February 28, 2013, 4:22 PM — So-called patent trolls force tech companies to spend money on lawyers instead of innovation, and the U.S. Congress needs to discourage infringement lawsuits from patent-collecting companies, a group of tech and business representatives said.
The number of infringement lawsuits filed by non-practicing entities (NPEs) -- patent owners that don't sell products -- is exploding, and tech entrepreneurs often pay settlements to these companies instead of racking up millions of dollars in legal costs, said Ed Goodmann, policy and research manager at Engine Advocacy, a trade group representing tech startups.
Demand letters threatening legal action from patent trolls -- also called NPEs or patent assertion entities -- distract a tech company from its core business, added Seth Brown, head of litigation at Living Social, a daily-deal website based in Washington, D.C.
When facing patent lawsuits, Living Social must pull its most experienced developers from their duties and "force them to sit in a room with a bunch of boring lawyers," Brown said during a Capitol Hill discussion about patent trolls on Thursday.
U.S. product-making companies mounted more than 5,800 defenses against patent troll lawsuits in 2011, four times the number they defended against in 2005, according to the Computer and Communications Industry Association, the tech trade group sponsoring the patent discussion.
An in-court defense against a patent troll lawsuit costs a small or medium-sized business nearly US$1.8 million, while an average settlement costs $1.3 million, CCIA said.
While five of the six panelists at the CCIA event represented the tech industry, NPEs are becoming a problem for other businesses as well, said Erik Lieberman, regulatory counsel at the Food Marketing Institute, a trade group representing grocery stores. In recent months, many grocery stores have been receiving licensing demand letters for common technologies they use, including Web search menus and Wi-Fi routers, he said.
Lawsuits by NPEs are "legal extortion," Lieberman said.
The CCIA panel didn't include any representatives of NPEs.
Even though Congress passed the America Invents Act, a patent reform law that makes it easier to challenge issued patents, more action is needed because of the growing problem of lawsuits by NPEs, the panelists said.