centers," said Acacia CEO Paul Ryan.

'Giving A Heads-Up'

One aspect of the new law that Ryan most dislikes would require that all patent applications be published, available for anyone to see, within 18 months of filing. This would make the application public before a patent is awarded, Ryan says, so inventors could have their ideas stolen.

"You're giving a heads-up to the big companies," Ryan said. "If you want to stop innovation in the U.S., that's a good way to do it."

Companies really need to improve their patent policies, says John Cronin, who manages ipCapital Group in Williston, Vt. The firm describes itself as intellectual property strategy advisers.

Companies "don't do a good enough job to review the patent literature before they launch a product," said Cronin, who spent 18 years at IBM (NYSE:IBM - News) as an inventor, where he helped get 100 or so patents. Companies can avoid many conflicts with so-called trolls, he says. He also points out that patent licensing firms take financial risks.

"In most cases," he said, "the troll is taking the economic risk by supplying money to inventors before licensing and possible litigation."