June 4 (Bloomberg) -- President Barack Obama announced a series of actions aimed at protecting technology, finance and retail companies from lawsuits and demands for fees by businesses that abuse the patent system.
The crackdown on what critics have called “patent trolls” includes five executive actions and seven recommendations that require congressional action. A White House commission report said more than 100,000 companies were threatened with infringement last year by patent-assertion entities -- companies whose sole business is to obtain patents and use them to obtain royalties from businesses that make or use products and services.
The announcement formalizes changes that have been considered by the U.S. Patent and Trademark Office, including making patent owners and applicants identify who benefits financially from the patent and improving application examinations. It also backs some legislation sponsored by members of both parties in Congress.
“The strong support by the White House adds to the strong bipartisan support that reining in abusive patent litigation shares,” said Kevin Richards, senior vice president of TechAmerica, a Washington-based lobbying group representing technology companies. “Reforming the patent system to end frivolous lawsuits by bad actors will enhance the innovation ecosystem.”
Shares of companies that rely on patent litigation and licensing fell in New York trading.
Acacia Research Corp., which got all of its $250.7 million in revenue last year from patent licensing, fell $1.26, or 5 percent, to $23.87 at 4 p.m. VirnetX Holding Corp., which won a $368 million verdict against Apple Inc. only to lose against Cisco Systems Inc., fell 90 cents, or 3.8 percent, to $23.10. Vringo Inc., awarded $30 million in a case against Google Inc. and its customers, fell 10 cents or 3.2 percent, to $3.07.
Paul Ryan, chief executive officer of Newport Beach, California-based Acacia, said his company favors or is neutral on almost all of Obama’s provisions.
“There are abusive litigation tactics and we’re all for cleaning them up,” Ryan said. “It tarnishes our reputation. We’re in the transaction business, not the litigation business.”
Abusive patent lawsuits are a growing drain on companies and the court system, though not all businesses that own patents without making products are “trolls,” according to a report released today by the White House Council of Economic Advisers, the National Economic Council and the Office of Science and Technology Policy.
The pejorative term troll often is used to cover anyone that doesn’t make a product, which can lump in research firms, independent inventors and universities, said Tim Schnurr, a senior vice president at ICAP Plc, which runs the world’s largest patent brokerage. Sweeping patent legislation passed in 2011 has begun to weed out some of the worst abuses, he said.
“It’s clearly lobbying coming from companies that are intellectual-property light rather than intellectual-property heavy,” Schnurr said. “It’s not very easy as an inventor to get paid for your technology. No company will simply pay an inventor. The only way to get paid is to hire a lawyer and sue.”
Key provisions seek to help businesses receiving letters demanding royalties for the use of products, such as scanning documents so they can be sent via e-mail, providing Wi-Fi services to customers and tracking customer shipments. The National Retail Federation has reported a number of lawsuits designed to get companies to either pay the patent owner or spend large amounts of money in litigation.
The patent office plans to educate retailers and end users of technology about their rights. Among the legislative proposals are ones that would provide better legal protection against liability for users of common products, make royalty demand letters public and give courts more discretion to sanction those who file abusive suits.
“The United States patent system is vital for our economic growth, job creation, and technological advance,” said Patrick Leahy, a Vermont Democrat who heads the Senate Judiciary Committee. “Unfortunately, misuse of low-quality patents through patent trolling has tarnished the system’s image.”
Vermont last month became the first state to allow the targets of demand letters to sue over a “bad faith assertion of patent infringement.” The state Attorney General filed a consumer-protection lawsuit against one company that had sent letters to hundreds of businesses.
With many of the lawsuits being over software, the president directed the patent office to more closely monitor applications to ensure they don’t claim a broad use of technology. One proposal backed by the White House also would expand a new review program for finance-related business methods to also include computer-implemented technology.
“When responsible actors increasingly find themselves at the mercy of those abusing the patent system, decisive steps must be taken to protect small business innovation,” said Morgan Reed, executive director of the Association for Competitive Technology, a lobbying group for application developers.
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