One of the few parts of the U.S. Constitution that is still followed by the government concerns the granting of copyrights and patents.  Article I, Section 8, reads, “Congress shall have the power . . . To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.”

Currently in U.S. law, a “utility patent,” for a “useful” invention, lasts 20 years; while a “design patent,” such as for industrial design, lasts 17 years.  The aim remains to encourage investment in developing new products, processes, and designs.

I know several patent attorneys in Orange County, California, who are involved largely in medical devices.  That industry still leads the world despite the new 15-percent tax imposed on it by Obama Care.  They’re smart guys, usually engineers before they took up law, at the upper end of legal compensation.  They keep the machinery of commerce rolling by helping the courts assign patent ownership, which allows everyone else to use the inventions for specific, predictable fees.

Unfortunately, as with other parts of the legal system, parasites have invaded.  A “non-practicing entity” (NPE) doesn’t actually make anything except lawsuits.  Opponents dub NPEs “patent trolls.”  This short book by William Watkins, a research fellow at The Independent Institute, takes us on a tour of the problem they pose, then advances some common-sense reforms.

A patent troll purchases older patents filed by someone else, or by a defunct firm, broadly construes the patents’ applications, then sues successful companies in court, in particular the U.S. District Court for the Eastern District of Texas.  Why that location, in a state usually known for being more skeptical than others about government regulations?  Why not Orange County or San Jose, or Detroit?  Because patent courts are federal, and this district has built itself a small industry from coddling patent trolls.  “Plaintiffs with no connection to Texas head to Tyler, Marshall, or Texarkana to file suit,” Watkins writes.  “The rules are plaintiff friendly, the rocket dockets leave the plaintiffs’ targets scrambling to mount a defense, and the verdicts are Texas-sized.”  The patent trolls “purchase overbroad patents based on dated technology and demand tribute.  If the target does not acquiesce to the troll’s demands, expensive litigation ensues.”

Patents are intended to spur innovation, yet in too many cases they “have become tools for litigation,” costing the economy billions of dollars.  An exemplary case is Z4 Technologies Inc. v. Microsoft Corp.  When you buy new Microsoft software, you have to “authenticate” the purchase online with the company.  This prevents piracy.  Z4 “is the assignee of two patents related to the prevention of software piracy,” according to Watkins, so it sued in 2004.  Microsoft contended its process was so obvious that it couldn’t be patented.  Nonetheless, Z4 was awarded $115 million.

Patent trolls often look for innovative companies going bankrupt, then swoop in and pick up patents for a song.  The results are shocking.  Watkins points out that patent lawsuits are rising at a faster rate than any other litigation.  And Apple and Google spend more on patent litigation than on research.

Chris Neymayer, a managing partner at Asia Law, points out that the People’s Republic of China now grants more patents through its State Intellectual Property Office than are granted by the U.S. Patent and Trademark Office.  He writes that “foreign companies face a growing risk that Chinese entities may unscrupulously patent foreign technology in China and demand a toll to do business there.”  Meanwhile, Chinese business and government espionage are worse than ever.  “Our nation is overwhelmed.  The problem is too big,” Paul Williams told Epoch Times.  Williams is the chief information officer at BlackOps Partners Corporation, which “does counterintelligence and protection of trade secrets and competitive advantage for Fortune 500 companies.”

Something needs to be done to protect Americans’ intellectual property rights; the system needs to be cleared up here at home.  And if the U.S. government spent less time massively spying on its own citizens, resources would be freed to counter foreign espionage.

William Shughart writes in his Foreword to Watkins’ book that some people have argued “patents should go the way of the dodo,” but that is impractical.  Instead, he urges that 20-year patents be reserved for pharmaceuticals, which often take decades to develop because of stiff FDA policies.

One reform Watkins suggests would be to clean up the Eastern District, which Supreme Court Justice Antonin Scalia has branded “a renegade jurisdiction.”  About 24 percent of U.S. patent cases are filed in an area centered on Marshall, Texas, population 24,501; Marshall is the seat of Harrison County, population 65,631.  This area, home to the Eastern District’s jury pool, has a college graduation rate of only 15 percent, which indicates a low capacity for those who would decide many of the patent-troll cases to understand highly complicated arguments and a propensity toward reducing such contests to terms of David (little patent companies) versus Goliath (big industry).  Judges in the Eastern District also are a problem, handing down summary judgments—such as dismissing cases for lack of merit—just 10 percent of the time, compared with 70 percent in the Northern District of California, which covers Silicon Valley.

Watkins recommends making it easier to change venues, requiring “a higher burden of proof” for a patent troll to file a lawsuit far away from either the location where the patent was originally filed by a bankrupt firm or the location of the plaintiff, such as Apple in Santa Clara County in California.

The author also recommends the use of expert juries, which he says have a long history in English and American law.  However, he warns, such juries might be blocked by nondiscrimination laws.  Another reform he offers would be for Congress to establish specialized patent courts.  These could be modeled on federal bankruptcy courts.

I would add one more possible solution.  Many victims of these lawsuits are incredibly rich.  Apple, Google, Facebook, Microsoft, Intel, Twitter, Cisco, Oracle—these have a combined market capitalization well north of two trillion dollars.  Perhaps these companies should construct “server farms” in Harrison County.  Data-storage centers would not place the locals at risk of being contaminated by the “California lifestyle.”  But the farms would employ thousands who, when on juries, might think twice about punishing successful American companies to the advantage of patent trolls.


[Patent Trolls: Predatory Litigation and the Smothering of Invention, by William J. Watkins, Jr., Foreword by William F. Shughart II (Oakland: The Independent Institute) 96 pp., $17.95]