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State Senate advances bill to discourage ‘patent trolls’

by caprecord

Washington startups say they’re facing an onslaught of letters threatening lawsuits from so-called “patent trolls,” who claim everything from storing files online to using a smartphone application is patent infringement.

379303639_4c768a3bf5_zThe state Senate on Tuesday passed a bill with a vote of 41-6 to discourage patent trolls from sending threatening letters to small businesses, forcing them to pay licensing fees or face an expensive lawsuit.

Senate Bill 5059, called the Patent Troll Prevention Act, amends the state’s Consumer Protection Act to include bad faith assertions of patent infringement and would allow the Office of the Attorney General to bring action against a company which violates the rule.

State Attorney General Bob Ferguson requested the bill, sponsored by Sen. Joe Fain, R-Auburn, and Sen. David Frockt, D-Seattle. Ferguson’s office recently investigated one company that sent 900 letters to more than 300 Washington businesses. The business used shell companies and was not incorporated within the state, a spokesperson said.

Bad faith assertions outlawed in the bill include demands without specific information about the patent, such as its registered number, the name and address of the patent owner or facts relating to how the patent was obtained.

Patents were created to protect and incentivize innovation, but now some say the process is backfiring and it’s becoming easier to file patents for broad ideas. The U.S. Patent Office issued a record number of patents in 2013 – nearly three times as many as it issued 20 years ago. (Story continues below)

Broad patents mean startups and inventors are unfairly burdened, Megan Schrader, executive director of national advocacy organization TechNet, said.

“It’s a distraction for a lot of companies,” she said. “You might get a letter that looks very official, but it’s not always the case. Startups will have to decide whether to pay to go to court or pay licensing fees for patents that can be so broad, even as far as patenting any retailer that has a mobile app.”

It’s not just technology. Homebuilders last month told lawmakers they are being flooded with letters claiming the use of fans to dry out a home was patent infringement. A Santa Clara University study in 2012 found that 55 percent of patent trolls target small business and 18 percent of business give in to demands without fighting the infringement assertion in court.

But Marshall Phelps, former head of intellectual property for Microsoft and IBM, says Washington should wait for the federal system to work itself out. Patent litigation was down 40 percent last year and the U.S. Patent Office is getting tougher, he said.

“Maybe for a while there, the U.S. Patent Office was too generous, but I don’t think that’s a point you can still make,” he said. “Washington lawmakers might just be trying to help out the mom and pop store, but they could make it worse. I would hate to see the federal system lose public approval.”

The U.S. Supreme Court has heard a record number of patent cases in the past two years. Recent rulings have made it easier for small businesses to have lawyers’ fees reimbursed when they win a case against patent trolls.

Similar laws have passed in 17 other states. A federal bill to discourage patent trolls passed with overwhelming support in the House, but stalled in the Senate. Supporters say heaving lobbying from biotechnology and other companies prevented the bill from moving forward.

One of the world’s largest patent portfolios is in Washington state. Intellectual Ventures, a Bellevue-based company with more than 40,000 patents, has spent more than $700 million buying patents from inventors and has more than 500 employees to manage and create new patents.

The firm said the federal measure was too broad and set up a political action committee to lobby against it. Intellectual Ventures contributed $83,450 to federal candidates as of Election Day 2014, according to OpenSecrets.org. A spokesperson said the company supports Washington’s proposal to stop abusive letters and similar efforts in other states.

Washington’s effort now moves over to the House, where it will have until April 1 to make it out of a chamber committee. Companion House Bill 1092, sponsored by Rep. Laurie Jinkins, D-Tacoma, passed out committee on Jan. 29.

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