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Past Experience Should Guide Measures to Deal with Patent Trolls

May 2, 2017

By Cameron Gale and Stephen Beney

Discussions around patent reform often focus on problems allegedly caused by “patent trolls”, also referred to as “patent assertion entities” or “non-practicing entities”. However, recent and historical experience suggests that small changes rather than extensive legislative action are often sufficient to correct these problems.

Patent trolls are businesses that acquire and monetize patents covering commercially important technologies without developing or practicing those technologies. Some patent trolls are associated with aggressive monetization techniques, such as sending threatening demand letters or initiating lawsuits in an attempt to force a defendant to settle rather than face the high-cost of litigation. As a result, patent trolls are considered a threat to operating businesses that develop and exploit innovative technologies.

Patent trolls have been particularly active in the United States. However, it appears that a series of small changes to patent law in the United States is already beginning to affect how patent trolls operate. WiLAN Inc., an Ottawa-based patent licensing company recently announced a strategic shift to acquiring business that provide products and services related to the Internet of Things and away from monetizing patents which has been WiLAN’s core business since 2006. Following the announcement, WiLAN’s CEO stated that “[d]uring the past few years, the legal environment for patent licensing businesses has undergone significant changes [which] have altered the performance and outlook for participants”.1

However, this does not appear to be the result of broad legislative action targeting patent trolls. In fact, the United States Congress repeatedly tried and failed to pass legislation targeting patent trolls in the past five years. One of these failed attempts prompted the then Chairman of the Senate Judiciary Committee, Senator Patrick Leahy, to state that the legislation was being withdrawn because of a failure to “combat the scourge of patent trolls on our economy without burdening the companies and universities who rely on the patent system every day”.2

It appears instead that a number of gradual changes to patent law in the United States in recent years may have combined to make business more difficult for patent trolls. For instance, inter partes review proceedings implemented as part of the America Invents Act have provided defendants with administrative avenues for attacking issued patents that are less expensive and have a lower standard for invalidation as compared to litigation through the courts. The decision of the Supreme Court of the United States (SCOTUS) in Octane Fitness3 lowered the threshold for awarding attorney fees, increasing risk for entities that pursue frivolous patent infringement lawsuits. As well, uncertainty regarding the patentability of software and business method patents flowing from the SCOTUS decision in Alice4 has also increased risk for parties enforcing those patents and resulted in many of these patents being held invalid.

This is reminiscent of experiences in the late 19th century in addressing problems caused by “patent sharks” who targeted specific industry sectors such as railroads and agriculture with threats of legal action.5 These patent sharks obtained large numbers of design patents covering small modifications to tools, and threatened smaller businesses with legal action. A number of legislative reforms were proposed and ultimately rejected over concerns the reforms would be unfair to patentees with lawful claims. The problems caused by these patent sharks were addressed through gradual changes in case law, narrow reforms that made it more difficult to obtain functional design patents and collective industry action in defending against demand letters and lobbying.

In Canada, patent trolls do not appear to be as widespread or pervasive as in the United States. Nonetheless, discussions on patent reform still tend to focus on the harms of patent trolls. However, the legal environment in Canada may present concerns for patent trolls that are do not arise in the United States.

In Canada, there is often a presumption that the losing party in litigation pays a portion of the winning party’s costs. Even more so than the Octane Fitness decision, this may present increased risk to patent trolls of pursuing borderline patent infringement cases. A related concern for foreign patent trolls is that Canadian Courts may require foreign litigants to pay into court a substantial sum of money as security for costs. This, along with the relatively smaller size of the Canadian market may already make Canada less attractive for patent trolls.

Even as trolls look beyond the United States to other avenues for increasing revenue, in view of the different nature of the Canadian business and legal environment, it is not clear that patent trolls are of great concern in Canada. Before embarking on large-scale legislative efforts, with the corresponding potential for negative consequences for innovators and patentees with lawful claims, policy makers should remember that gradual changes along with narrow, targeted legislative action have been successful in addressing problems associated with patent trolls, both in the recent and distant past.

3 Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. ___ (2014)

4 Alice Corp. v. CLS Bank International, 573 U.S. __, 134 S. Ct. 2347 (2014)

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Cameron Gale Cameron Gale
B.Eng. (Elec. and Comp.), J.D.
416.957.1645  email Cameron Gale
Stephen Beney Stephen Beney
B.Sc. (Physics)
Managing Partner
905.817.6102  email Stephen Beney