Senate Republicans are getting ready to declare war on patent trolls

Republicans are about to take control of the US Senate. And when they do, one of the big items on their agenda will be the fight against patent trolls.

In a Wednesday speech on the Senate floor, Sen. Orrin Hatch (R-UT) outlined a proposal to stop abusive patent lawsuits. "Patent trolls – which are often shell companies that do not make or sell anything – are crippling innovation and growth across all sectors of our economy," Hatch said.

Hatch, the longest-serving Republican in the US Senate , is far from the only Republican in Congress who is enthusiastic about patent reform. The incoming Republican chairmen of both the House and Senate Judiciary committees have signaled their support for patent legislation. And they largely see eye to eye with President Obama, who has also called for reform.

Republicans see patent reform as part of their fight with trial lawyers

Senate Majority Leader Harry Reid (D-NV) nixed patent reform legislation in May after pressure from trial lawyers. (Win McNamee/Getty Images)

The Senate considered patent reform legislation earlier this year, but it failed after the Senate's Democratic leadership decided not to bring the legislation up for a vote. Hatch blames trial lawyers, traditionally Democratic allies, for torpedoing the bill.

Trial lawyers opposed the legislation because it included language that would have made it easier for victorious defendants to recover legal expenses from plaintiffs. The legislation was limited to patent cases, which are generally not handled by members of the plaintiffs' bar. But trial lawyers still feared setting a precedent that could later be extended to other types of litigation.

Of course Republicans — traditional foes of the trial lawyers — have the opposite perspective. For them, the possibility of setting a broader precedent is part of the appeal of including loser-pays language in any patent reform bill. Indeed, the Republican version of patent reform is likely to include a stronger loser-pays provision than the version Democrats were considering this year.

For example, Hatch doesn't just want to put losing patent trolls on the hook for defendants' legal costs. He wants to make sure patent trolls can't skirt this requirement by setting up empty shell companies to do their dirty work. To combat this tactic, Hatch would require certain patent plaintiffs to post a bond that could be used to cover defendants' legal costs in the event the defendant wins and is awarded legal fees.

Improving patent quality and fighting demand letter abuse

The US Patent and Trademark Office in Alexandria, VA. Hatch wants to expand funding for the agency. (Geoff Livingston)

Loser-pays is just one part of Hatch's patent reform proposal.

"We must improve the quality of patents issued by the U.S. Patent and Trademark Office," Hatch said. "Low-quality patents are essential to a patent troll’s business model." His speech was short on specifics here, but one approach he endorsed was better funding for the patent office. That, he argued, would allow "more and better-trained patent examiners, more complete libraries of prior art, and greater access to modern information technologies to address the agency’s growing needs."

Hatch also wanted reforms to rein in the use of demand letters, legal threats that some trolls send out indiscriminately. For example, in 2013, a patent troll called MPHJ sent out letters to hundreds of businesses that owned scanners, claiming that they had infringed MPHJ's patent on the concept of scanning documents to email.

Hatch didn't elaborate on his preferred reforms here, but a House Republican proposal on the subject would require senders to be transparent about their identity, and empower the Federal Trade Commission and state attorneys general to combat abusive demand letters.

The stars may be aligning for patent reform

Patent reform legislation has a good chance of reaching Barack Obama's desk next year. (Ron Sachs-Pool/Getty Images)

It seems like nothing gets done in Washington, but patent reform could be an exception. The leadership of all three elected branches of government appear to agree on the need to rein in patent trolling, and they have similar ideas about how to do it.

President Obama announced his support for anti-troll legislation in June 2013. In December, the Republican-controlled House of Representatives passed legislation that incorporated several of Obama's proposals. Only the failure of the Senate to pass companion legislation this year prevented it from becoming law.

The Senate version of the legislation will be developed in the Judiciary Committee, which is chaired by Sen. Chuck Grassley (R-IA). Grassley sharply criticized Democratic leaders when they scuttled the patent bill earlier this year. Rep. Bob Goodlatte (R-VA), the chairman of the House Judiciary Committee, has also signaled his intention to make patent reform a priority in the new Congress.

The reforms Hatch outlined on Wednesday — and the similar ideas contained in the legislation Goodlatte shepherded through the House last year — would be a big step toward reining in abusive patent litigation. Patent trolling would become less common and less profitable.

But the broader significance of the legislation will depend a lot on how serious Republicans are about tackling the patent quality problems. As Hatch notes, there are currently a lot of low-quality patents floating around. These patents are abused not only by patent trolls, but also by incumbent firms who use them to ward off competition from newer, more innovative rivals.

So to truly solve the patent litigation problem, Congress will need to tighten up the standards for granting new patents, and develop more efficient ways to get rid of low-quality patents that have already been issued.

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