'Patent Trolls' Hurt Consumers and the Digital Economy
Most people know that the U.S. Patent and Trademark Office (USPTO) encourages innovation by protecting intellectual property by issuing patents to inventors. The United States Federal District Court is responsible for adjudicating cases of infringement. The International Trade Commission (ITC) also plays a role in protecting intellectual property by reviewing patent infringement claims relating to imported goods. Unfortunately, the ITC is often leveraged by bad actors to stop the importation of products manufactured by legitimate companies. These fly-by-night firms known as “non-practicing entities” can hinder innovation while handsomely rewarding troll companies.
Non-practicing entities (NPEs), often called “patent trolls,” are businesses that produce no products and offer no services, but instead are engaged solely in patent “monetization” — a nice word for using patent infringement claims to extort licensing fees. They typically acquire as many patents as possible, which often are available to them because they are weak, marginal or vague. The trolls then sift through the patents looking for ones connected in any way to industries so they can file litigation claiming their patent rights have been violated. The objective for these trolls is to extract a large payout from the legitimate company. The money funds the next round of patent litigation against the next company that the NPE targets in a seemingly endless cycle of costly litigation, settlement, and new litigation. This is the patent troll’s business model — a version of wash, rinse and repeat to great effect and profitability.
In addition to the courts, trolls can also bring their claims to the ITC. Section 337 is designed to address claims of unfair competition from foreign imports in order to protect a US domestic industry that wants relief. Patent infringement can qualify as unfair competition. When the ITC rules that an importer has violated patent rights, the ITC’s only remedy is to issue an exclusion order, banning the import of all products that use the patented technology.
A patent troll may not be able to get injunctive relief in the U.S. District Courts, but in the ITC, it can get an equivalent exclusion order. This is ideal, because it gives the troll a powerful weapon to force settlements. Targeted companies may not be able to afford to risk their products being banned from the U.S. market, so even when the trolls’ claims are dubious at best, companies will often settle to make the problem go away. Instead of defending innovation, the ITC rewards manipulation. The trolls get big paydays and everyone else loses.
Properly applied, Section 337 protects U.S. industries from unfair foreign competition. But the standards of practice the ITC uses these days in 337 cases don’t work well in the increasingly complex digital age.
One glaring example of ITC exploitation by trolls is a case just launched by the Irish NPE, Arigna. Arigna is one of a web of Ireland-based patent trolls owned by Atlantic IP Services Ltd. and backed by the hedge fund Magnetar Capital. On their website, Arigna’s owners call themselves “a leader in the field of patent monetization…specialized and focused on patent monetization from patent review, selection, drafting, valuation and acquisition financing, to all phases of licensing from market studies, teardowns, negotiations and, when necessary, litigation.” In other words, they don’t do anything except review, select, and value real companies to sue over ginned up patent infringement claims.
Its current targets are a lengthy list of major tech companies, including Apple, Motorola and Samsung. Arigna purchased a patent for a semiconductor chip which is used in many laptops, smartphones, and other devices. Now Arigna is claiming that its patent rights are being violated by these manufacturers and petitioning the ITC to exclude their products from the United States.
If the ITC grants an exclusion order on devices made by those manufacturers, it will block 93% of mobile phones from the U.S. market. Arigna, of course, has no U.S. presence and makes no competing products. It does not care if American consumers are cut off from these smart devices.
The huge threat Arigna and similar NPEs pose to U.S. businesses and product innovations could be eliminated in a couple of ways. One, the ITC could self-correct by rejecting foreign troll claims, but this can only happen if the ITC conducts a thorough analysis determining if any domestic industry supports bringing a 337 complaint.
Alternatively, Congress can step in to fix the problem more permanently. Efforts to do just that are already underway, in the form of the Advancing America’s Interests Act, legislation that would modernize the ITC practice and make it more difficult for trolls to misuse it for profit.
This bipartisan bill deserves full support from members of Congress. Companies like Arigna weaken our economy, harm consumers and undermine employers who create living-wage jobs for thousands of American workers. It is time for the trolls’ self-serving scams to come to an end.
Charles B. “Chuck” Meyer, registered patent attorney, is a Texas-based tech lawyer with over 30 years’ experience in international and domestic intellectual property law.
