IFA Fights Patent Trolls Posing Threats to the Franchise Industry and the Economy

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The threats that patent trolls pose to the economy and the franchise industry are not going away anytime soon.

Dean A. Heyl

    Rather than building or inventing products or services, patent trolls are individuals or companies that have acquired a patent for litigation purposes.  Many times their legal claims are based on vague or very general patents.  The patent trolls then use these patents as a means to sue other individuals or companies.  Patent trolls cost defendants about $29 billion, according to a 2012 study from Boston University’s School of Law’s James Bessen and Michael Meurer.  And that doesn’t even include indirect costs that stymie innovation. At the federal level, the International Franchise Association has joined the Main Street Patent Coalition, which has called on Congress to: 1. Eliminate trolls’ ability to hide behind shell corporations.  Require patent owners that threaten and sue to disclose who is really lurking in the shadows and will financially benefit from the scheme. 2. Disarm trolls by improving patent quality and providing a way to fight bad patents.  Fully fund the U.S. Patent and Trademark Office so there is closer scrutiny of patent applications. Expand inexpensive review opportunities for unwisely-issued patents so trolls think carefully before threatening Main Street with patents that should never have been approved. 3. Make it easier to punish trolls that send fraudulent and abusive shakedown demand letters. Sharpen the Federal Trade Commission authority’s to stop fraudulent and deceptive demand letters. Trigger automatic reviews of patents abusively exploited by trolls. 4. Protect end-users from troll lawsuits based on infringements by intermediary manufacturers and producers.  Require trolls to sue the party that is actually responsible for infringement, not the end users who had no input into the product. 5. Make trolls pay when they sue companies frivolously and stop runaway litigation costs.  Require courts to assess sanctions against trolls that file baseless lawsuits. At the federal level, Senate Judiciary Committee Chairman Patrick Leahy (D-Vt.) and Sen. Mike Lee (R-Utah) have introduced S. 1720, the Patent Transparency and Improvements Act of 2013, which would increase transparency in patent ownership and stop patent trolls’ practice of sending fraudulent demand letters.  The legislation would also provide resources for smaller businesses that are targeted with patent lawsuits.  S. 1720 includes many of the same provisions that the House of Representatives approved when it passed H.R. 3309, the Innovation Act, sponsored by House Judiciary Committee Chairman Bob Goodlatte (R-Va.), in December 2013. IFA’s battle against these litigious ogres has not been limited to Washington, D.C.  More than three dozen pieces of state legislation aimed at combating patent troll abuses have been filed.  South Dakota Gov. Dennis Daugaard signed Senate Bill 143, An Act to Provide for a Civil Remedy for a Bad Faith Assertion of Patent Infringement,” into law in March.  The legislation’s author, State Sen. Shantel Krebs, in addressing the need for this law, stated, “This practice of patent trolling is wrong and something we should take steps to fight against for small businesses here in South Dakota.” IFA has also partnered with the New Hampshire Retail Merchants Association in supporting a similar proposal, Senate Bill 303.  The opening paragraph of IFA’s letter reads: “On behalf of New Hampshire’s 3,700 franchise small businesses, that employ over 39,000 workers and generate over $3.5 billion annually, we write today to urge you to support SB 303, relative to bad faith assertions of patent infringement. The legislation will help business owners recover legal fees, reduce economic incentives for patent ‘trolls’ bent on damaging both national brands and local small businesses with frivolous lawsuits, and make the states patent system more efficient.” The threats that patent trolls pose to the economy and the franchise industry are not going away anytime soon. However, IFA will continue to oppose those who neither create nor innovate, but instead, try to profit from the efforts and thoughts of others. Dean A. Heyl is senior director of government relations, public policy & tax counsel of the International Franchise Association.  Find him at fransocial.franchise.org.  

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