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Retailers plead for federal help in war against ‘patent trolls’
Question of the Day
You wouldn't normally think of bricks-and-mortar stores as major innovators concerned about patent lawsuits, but Eddie Bauer is one of a number of traditional companies warning Washington it's worried.
The outdoors clothing company said it, like so many other retailers with major online presence, has faced dubious patent claims over its Web operations. The businesses want Congress to give them tools to fight what some analysts call "patent trolls" — companies that buy up patents and then find other companies to sue.
"Over the past several years, Eddie Bauer has received a number of threats of litigation and been the target of lawsuits by patent assertion entities (PAEs) stating we were in violation of vague ecommerce-related patents," said Molly McWhinnie, a spokeswoman for the company, using the less-pejorative term for the patent-buying companies.
Over the summer, Eddie Bauer joined more than 40 other companies in signing a letter pleading with Congress to act — and lawmakers heard those pleas.
This week, lawmakers could begin to take the first major action. House Republicans say they may hold a vote on legislation that would require those suing to be more specific about their infringement claims and make those who lose frivolous suits have to pay the winners' fees. The legislation also would push judges to come up with new rules for document discovery.
Trolls focus their business not on producing patents, but on buying existing patents and then challenging companies, often offering to settle for less than the cost of litigating the case would be, in order to entice companies into avoiding a fight.
In one incident, a company fired off letters to restaurants and coffee shops demanding licensing fees for letting customers use Wi-Fi Internet. Whataburger, a fast-food chain and one of the companies that signed on to the letter to Congress this summer, said it shelved plans to add Wi-Fi out of fear of that sort of claim.
Billions of dollars can be at stake. A study by Boston University law professors said the costs of patent assertions by trolls totaled $29 billion in 2011, four times the costs in 2005.
Defenders say trolls give inventors more of an even footing in asserting their claims against major companies that otherwise might overwhelm them with attorneys.
A report by the Government Accountability Office this year suggested little evidence of a patent crisis and said only a fifth of lawsuits were brought by trolls. But in their letter to Congress, the firms said the latest data suggest that more than half of all patent litigation comes from trolls.
Tackling the issue has stunning bipartisan support, though technology companies themselves are divided on exactly how far Congress should go and how to go about it.
The House bill initially included updated rules for challenging patents with the U.S. Patent and Trademark Office. But those rules were removed in the House Judiciary Committee, and the bill cleared on a 33-5 vote.
"The patent system was never intended to be a playground for litigation extortion," said committee Chairman Bob Goodlatte, Virginia Republican, as he maneuvered the bill through.
All five lawmakers who voted against the bill in committee were Democrats, including the ranking Democrat, Rep. John Conyers Jr. of Michigan.
A spokesman for Mr. Conyers said the bill appears to be "a back door to tort reform" that would encroach on the independence of the federal judiciary.
Russ Merbeth, chief policy counsel at Intellectual Ventures, said with the White House and Republicans and Democrats in Congress aligned, and big, sweeping bills introduced by the major players in each chamber, it's clear that Congress is headed for action.
Intellectual Ventures is one of the world's biggest owners of patents. It also funds a research lab that has spun off three companies. But the patents are its big business, with nearly 70,000 owned and nearly 40,000 of those in what the company called "monetization."
Mr. Merbeth has been struck by how quickly the push for action has grown. In March, only a single bill introduced in Congress dealt with the issue, but that has grown to more than a dozen.
The White House has issued an executive memo directing the Patent and Trademark Office to issue new rules, and the Federal Trade Commission announced in September that it would open an investigation.
"The train is moving at such a rate of speed that I think it's worth everybody wondering whether the product that's going to come out hasn't been rushed too much," Mr. Merbeth said.
He said there are indeed anecdotes of bad actors but no clear proof that the system is broken.
"I think we'd like to see Congress wait for statistical evidence to show up, but if they're not going to do that, the best thing they can do is do no harm — try to fix, narrowly, the problem that seems to exist, and try not to gum up the works," he said.
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