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Patent Trolls Are Harming Innovation. Congress Can Help

 |  March 29, 2024

By: Roslyn Layton (ProMarket)

America’s vital system of patent protections, a crucial catalyst for economic vitality, is currently facing significant challenges. Patents incentivize individuals and companies to innovate by granting them exclusive rights over their inventions for a limited time. However, this system is being exploited by patent litigants who target innovative firms utilizing proprietary technologies as inputs, forcing them into settlement payments and disrupting research, development, and product sales until the legal matters are resolved.

These litigants, often referred to as “patent trolls,” collaborate with hedge-funded patent assertion entities (PAEs) or non-practicing entities that do not engage in innovation or manufacturing but instead amass patents to create portfolios for aggressive legal action. Employing data mining techniques, they identify patents deployed by third-party suppliers within complex supply chains, ultimately suing the final manufacturers for infringement. Leveraging Section 337 investigations at the United States International Trade Commission (ITC), they pressure targeted firms into hefty settlement payments. While the ITC was established in 1916 to combat counterfeit imports, it was never intended to handle patent litigation, despite the reality of today’s global supply chains.

The direct costs of litigation initiated by non-practicing entities (NPEs) were estimated to amount to $29 billion annually in out-of-pocket expenses for defendant firms in 2012, with overall costs depleting approximately $60 billion in firm value each year. Since then, the number and proportion of NPE lawsuits have surged, with cases now totaling 400 per year, quadrupling over the past decade. NPEs accounted for 63% of all patent litigation cases in 2022.

These considerable costs are shouldered by American inventors and innovative companies, constraining their capacity to invest in research, expand their workforce, and establish new facilities. American consumers are adversely affected by reduced availability of innovative products and inflated prices.

Thankfully, the bipartisan “Advancing America’s Interest Act” (AAIA), reintroduced and updated in the 118th Congress, aims to curb patent abuse by modernizing the ITC and restoring its original mission. The proposed legislation includes provisions mandating that litigated patents are utilized in actual U.S. products (rather than being solely part of a patent portfolio) and implements public interest standards to safeguard health, welfare, and competitive conditions.