Like many industries, real estate is increasingly driven by innovations in technology that enable professionals to deliver services more quickly and efficiently than ever before. From functionality on websites allowing consumers to zoom in on points of interest on a map, to sending those website users alerts via email, to even providing Wi-Fi access in the common areas of buildings, real estate professionals are constantly seeking to provide consumers with improved services and information in a way that is fast, convenient and comprehensive. Unfortunately, the activities described above – which are utilized by the majority of businesses around the country – have also made them the target of patent trolls.
Patent trolls use overly broad patents – for example, regarding the provision of Wi-Fi access – to threaten litigation and extort payments from real estate businesses across the country. Increasingly, these patent trolls are targeting small businesses, which are not likely to have sufficient resources to fight a long and costly legal battle and are more likely to take the trolls’ settlement offers. Research by RPX supports this conclusion: According to their recent study, about two-thirds of unique patent troll targets in 2016 were companies with revenues that are reported or assumed to be less than $100 million.
But regulators in Washington are taking a look at these low quality patents. Last month, the United States Patent and Trademark Office requested input from stakeholders on its continuing efforts to improve its existing guidance and training regarding subject matter eligibility. The PTO’s ongoing and welcome efforts are particularly timely given recent attention in the federal circuit and Supreme Court devoted to refining the definition of what is eligible to be patented. A large number of patent trolls use low-quality patents to assert frivolous claims against innovative and job-creating small businesses. Addressing the patent troll problem through efforts to rigorously apply subject matter eligibility jurisprudence on the front end will provide a powerful tool to deter the types of nuisance litigation that has become all too prevalent.
The Supreme Court in particular has provided a powerful analytical example for patent examiners to follow, principally through its unanimous 2014 decision in Alice v. CLS Bank. In Alice, the court promoted a two-step framework for distinguishing low-quality patent claims – such as for abstract ideas or those that simply claim an activity done “on a computer” – from the high-quality claims our patent system was created to protect – those that introduce new ideas and advance technological progress. If properly applied by patent examiners and the courts, this jurisprudence eliminates patents with invalid, overly broad claims.
NAR believes that the PTO should provide examiners with guidance to ensure that they fully utilize these existing tools to screen out applications that claim broad outcomes but don’t invent or disclose specific methods or systems for procuring those outcomes. Enforcement of these standards would have a direct impact on NAR members, who are threatened by the assertion of vague patents that claim aspirational outcomes – for often simple tasks done “on a computer” – without disclosing a concrete way to achieve them.
A study released by the Federal Trade Commission in October outlines the costs of patent trolls wielding bad patents. The FTC found that patent trolls typically sued potential licensees and settled shortly afterward – within 18 months in 83 percent of cases – for royalties that were typically less than $300,000. According to estimates by the American Intellectual Property Law Association, this number is the lower bound for early-stage litigation costs of defending a patent infringement suit. Given the relatively low dollar amounts of the licenses, the 2016 FTC report determined that the behavior of patent trolls is consistent with nuisance litigation.
The findings of the FTC report suggest that patent trolls use the high cost of patent litigation to extract settlements which may be far in excess of the value of the underlying patent – particularly if the patent is not valid and thus has no value other than the cost of defending. Better screening by examiners and use of validity tools at early pleading stages can lower the costs and barriers to businesses who wish to fight back against invalid claims and thus help curb this abuse.
In addition to efforts at the PTO to restrain abusive patent troll litigation, courts also have an obligation to ensure that the system allows those accused of patent infringement a fair defense. Courts must ensure, to the extent possible, the just, speedy and inexpensive resolution of litigation, as well as additional tools to ensure discovery expenses remain in line with the complexity and value of a lawsuit. Alice, one again, provides a very important tool to address this problem, as it allows for the early evaluation and dismissal of cases involving weak or invalid patents before the summary judgment stage.
On behalf of 1.2 million realtors, the National Association of Realtors supports congressional action on patent litigation reform – including previously introduced bills such as H.R. 9 (The Innovation Act) and S. 1137 (PATENT Act) – but cautions against congressional involvement in the issue of patentable subject matter. In this area, the courts and PTO have developed set standards and an established record of case law that continue to be clarified and strengthened. Congress’ valuable past reforms and proposed reforms, provide courts and the USPTO with tools and guidance sufficient to reject the low-quality and invalid patents that are routinely abused by trolls.
Abusive patent litigation represents a real and significant threat to American businesses. Patent trolls intentionally target small businesses precisely because they lack the resources and expertise to defend against the intentionally vague claims of infringement contained in many demand letters. Policymakers can have a positive and important impact on reducing patent litigation abuse and return billions of dollars to productive use to grow the American economy, all without compromising the rights of legitimate patent holders.
Ms. Johnson is the general counsel for the NATIONAL ASSOCIATION OF REALTORS®.
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