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Keep Trolls out of Trade

DEEPLINKS BLOG
April 8, 2016

Keep Trolls out of Trade

Trade Protection Not Troll Protection Act Would Prevent Patent Trolls from Blocking Imports

Patent trolls don’t just demand money from innovators; they can actually interfere with international trade and block imports from entering the country. There’s a new bill in Congress designed to take this powerful tactic away from the trolls’ arsenal. We hope to see it pass, but more importantly, we hope it builds momentum in Congress for more comprehensive patent reform.

The Trade Protection Not Troll Protection Act is the newest of several patent reform bills introduced in Congress this session. Introduced by Reps. Tony Cardenaz (D-CA) and Blake Farenthold (R-TX), H.R. 4829 addresses patent litigation’s lesser known forum, the United States International Trade Commission (ITC), a federal agency that investigates unfair trade practices.

ITC disputes work differently from patent litigation at district courts. The ITC can’t award damages; what it can do is block imports of an infringing product. For businesses that import their products from overseas, the threat of having those imports blocked can be a powerful incentive to pay a licensing fee. As the bill’s sponsors noted, that leverage has made the ITC an increasingly popular venue for non-practicing entities, or patent trolls—companies that don’t make or sell or anything but use patents to demand money from innovators.

The ITC’s mandate is different from that of a court. Its sole job in investigations is to protect American business. The ITC won’t even hear a patent complaint unless the complaint represents the interests of a “domestic industry.” Here’s how the law defines a domestic industry:

an industry in the United States shall be considered to exist if there is in the United States, with respect to the articles protected by the patent, copyright, trademark, mask work, or design concerned—

(A) significant investment in plant and equipment;

(B) significant employment of labor or capital; or

(C) substantial investment in its exploitation, including engineering, research and development, or licensing.

In other words, if your company is only holding onto patents for the purpose of suing others, then you can’t bring an infringement complaint to the ITC. Here’s the catch: you can get an ITC investigation if you “license” the technology to others.

H.R. 4829 would close a loophole that currently qualifies a lot of trolls to bring actions at the ITC. Many patent trolls only “license” their patents after operating companies have independently developed and sold the technology. These trolls do nothing to promote innovation. They simply wait under the bridge while other companies—without knowledge of or help from the patent—do the work. Under H.R. 4829, the ITC would only look at patent disputes where the patent owner actually helped develop the product in the United States. For patent owners who’d licensed their inventions to other parties, one or more licensees would be required to corroborate the complaint. Essentially, the bill would disqualify patent trolls from complaining to the ITC.

An earlier version of the bill was introduced in 2014 and died in committee. We hope to see it signed into law this time. But even more importantly, we hope to see Congress similarly emboldened to take on patent trolls outside of the ITC. While the ITC has gradually become a more popular venue for patent disputes, ITC disputes still represent only a very small portion of all patent litigation.

In the past few weeks, two patent reform bills have been introduced in Congress, the VENUE Act and H.R. 4829. Both address specific problems with patent litigation, closing loopholes that have given patent trolls unfair advantages.

While we applaud and support both bills, we hope to see lawmakers tackle the problem of patent quality. Low quality patents are a patent troll’s most important weapon. The best way to stop trolls is to keep those weapons off the street.

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