(Adds FTC commissioner starting in 15th paragraph.)
April 1 (Bloomberg) -- Nobody likes “patent trolls,” even if they’re not quite sure what they are.
It’s a term without clear definition and yet it’s being used to push Congress and the U.S. Supreme Court right now to curb abusive litigation without damaging a centuries-old system designed to promote advances in science and industry.
Retailers and companies like Google Inc. say they are too often targets of lawsuits and have taken out newspaper and radio advertisements deriding “trolls.” Companies like 3M Co., Eli Lilly & Co. and General Electric Co. warn that proposals to limit litigation could go too far and damage a part of the economy that the Commerce Department says generated 5.3 percent of U.S. gross domestic product in 2010.
“I can throw this term out there, and get a lot of attention,” said Timothy Holbrook, who teaches patent law at Emory University in Atlanta. “It’s had a huge impact. Who is going to argue in favor of trolls, particularly when you don’t define it?”
The phrase “patent troll” originated with Intel Corp., which was sued for libel in 1999 after its spokesman, Chuck Mulloy, called a firm that had sued the chipmaker a “patent extortionist” in the Wall Street Journal. A group of company lawyers came up with the replacement phrase, Mulloy said.
Intel executives have said over the years the term refers to anyone who stands under the bridge of progress exacting a toll on those who try to cross, a reference to the Three Billy Goats Gruff fairy tale. One of the lawyers who came up with the name, Peter Detkin, now works for Intellectual Ventures Management LLC, a patent-licensing firm.
Complaints about patent litigation have been around since the country’s founding. After the Civil War, there were calls to deal with “patent sharks” who bought up dormant patents on agricultural tools and threatened to sue farmers unless they were paid $10 to $100, said Gerard Magliocca, an Indiana University professor of patents and legal history.
Even the idea of investors buying a stake in a patent litigation is old: it’s how Elias Howe, inventor of a unique type of stitch, funded his patent battles with sewing machine company founder Isaac Singer.
What is new is the speed with which technology changes in complex devices made up of hundreds of parts and features that are each a patent lawsuit in the making.
As awareness of patents as an asset class grows and industries change, companies are under pressure to find ways to get money from their patent portfolios, said Don Fancher, a principal of Deloitte Financial Advisory Services. That can come through licensing, sales and litigation, he said.
Lobbying groups that use the word troll today say the term helps crystallize a complex issue for politicians.
“A lot of it’s the smell test,” said Michael Beckerman, chief executive officer of the Internet Association, a lobbying group whose members include Amazon.com Inc. and Google. “You know the difference between the company trying to make a business and some fake LLC where their whole business model is figuring out how much people will have to spend in court.”
The group cites studies putting litigation expenses at $29 billion a year and estimating that complaints from non- manufacturers make up two-thirds of complaints filed. It included litigation from all “non-practicing entities” -- patent holders who don’t make products, which includes universities, inventors and research firms.
By contrast, a U.S. Government Accountability Office report last year only counted “patent monetization entities,” companies buying patents to profit from royalties or lawsuits. Such suits made up 19 percent of the complaints filed between 2007 and 2011, GAO said.
“There is a lot of rhetoric out there; there’s not a lot of data,” Maureen Ohlhausen, a member of the U.S. Federal Trade Commission, said at a Bloomberg Government talk on patents in Washington today. The agency is conducting a study to learn more about the different types of patent assertion and the effect on competition.
“The issue that we face right now is whether we’re going to try to get the pendulum to the center point, to the right place, or whether we’re going to sort of give in to the nuttiness and the rhetoric,” David Kappos, former director of the U.S. Patent and Trademark Office, said at the event. “The problem I see if we give in to that rhetoric is we risk really overswinging that pendulum and winding up with dramatic inhibitors on innovation.”
Some lawmakers are getting wise to the distinctions, and say legislation should target behavior and not ownership.
Senate Judiciary Committee Chairman Patrick Leahy, a Vermont Democrat, said at a March 27 hearing that he’s heard from restaurants, hotels and websites that have been targeted by patent owners for using common technology, in what he said “appear to be just extortion.”
The bill he’s working on with panel Republicans would require more disclosure of patent ownership, expand the U.S. Patent and Trademark Office’s review process for issued patents and have losers pay some of the winner’s fees.
The House in December approved legislation requiring patent owners to provide more data on their inventions and limiting pre-trial information that can be sought from accused patent violators.
Industries with revenue tied to patent protection, including drugmakers, technology companies and manufacturers, generated $763 billion of U.S. gross domestic product, in 2010, according to a Commerce Department report in 2012.
The White House said more than 100,000 companies were threatened in that same year with infringement lawsuits by businesses whose sole mission is to extract royalty revenue.
“That’s the tension a lot of companies face -- we have our patents and yet we’re being hammered by these patent assertion groups,” said Bill Growney, general counsel for RichRelevence Inc., which makes software that creates product recommendations on shopping sites. “Do we give up the patent protection we seek to be rid of this problem? The answer is probably yes.”
Phil Hartstein, president of Finjan Holdings Inc., an online security company that relies on patent licensing, said the phrase “troll” has made it more difficult to reach agreements between companies over legitimate inventions.
“There’s a faulty presumption that every patent that goes to them for a license is presumed invalid,” Hartstein said. “These are our patents, we invented the technology.”
When Congress passed major patent legislation in 2011, it came after seven years of debate, and it was the biggest change in 50 years. Lobbyists on both sides predict Congress will pass something before the mid-term elections in November.
“What a wonderful way to show bipartisanship than to rally around these horrible creatures calls trolls?” said Emory’s Holbrook.