Jun 10, 2013In August 2006, a company called RFID World Ltd. sued six of the world's largest companies—Gillette, Home Depot, Michelin, Pfizer, Target and Walmart—for infringing its patent regarding a system for performing inventory counts using radio frequency identification. RFID World had no products, or any intention of creating them. It had only a single employee, Ronald Bormaster. The firm was set up for the sole purpose of enforcing Bormaster's patent. RFID World eventually lost the case, as a judge ruled in favor of the defendants. Last week, President Barack Obama issued several executive orders and proposals aimed at reducing the incidence of frivolous lawsuits like this one (see White House Task Force on High-Tech Patent).
In many countries worldwide, frivolous patent suits are not a problem, because a company suing for patent infringement must pay the legal fees of the firm it sued if it loses. That is not the case in the United States, and so individuals can file broad patents that claim to cover wide-ranging applications—Bormaster's patent mentions several "embodiments" of the system, including tracking livestock, golf clubs in a bag, medical instruments in an operating room and children in a defined play area—and then sue. Often, large corporations find it cheaper to settle these claims than to fight them in court, no matter how specious the claim. This has become so lucrative that firms have been set up solely to buy patents and sue to monetize their investments. Those pursuing this line of work are often derided as "patent trolls."
The changes could help the RFID industry, which has seen its fair share of lawsuits. The executive orders will require that patent holders be more precise about what their patents cover, and how they are being infringed. The administration will also instruct the U.S. Patent and Trademark Office to scrutinize overly broad patent claims and try to improve the training of patent examiners.
In addition, the administration is requesting that Congress restrict lawsuits against consumers and businesses that utilize off-the-shelf technology. Another proposal would make it easier for judges to require patent holders to pay the attorney fees of defendants who win their patent cases.
The biggest benefit would be the proposal to protect users of commercial technology from being sued. Patent holders have been targeting end users with greater frequency for two reasons: Large end-user companies have deep pockets and are often willing to sign licensing agreements to settle lawsuits, rather than deal with the expense of going to court, which increases the cost of doing business in the United States. And suing a technology provider's customers puts pressure on the technology company to settle.
It's not clear that Congress will enact the president's proposals. There are those who feel they could harm legitimate technology companies by making it tougher to obtain a patent.
It's also unclear whether the proposals will have the desired consequence if they are enacted. The America Invents Act, passed in 2011, requires patent holders to sue each company individually, rather than file one suit naming hundreds of retailers, restaurants or whatever. The law, which goes into effect in 2013, is intended to make it more difficult to sue large numbers of end users. Since it was passed, there has been a sharp increase in the number of lawsuits—from 3,350 in 2011 to 4,700 in 2012—that are clogging up the courts. An estimated two-thirds of these suits were filed by companies or individuals that hold patents but do not make products.
It's also important to make sure the government doesn't throw the baby out with the bathwater. While reducing the incidence of frivolous lawsuits would be a good thing, any reduction in protection for legitimate patent holders could stifle innovation. No one wants to invest hundreds of thousands of dollars in an innovative product, only to find out that a larger company can copy its invention with impunity.
I hope sanity prevails in Washington, and we end up with a good solution that protects the rights of legitimate patent holders while reducing the number of frivolous lawsuits. But given how Washington typically operates, that might be asking too much.
Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below. To read more of Mark's opinions, visit the RFID Journal Blog, the Editor's Note archive or RFID Connect.