November 14, 2016
By Senator Richard J. Ross
The now mainstream act of “patent trolling” is a growing threat to small businesses not only in Massachusetts, but across the United States. These acts are carried out by non-practicing entities, or NPEs, and have gone from a low-profile to conventional issue in less than ten years. Too often, NPEs fraudulently threaten patent infringement litigation, or worse, actually file a patent infringement lawsuit. This is a true threat to the business community and to honest entrepreneurial efforts.
The overall goal of NPEs is to take advantage of companies with licensed or pending patents, through litigation. With no option but to avoid costly and time consuming lawsuits, the targeted businesses are forced to pay a lesser settlement. When small businesses, in particular, find themselves falsely accused of patent infringement, they are left with no defense because NPEs have no assets themselves, and they do not have the option of countersuing.
Put simply, NPEs have no intention of using their patents to actually create products or technology. Instead, they acquire patents solely for the purpose of conning businesses into paying fees.
A recent study conducted by James Bessen, a lecturer at Boston University Law School, found that defendants nationally paid $29 billion in 2011 to NPEs – an increase of 400 percent since 2005. In June of 2013, a White House report stated that although many significant settlements come from large companies, the majority of NPE lawsuits target small or start-up companies.
Not only are NPEs financially hurting their targets, but they are also negatively impacting the U.S. economy and clogging our judicial system. In 2011, NPE lawsuits cost the economy $80 billion. Millions of dollars that could be invested in more productive areas continue to be consumed by litigation costs. The number of defendants in NPE lawsuits spiked from roughly 1,500 in 2005 to nearly 6,000 in 2011, congesting both lower and appellate courts.
States such as Maine and Maryland have adopted legislation to protect businesses, and other states have advanced bills to prevent NPE’s from controlling small corporations. Legislation in Maine and Maryland include various provisions determining that a person may not make an assertion of patent infringement against another in bad faith as well as authorizes the awarding of damages.
Unfortunately, the Commonwealth has yet to enact meaningful reform. The vulnerability of small businesses and the lack of regulation make entrepreneurs and businesses in Massachusetts easy targets for NPEs. Discouraged from filing infringement against businesses in protected states, NPEs are taking advantage of businesses in states where such protection does not exist. Such claims by NPEs lead to high costs and can ultimately ruin small businesses.
To address this serious problem, I plan to work with my colleagues to introduce anti-patent trolling legislation. Utilizing other states’ successful legislation as guides, it is my hope we can create a right of action for those affected by NPEs. For example, targeted businesses and the attorney general would be authorized to take action against persons who have made claims of patent infringement under bad faith. The legislation would likely provide a comprehensive list of factors that a court may consider as evidence that a claim has or has not been made with fraudulent intensions.
Until there are laws in place, there are ways small business owners can defend their intellectual property from such threats. The National Federation of Independent Business (NFIB) recommends ignoring the first contact, finding support from associations, and weighing your legal options. NPEs send out hundreds of “demand letters” in order to negotiate a settlement for false patent infringement. If small businesses refuse to engage after the first letter, they may ultimately keep off the NPEs’ radar.
The issue of patent trolls is something that is not receiving sufficient attention, but is a potential threat to innovators in my district and across the Commonwealth. It is my hope that we can pass such legislation to protect businesses in Massachusetts and ban the practice of “patent trolling”. By not solidifying legislation, we are ultimately discouraging innovation more than encouraging it. Protecting intellectual property can help grow the economy and will positively affect taxpayers and consumers. These NPEs are profiting from a flawed legal system, and it is time that we stop them.
In addition to joining the fight against these trolls, I ask that members of the business community speak out about their experiences or share their input regarding this issue. If you have feedback, suggestions or personal experiences regarding non-practicing entities, please feel free to contact me at Richard.Ross@masenate.gov.