Let's Use Patent Fees to Stop the Trolls

As mundane as it may sound, patent fees may be the simplest way to eliminate suspect software patents and stop trolls.

The United States Patent and Trademark Office’s most recent proposal to modify patent fees, likely to take effect early next year, is the first change to the agency’s fee structure since recent patent reform granted the agency power to set its own fees. However, the new fee structure will accomplish little more than lowering costs for smaller patentees and universities at the expense of larger, more sophisticated patent owners.

I’d argue that changes to patent fees could – and should – go much further. Especially because, according to the agency’s own interpretation of the law, the PTO now has “flexibility to set individual fees in a way that furthers key policy considerations.” So what could the agency accomplish using fees?

For one, we could eliminate a large portion of suits filed by trolls – especially those asserting software patents. This approach would involve only modest changes to the number and magnitude of patent renewal or “maintenance” fees.

Here’s how.

Patent trolls and software patents, often viewed as two distinct problems with the patent system, actually cause harm due to just one fundamental flaw: Patent rights all too often persist long after the useful lifetime of the inventions they were originally intended to protect.

Neither software patents nor patent trolls are “bad” per se. Some software developments are sufficiently pioneering that they probably deserve a modicum of patent protection. Likewise, trolls can in theory play a beneficial role in the innovation economy as disseminators of unappreciated technology, or as champions of wronged inventors who lack the resources to sue on their own.

The problem with trolls and software patents isn’t that they exist, but that they exist in a patent system with a twenty-year patent term.

Software and other computing-related inventions fall out of date very quickly because computing power increases exponentially – per Moore’s Law, the density of transistors on a chip doubles roughly every two years. So it doesn’t makes sense for patents covering these inventions to remain in force more than two decades after their creation. At that point, they have little value except as tools to shakedown companies making devices thousands of times more sophisticated than those on the market when the patent was filed.

Similarly, patent trolls’ benefit to society, if any, greatly diminishes with time. Trolls litigating patents just before expiration can’t credibly claim to spread awareness about useful new technology or vindicate inventors’ rights against current competitors. Whatever socially beneficial value the software patents owned by trolls had is virtually nil when asserted two decades later.

Unfortunately, according to a recent empirical study I conducted, 17 to 20 years down the road is precisely when troll-owned software patents are most often asserted.

Trolls file more than 70% of all patent suits litigated within the final three years of the asserted patent’s term of protection. And of all companies accused of infringing a patent within three years of its expiration, trolls accuse more than 83%.

In other words: Trolls and the companies that actually produce products enforce their patents at opposite ends of the patent term. In fact, trolls have a hard time even acquiring patents until their terms are more than half over; the average troll-owned patent in my study changed hands twice over a 12-year span before it was first asserted.

Moreover, aging high-tech patents are far and away trolls’ favorite weapon. Of all infringement claims filed by trolls in the last three years of the asserted patent’s term, 88% allege infringement for patents related to computers or electronics. And almost 75% of those claims target software.

Bottom line: The final few years of the patent term overwhelmingly benefit patent trolls asserting grossly outdated patents. They do not benefit product-producing companies enforcing patents covering technology currently on the market.

So why not eliminate these last few years?

A three-year term reduction would impact over 60% of infringement claims filed by trolls, while affecting just a small fraction of product-company patent claims. A large portion of late-term patent litigation filed by product-producing companies actually looks an awful lot like traditional patent trolling: Consider the software patent suits filed by struggling or bankrupt companies like Kodak and Encyclopaedia Britannica.

Trolls and the companies that produce products enforce their patents at opposite ends of the patent term.Most other late-term product company suits are filed by biotech and pharmaceutical companies. These companies could be shielded from an across-the-board term reduction by liberally applying existing provisions in the Patent Act, which permit term extensions for patents covering products that require FDA approval.

The real impediment to shortening the patent term isn’t industry opposition or even a long legislative slog – it’s that the U.S. is bound, as a member of the World Trade Organization, by an international treaty that requires a minimum of 20 years’ protection for patents. So short of additional patent reform legislation – which might draw the ire of the rest of the industrialized world – what can we do to reduce the number of patent suits enforcing exceptionally old patents?

Increase the size and number of maintenance fees. It’s a simple but effective solution.

Under the current fee regime, patent owners must pay to renew their patent three times: 3.5, 7.5, and 11.5 years after they issue. Roughly half of all patents expire because their owner fails to pay one of these fees. Imagine how many more middling patents might expire prematurely if the PTO simply required additional fees. And since research shows that most patents wind up in the hands of trolls 12 years after issue or later, why should U.S. patent owners’ payment obligations end so early in the term?

The PTO should adopt a new fee schedule requiring annual renewal payments in the latter half of the term – better yet, increasing those fees yearly so they become more expensive as the patent ages. Many countries, including the U.K. and Canada, already do this.

This simple change would help expire many patents that otherwise wind up in the hands of trolls. At the same time, the change would allow product-producing companies with valuable patents – and thus the revenue to pay fees – to extend their rights up to twenty years from filing.

Editor's Note: Given the enormous influence of patents on technology and business -- and complexity of the issues involved -- Wired is running a special series of expert opinions on "the patent fix". To help move reform efforts forward, s*ome of these proposals also advocate specific Solutions to the Software Patent Problem (as part of a conference hosted by the Santa Clara University High Tech Law Institute). *

Wired Opinion Editor: Sonal Chokshi @smc90