A Proposal for Legislators —Troll Repellant for Small Businesses

Require patent trolls to comply with requirements like the debt collector provisions in the Fair Debt Collection Practices Act. If anyone is advocating this approach, I missed it and apologize for being unaware. But applying concepts from the FDCPA could protect small businesses more effectively than the patent troll legislative and regulatory initiatives I’ve seen. A Fair Patent Enforcement Practices Act might make a huge difference in this serious drain on small business.

With one exception, the troll control proposals have one thing in common—they’re about litigation or changes at the PTO. Working with small businesses facing troll demands, my anecdotal evidence is litigation is unthinkable, troll targets must make a deal unless somehow they scare them off. And owners usually don’t know what the PTO is and don’t have IP counsel who can find information and translate what it means.

The threat of costly litigation is the gun that gets money and a signature on a license. No reform proposal will make defending a patent infringement lawsuit affordable for small businesses. The chance of recovering defense counsel fees, but no substantial monetary upside beyond that, has not created a contingent fee army waiting to defend small businesses. And there are only guesses about the true extent of this problem because confidentiality clauses in settlements prevent the numbers from being gathered. The number of non-practicing entity patent infringement lawsuits is easy to count, but I have to believe troll business models are based on confidential deals, not verdicts.

If you agree that patent trolls abuse the system and small business must be protected from them, consider the possibility that the most effective technique starves trolls by fewer settlements. One weapon that will arm small business to resist settlements controls what trolls can say in their demands and set strong penalties for noncompliance.

The one exception I mentioned is a step in the direction of informing a small business who they’re dealing with. It is the proposal called End Anonymous Patents Act, H.R. 2024, which would make patent ownership information public. President Obama proposed in effect the same thing in ownership updates being required reports to the PTO. They help a little. Neither assures that a small business target will get the public information.

From the small business perspective, patent trolls act like debt collectors, only worse. Even if you know the identity of the debt owner and the difference between it and the debt collector, you still are facing a demand for money based on a debt. It’s a simple concept. The threshold problem with troll demands on small businesses is figuring out what is really going on when they talk about patent infringement. The concepts are not simple.

If trolls had to say certain things in their demand letters, small business owners would be informed and not merely capable of finding public information if they know what to look for. The FDCPA prohibits debt collectors from saying legal action will be taken against the debtor, if doing so would be illegal or if they don’t intend to take the action. In my experience, trolls threaten small businesses with action that would be ruled illegal if the defendant had the resources for a good motion to dismiss. And trolls rarely intend to take legal action because they are incapable of taking it or dismissal might be obtained by a pro se defendant. The troll may lack experienced lawyers, even a whiff of jurisdiction over the small business in the forum the troll wants to use, be subject to a stay already issued by a court, be awaiting PTO re-exam outcomes, etc.

Just as the FDCPA prohibits debt collectors from using abusive, unfair, or deceptive practices, troll repellant legislation could itemize and prohibit actions that are abusive. Perhaps the worst of all is the all too common demand from a troll which has zero evidence that a business is a patent infringer.

A debt collector can be required to provide copies of cancelled checks, statements, and  complete payment history to the debtor. Trolls rarely have information about a target business comparable in quality, but they should be required to provide everything do they have on the target business that supports a claim of patent infringement.

Often all they’ve done is identify a category of businesses and gotten enough information about size, number of employees, and ownership of a target to put it in a range of license fees they expect they can get. In those situations, the troll could be required to say something like this, in bold font:  “We have no information about your business which we believe would be sufficient to obtain a judgment of patent infringement against you in court.”

Instead of allowing the first troll letter to trick a small business into disgorging information about itself and giving the troll grounds for a complaint that might at least pass the straight face test, legislation could force the troll to say in bold “You have no obligation to provide information about your business to us.”

Troll repellant legislation could establish statutory damages as an alternative to actual damages for violations, again like the FDCPA. and require troll letters to recite the statutory amounts. This would be the reverse of so many demand letters that recite maximum statutory damages, treble damages, and other frightening remedies.

Finally we need to get over defining a patent troll and just do it. A good approach is the one used by the ITC. It defines “Category 1 NPE’s” to include real inventors who do not make products and rely on licensing, research institutions, start-ups that don’t yet make products, and real manufacturers whose current product line doesn’t include ones covered by the asserted patents. “Category 2 NPE’s” are defined as entities whose business model focuses on purchasing and asserting patents. An FPEPA act would be aimed at Category 2.

Please think about this. We need to do something.

About Craig Pinkus

Craig Pinkus is a partner in the Intellectual Property Group. He also is a member of the Litigation and the Sports, Entertainment and Media Groups. He assists clients with a broad range of disputes and transactions involving all areas of intellectual property, entertainment, and other complex business arrangements. He has conducted trials and arbitrations throughout the United States and has argued appeals before the Seventh, Sixth and Federal Circuit Courts of Appeal, the Indiana appellate courts, and United States Supreme Court.
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