Our Flawed Patent Process Is What's Feeding Patent Trolls

Patent trolls can be the bane of the free market's existence. Trolllery often happens invisibly, but occasionally unfolds on larger scales.

Just look at the back and forth patent lawsuits between Apple and Samsung. While it is a good thing to ensure that inventors are properly protected and compensated for their work, the process that allows for this can just as often kill innovation. This can happen when companies that make products or non-practicing entities (NPEs)—those who own patents but do nothing with them—get lawsuit happy. So, it's encouraging that the Government Accountability Office finally published its report on the patent system and its flock of parasitic trolls.

The GAO found that the quality of patents, along with the patent process itself, can in fact spur trolls. The study was originally slated for September 16, 2012, release, so it's good know government bureaucracy, as always, took its sweet old time. For its part, the government is also promising that it didn't suffer from any major dilution by way of corporate lobbying.

The study found that low-quality software patents are a major problem in patent trolling. This is signifcant because the study notes that 50 percent of all issued patents were software-related by the year 2011. That is a lot of opportunity for bad patenting, and more than enough room for trolls to dig in and kill companies or any potential for innovation.

And here's the thing: Software wasn't always patentable. As noted in the GAO report, a 1981 Supreme Cout decision "overturned PTO's denial of a patent application for a mathematical formula and a programmed digital computer because, as a process, it was patentable subject matter." Then, in 1998, the Federal Circuit ruled that a compter program's mathematical formula is patentable if it is applied "in a useful way."

With most innovation of the last few decades occuring in the realm of software, and now apps, one can see how this has become a matter of contention among patent holders and startups, for instance. But this doesn't necessarily account for the huge uptick in patent lawsuits in 2011.

So, what happened? As the GAO suggests, positive legislation had something to do with it:

Some stakeholders GAO interviewed said that the increase in 2011 was most likely influenced by the anticipation of changes in the 2011 Leahy-Smith America Invents Act (AIA), which made several significant changes to the U.S. patent system, including limiting the number of defendants in a lawsuit, causing some plaintiffs that would have previously filed a single lawsuit with multiple defendants to break the lawsuit into multiple lawsuits.

The report contiues: "In addition, GAO's detailed analysis of a representative sample of 500 lawsuits from 2007 to 2011 shows that the number of overall defendants in patent infringement lawsuits increased by about 129 percent over this period."

The GAO stressed that observers should keep this lawsuit spike in historical perspective as far as technological development is concerned. The GAO interviewed a few legal commentators who said that "such increases are common during periods of rapid technological change."

"[N]ew industries lead to more patents and the number of patent infringement lawsuits also increases because there are more patents to be enforced," the GAO reports. "Similarly, one researcher working on these issues told us that, historically, major technological developments—such as the development of automobiles, aireplanes, and radio—have also led to temporary, dramatic increases in patent infringement lawsuits."

The report also found that companies that make products brought most of the lawsuits, while NPEs brought about a fifth of the total. This is interesting, as it suggests what we often see: Established companies can be some of the biggest patent trolls. It's worth noting that NPEs could have any number of motives that aren't specific to monetization of patents. Universities and other research institutions, for example, can be NPEs.

While the GAO report is one small step in a much larger patent system overhaul, the Electronic Frontier Foundation poked some holes in the study. The EFF's Julie Samuels argued that it failed to address the "harm that comes from patent trolls' demand letters, many (most?) of which do not even result in lawsuits."

"The study did acknowledge this problem, but failed to really understand it," added Samuels. "It's not clear this was entirely GAO's fault, as it stated that 'the extent of the practice is unclear because [GAO] was not able to find reliable data on patent assertion outside of the court system.' Therein lies the rub: because lawsuits often never get filed, there is no public record."

The workaround would require patent trolls to publicly report the letters they send to their targets, a process seated in transparency and free information. If that doesn't happen, the trolling world will remain largely invisible.