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What has many U.S. businesses asking Congress for help?

While you wouldn't think that there would necessarily be much in common between large corporations, medium-sized enterprises and small businesses outside of a shared interest in turning a profit, it turns out that many of them are becoming increasingly united in a fight against a common foe.

The common foe in question are so-called patent trolls that provide shell companies with old patents and then proceed to threaten business of all sizes with legal action unless a royalty is paid.

Why exactly is this practice so devastating?

According to experts, some of the country's largest corporations are now spending millions of dollars defending themselves against these actions, which can be manipulated by patent trolls to drag on such that these companies have more incentive to simply settle than fight in court.

Not surprisingly, the options are considerably fewer then for smaller companies, which may not be able to bear the cost of this protracted and dubious litigation, let alone a costly royalty.

"It's the patent troll business model, and it is especially effective when it is targeted at a small business with limited resources ... Patent trolls practice a legal form of extortion," said the CEO of a Vermont-based bank that recently engaged in a losing battle with a patent troll.   

If you question the legality of this conduct, it turns out that it is perfectly legal and very common. Indeed, one CEO of a major online retailer recently told the House Judiciary Committee that 64 percent of all patent cases in 2014 were filed by patent trolls.

This issue has not gone unnoticed by Congress, which is actively considering legislation known as the Innovation Act that, if passed, would do the following:

  • Require patent trolls to file far more detailed complaints, essentially eliminating their ability to make generic filings listing only the patent and a broad statement that infringement has occurred.
  • Institute monetary and/or time limits on discovery in these cases.
  • Limit recovery by providing greater legal protection to others in the stream of commerce (i.e., retailers and end users of products).
  • Making it easier for businesses to recover legal fees from patent trolls.

It is worth noting that while these ideas enjoy bipartisan support, previous attempts to introduce this kind of widespread patent reform have failed.

It will be interesting to see what transpires on Capitol Hill and whether U.S. businesses continue to be bombarded with these lawsuits. Stay tuned for developments ...

Source: Fortune, "CEOs tell Congress: Patent trolls are giving us the shakedown," Jeff John Roberts, March 26, 2015

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