Canadian Lawyer InHouse

11 canadianlawyermag.com/inhouse April 2015 Stephen Beney & Cameron Gale Intellectual Property Patent trolls and patent law reform Can history be a guide to dealing with trolls and sharks? A s the U.S. Congress begins its new session following the mid-term elections in No- vember 2014, the lobbying for patent law reform has already begun. Much of the ef- fort in patent reform will focus on "patent trolls," also known as "patent assertion entities" or "non-practicing entities." Patent trolls tend to selectively acquire patents cov- ering commercially important technologies and at- tempt to monetize these patents without practising the covered technologies. The "trolls" are often associated with more aggressive tactics for extracting fees from their patents — and also to distinguish them from more traditional and accepted non-practising entities such as universities. These tactics can include sending vague demand letters to various businesses alleging that the business is infring- ing a patent owned by the troll, and in some cases, trolls may even initiate litigation. Often, the goal of a patent troll may be to extract a settlement from a defendant who wishes to avoid the high costs associated with litigation. While patent trolls have been in the news increasingly as of late, they are not a new phenomenon. Patent trolls have been around at least since the 19th century, when they were known by another moniker, "patent sharks." In the late 1800s, a number of these "sharks" targeted specif- ic industry sectors such as railroads and agriculture with threats of legal action. In the case of the agriculture in- dustry, patent sharks took advantage of changes in legisla- tion that made it easier to get design patents in the United States for minor functional changes. These patent sharks obtained large numbers of patents for small modifications in common agricultural tools, and threatened individual farmers with legal action. Often the farmers made settle- ment payments to avoid legal action. To deal with the pat- ent shark problem a number of legislative reforms, such as fee-shifting, were proposed and rejected for being unfair to patentees with lawful claims and because of the poten- tial problems the reforms could cause in industries less af- fected by patent sharks. Ultimately, the problems caused by these patent sharks were gradually resolved through changes in case law, narrow legal reforms that increased the standard for obtaining functional design patents as well as action by industry organizations in collectively de- fending against demand letters and lobbying. A coalition calling itself "United for Patent Reform" was launched Jan. 15, 2015 with the stated goal of tak- ing "back our patent system from trolls." This coali- tion includes a number of technology companies you might normally associate with patent lobbying such as Facebook, Amazon, and Google as well as others you might not expect such as Macy's, Williams-Sonoma, and White Castle. UPR published an open letter proposing a number of reforms intended to combat patent trolls. These include reforming abusive demand letters, requiring patent own- ers to explain in detail the basis for infringing when as- serting a claim, and requiring trolls to pay for discovery beyond core documents. The suggested reforms also include fee shifting and protections for end users — re- forms that were proposed to combat patent sharks in the late 19th century. While the suggested reforms seem like reasonable suggestions for combatting trolls, broad legis- lative reform should be carefully considered to avoid any unintended consequences. It also bears mentioning that the reforms proposed by UPR are quite similar to the legislative measures included in the "Innovation Act" that passed the U.S. House of Representatives, but was pulled from consid- eration by the U.S. Senate Judiciary Committee in May 2014. With the Republican Party now in charge of both the House and the Senate, it will be interesting to see if and how patent reform will take shape in the United States. On Jan. 21, 2015 a coalition of "the majority of the na- tion's patent holders and inventors" published an open let- ter expressing concern "that some of the measures under consideration over the past year go far beyond what is necessary or desirable to combat abusive litigation." This letter notes that a number of gradual changes to the patent landscape have occurred in recent years due to changes in case law, the adoption of the America Invents Act, and changes to Federal Rules of Civil Procedure. The let- ter suggests that the full effect of these changes should be considered before implementing "changes to the pat- ent system that threaten the constitutionally-guaranteed property rights of innovators." As with the patent sharks of the late 19th century, it is possible that the 21st century issue of patent trolls can be addressed through gradual and narrow reforms to patent law and administration, without requiring broad legisla- tive change. Stephen Beney is a partner and Cameron Gale, is an associate with Bereskin & Parr LLP.

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