How the NRF took on patent trolls

On Dec. 5, 2013, the U.S. House of Representatives passed the Innovation Act by a largely bipartisan vote of 325 to 91. The legislation, which is sponsored by Rep. Bob Goodlattee (R-Va.), chairman of the House Judiciary Committee, exacts a substantial blow against patent trolls who, in recent years, have gone after the retail industry with outlandish patent infringement claims. Things like including a privacy policy link on one’s smartphone app, or scanning and attaching a document to an email, or using an online shopping cart feature, or even “conducting business online” -- these are all examples of the bogus patents trolls use to extort otherwise legitimate businesses.

It should come as no surprise, then, that retailers are part of the driving force behind this key piece of legislation. After members of the National Retail Federation brought this troubling trend to the attention of NRF leaders last year, the organization moved patent reform to its short list of legislative priorities in 2013.

In the time between its call to action and the recent victory it enjoyed in the House, the NRF created an internal member taskforce to review draft proposals and create a coalition of other associations on its side of the battle line -- restaurants, grocers, airlines, hotels and more -- that are part of the new class of targets for patent trolls, who now file nearly 40% of all retail patent lawsuits, according to the NRF.

An ad campaign was developed to introduce Main Street retailers and small business owners to the debate. The NRF increased its presence on Capitol Hill, attending meetings, going to briefings and even testifying on the issue. And now, as the year draws to a close, the organization is optimistic that the legislation -- though not perfect in its eyes -- could be signed into law early next year.

But let’s backtrack for a moment.

What makes patent trolls so insidious?
The sole mission of trolls is to purchase obscure patents they had no role in creating and to send out vague threat letters to companies that use the (often ubiquitous) technology. According to the NRF, trolls lose their cases about 92% of the time, but that’s only if they make it to trial. More often, prohibitive court costs and time commitments cause businesses to simply settle out of court and cough up the licensing fee. Innocent businesses lose up to $30 billion per year in this manner.

“We’re extremely pleased this has bipartisan support,” said NRF SVP David French during a Dec. 11 conference call. “It’s a pro-business, pro-common-sense reform that can get done in a Congress where a lot doesn’t get done. It really speaks to the size of the problem.”

What kinds of provisions are included in the Innovation Act?
The Innovation Act addresses non-practicing entities (NPEs), otherwise known as companies with patents but no products or services, otherwise known as patent trolls.

In a very generalized sense, the act would require more specificity in patent lawsuits, and it would also require plaintiffs to be transparent regarding any entities with a financial interest in the patent. These two provisions will make it harder for trolls to send out vague, blanket infringement claims that obfuscate their connections. According to NRF’s senior director for federal government relations Beth Provenzano, they often use the same form letters to target multiple customers.

Additionally, the act would make losing plaintiffs pay the defendant’s legal fees, shift the burden to manufacturers (rather than end-users like retailers), and delay the “discovery” phase of the litigation process, which gives courts the opportunity to toss out frivolous claims before defendants are tasked with time-consuming (and very expensive) case-building requirements.

“Manufacturers are in a better position to litigate because they’re the creators of the technology,” said Provenzano during the conference call.

What are some of the shortcomings, from the NRF’s perspective?
The NRF believes the Innovation Act is a step in the right direction, but would like to see even greater specificity in demand letters.

“Because of jurisdictional issues, [demand letter transparency] didn’t go as far as we would have liked,” said Provenzano. “We’re working to improve that. It’s a huge problem for our members -- these letters are so vague and unspecific. Bringing greater detail to the letters will help end users figure out exactly what is being alleged. They won’t need to spend a lot of resources to investigate the matter.”

“Legitimate claims of infringement often do include details,” she added, pointing out that defendants can pull products off the shelves quickly and give royalty fees to patent holders to resolve the matter quickly and efficiently.

The NRF is also advocating for a “customer stay” provision that puts such lawsuits on hold when the manufacturer in question counter-sues the patent troll. Current customer stay provisions don’t offer enough protections for retailers, as manufacturers are the ones setting the terms.

“For end users, these are pre-litigation reforms,” explained French. “These are designed to keep retailers out of court in the first place. That’s why we place such an emphasis on them -- [on] only getting involved in fighting an issue where there’s a real issue at stake, as opposed to a shakedown.”

An expansion of the America Invents Act business method program to include methods used by retailers and restaurants is also on the NRF’s wish list.

What still needs to happen before the law can go into effect?
A hearing in the Senate on Dec. 17 spotlighted its own version of the legislation, known as the Patent Transparency and Improvements Act, which is sponsored by the demonstrably pro-end user chairman Patrick Leahy, D-Vt.

Not all lawmakers are rallying behind the cause, however. Leading critics of the Innovation Act include Rep. John Conyers (D-Mich.) and Rep. Melvin Watt (D-N.C.), who have levied the concerns of patent lawyers, pharmaceutical companies, universities and the Intellectual Property Owners’ association.

If all goes well in the Senate, both the House and Senate bills would have to be reconciled by a conference committee and signed off on by the President.

In the meantime, the NRF and other end-user organizations plan to keep the pressure on.