By Mike Montgomery
In all the political hoopla dominating the news lately, many people probably missed a U.S. Supreme Court decision that will actually have a huge impact on technological innovation. On May 22, the court ruled to restrict where patent lawsuits can be filed. The decision is likely to lead to a reduction in the number of cases filed by so-called patent trolls. It’s about time.
Trolls don’t build anything, employ anyone or add any value whatsoever to the economy. They simply buy up overly broad, somewhat vague intellectual property (IP) patents and use them as cudgels to bully plaintiffs into paying them to go away. Trolls count on a trial being more expensive than an out-of-court settlement.
Until this recent decision, the trolls’ favorite place to bring suits was the Eastern District of Texas, which has rules — and juries — that favor IP plaintiffs. It’s not a huge surprise that more than 40% of all patent lawsuits are filed there. One East Texas judge oversaw more patent cases than the federal judges in California, Florida and New York combined. The region became a troll haven partially by accident, but mostly by design. All those lawsuits — more than 2,500 last year in the region— bring in legal teams that spend money at area hotels and restaurants and usually even throw a few crumbs to the local legal talent.
But the SCOTUS decision sounded a death knell for their cottage industry. In the two weeks preceding the ruling, 74 patent cases were filed in the Eastern District. The week after — just four cases. The well dried up fast. That’s because the ruling in Heartland v Kraft means patent cases must be filed where the infringement took place, or where the defendant has an established business. That’s usually not East Texas.
This decision is going to make a huge difference for startups and small businesses that can’t afford to fight expensive legal cases in far-flung towns, especially when the deck already is stacked against defendants. It’s easier to settle immediately, or to just not go down that innovation path.
Patent trolls waste billions of dollars each year and ultimately hurt consumers. Studies have shown that trolls syphon off money from research and development, venture capital investments and tech startups in particular. Patents are designed to protect investment and innovation, and they work in some industries like big pharma. But the tech industry has been crying out for reform.
Unfortunately, Congress has repeatedly refused to act, despite two bills that would reform the tech patent industry. The Patent Act would make it more difficult to file troll suits, while the Innovation Act would cut down on the broad, vague language used by trolls and, more importantly, force them to pay legal fees when they lose.
Of course, action may not be as necessary now. The new ruling most likely will make it harder for trolls to consolidate cases, thereby eliminating marginal cases and potentially leading to a reduction in the number of cases filed overall.
Mike Montgomery is the Executive Director at CALinnovates.