Unmasking Patent Trolls

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Patent and Trademark Office proposes rule that would seek to increase transparency in patent ownership.

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The Patent and Trademark Office (PTO) recently proposed a rule that the agency claims would undermine “abusive” patent litigation.  The proposal would require patent applicants to identify the “attributable owner” of the patent at various stages of the application and grant process.

The agency believes the proposed rule would “reduce risk of abusive patent litigation by helping the public defend itself . . . by providing more information about all the parties that have an interest in patent or patent applications.”  The proposal notes that Patent Assertion Entities often set up shell companies to prevent “those facing litigation from knowing the full extent of the patents their adversaries hold,” and that other companies intentionally hide the patents they own so that they can be asserted strategically when the situation calls for it.

Patent Assertion Entities (PAEs), commonly known as “patent trolls,” are intellectual property businesses that purchase patents from their original owners and then assert them in lawsuits to make money.

An attributable owner, under the proposed regulation, would include any party who has an interest in enforcing the patent.  The proposal would require patent applicants and holders to identify both titleholders and any other party who may be necessary to join in a lawsuit enforcing the patent.  The regulation would also require disclosure of any existing parent entity that ultimately controls the actions of other interested parties.  The agency would then make the information available to the public.

Patent applicants and holders would need to disclose attributable ownership information at various stages of the application and grant process: when filing the application, within three months of any change in attributable ownership while the application is pending, and when the issue fee is due for an approved application. The proposal would also require attributable ownership information if a patent is involved in supplemental examination, ex parte reexamination, or if the patent is subject to a trial proceeding before the Patent Trial and Appeal Board.

The PTO proposed the rule shortly after President Obama expressed his concern about “needless” patent litigation during his State of the Union Address.

Last year, The White House also issued a report highlighting the aggressive litigation practices of PAEs, estimating that they had threatened litigation against over 100,000 companies this past year.  Further, the report indicates that the number of suits initiated by PAEs has tripled in the past two years, accounting for over 60% of all infringement suits.

The administration also previously stated its desire to curtail the existence and force of PAEs, by requiring disclosure of the “Real Party-in-Interest.”  The proposed rule pursues a similar goal, but adopts the term “attributable owner” in lieu of “Real Party-in-Interest.”

Some observers disagree with the administration and support PAEs.  These observers maintain that PAEs protect inventors whose intellectual property is infringed by “multinational behemoths.”  These commenters remain concerned that inventors often lack the necessary financial resources to assert their rights when large companies infringe their patents.  PAEs allegedly possess the money to sue the infringers.  To supporters, PAEs are guardians of the inventor, encouraging innovation and economic growth by giving bite to their intellectual property rights.  When a PAE won a recent court battle, one supporter compared the victory to David’s triumph over Goliath.

The Patent and Trademark Office is accepting comments on the proposed rule through March 25, 2014.