U.S. innovators dogged by money-grubbing ‘patent trolls’

JUDY WOODRUFF: Patents are often called the building blocks of innovation. But in recent years, a broad fight over the enforcement of patents, and what should qualify as a true invention, has drawn players from every corner, inventors, lawyers, giant technology and pharmaceutical companies and universities.

Economics correspondent Paul Solman took a look at the issue as part of his weekly Making Sense series, which airs every Thursday on the "NewsHour."

TODD MOORE, CEO, TMSOFT: So here's Amazon jungle.

PAUL SOLMAN: That's Todd Moore's White Noise mobile phone app, which generates the call of the wild, and pretty much any other sound you can think of, to lull the sleep-challenged to la-la land.

And this is frogs?

TODD MOORE: Yes. Don't you just want to fall asleep?

PAUL SOLMAN: I'm getting slightly drowsy.

It was such a basic idea, Moore didn't even bother to apply for a patent. And yet he himself was sued for patent infringement.

TODD MOORE: They were claiming a hyperlink inside the white noise app, that you would tap it and go to the Internet, that was infringing on one or more of their patents.

PAUL SOLMAN: But doesn't almost every app have a hyperlink of some sort?

TODD MOORE: Yes. If you're using the Internet it does, so how can they say that's infringing on a patent?

PAUL SOLMAN: And all they were asking to go away, $3,500. Welcome to the world of so-called patent trolls.

NARRATOR: A patent troll is someone that makes their money by filing frivolous lawsuits against companies, with the hope that these companies will pay a fee to settle, rather than go to court.

PAUL SOLMAN: The House Judiciary Committee, which put out this cartoon, passed an anti-troll bill last summer.

NARRATOR: They don't manufacture anything. They don't create jobs. Instead, they're siphoning money from companies that do. It's nothing more than legalized extortion.

PAUL SOLMAN: The company suing Moore was Lodsys. When we called for comment, a phone number for its CEO was disconnected, its Web site domain name no longer operative.

In its prime, though, the company was what's known as a non-practicing entity, or NPE, because it didn't create inventions of its own. It amassed those of others and sued, a common practice for years now. And the numbers show the scope. About two-thirds of all patent lawsuits in district court last year were filed by non-practicing entities.

TODD MOORE: It's happening all the time, and there's nothing we can do about it. We just have to write them a check, so they will go away

PAUL SOLMAN: So this is like a WeWork?

Certainly, Moore, who had only three employees at the time, couldn't afford to stop them in court. But he lucked into a pro bono lawyer spoiling for a troll fight. So, when Lodsys asked for its measly $3,500…

TODD MOORE: I said no. And then they came back and said, well, would you pay us $2,000? And I said no. And then they came back and said, what will you pay? And I said nothing. And they said, OK, we will take that, as long as you promise not to sue us, which that's not my business model. That's theirs.

LAUREN COHEN, Harvard Business School: So, our patent and patent enforcement system has gotten to the brink of no return.

PAUL SOLMAN: Harvard Business School professor Lauren Cohen has studied the economic impact of trolls.

LAUREN COHEN: This is an overused phrase. The future of the U.S. economy depends on this. Right? You will hear people say the future of the U.S. economy depends on seashells or on pickles, right? But the future of the U.S. economy really does depend on innovation.

PAUL SOLMAN: And yet shakedown artists may be putting the squeeze on America's innovators.

CHIP HARRIS, Director, Acacia Research Corporation: We're in this business to make money.

PAUL SOLMAN: Chip Harris is director of Acacia Research, a decidedly non-practicing entity, which started out as a venture capital firm, investing in the V-chip, a parental control technology for TV sets.

When it didn't sell, Acacia decided to use the V-chip patent it owned to sue TV makers who, it claimed, had applied the idea without paying for it. And pay, they eventually did. Ever since, Acacia's business has been, says Harris, to protect patent owners.

CHIP HARRIS: Some of the big companies out there have done a wonderful job of reframing the argument. And they say, well, you're a non-practicing entity or you're a patent troll.

To me, it's a little bit like saying, well, if you built your house, you can rent it. But if you bought it from somebody else, you can't rent it.

PAUL SOLMAN: So is Acacia a patent protector or a patent troll?

And how many books have you got here?

JAY WALKER, Executive Chairman, Walker Innovation: About 25,000.

PAUL SOLMAN: What about an even bigger player, Jay Walker, whose practicing company, Priceline, fully protected by patents, made him a fortune?

Walker's Library of the History of Human Imagination at his Connecticut home is a world-class museum featuring the inventions of the past.

JAY WALKER: This is one of the few surviving working Enigma machines in the world.

PAUL SOLMAN: He even showed me the famous Nazi invention whose code the Brits helped crack in World War II, made famous again recently by the movie "The Imitation Game."

ACTOR: It's beautiful.

ACTOR: It's the greatest encryption device in history and the Germans use it for all communications.

PAUL SOLMAN: Walker's own invention record is none too shabby. He's named on more than 500 U.S. and international patents. But for protecting them, by filing suit against Microsoft, Google, Apple, Sony, and others, for infringement, he's been called a patent troll, slander, he says.

JAY WALKER: People want to say, well, he took me to court, he shouldn't have taken me to court. He's a troll. What I really want to do is to say to somebody, look, you're using my patent. Pay me a reasonable license, and we're done.

PAUL SOLMAN: But are all of Walker's patents themselves reasonable? Or, as has been alleged, were some invented just to cash in on the eventual practical innovations of others?

I can imagine people saying, yes, so he writes out all kinds of possible inventions, that then he figures somebody else will eventually actually use, so then he can say, hey, wait a second, I invented that first.

JAY WALKER: America is not a country where you have to invent things and then bring them to market. If you have a working requirement where everything you invent you have to do in order to keep your patent, then you will never have a group of inventors inventing things that they want others to do.

LAUREN COHEN: Patent trolling is chasing cash indiscriminate of infringement.

PAUL SOLMAN: Professor Cohen takes no position on Jay Walker or Acacia. But just look, he says, at dusty Marshall, Texas, teeming with mailboxes for patent troll firms. More than 43 percent of 2015 patent cases were filed in the Eastern District of Texas.

LAUREN COHEN: Marshall, Texas, is definitely not a hotbed of U.S. innovation. And so what's bringing the NPEs there? Well, two things really. So, they try cases quicker than other places, and that's because of a few administrative rules that they put in place. And they rule in favor of NPEs more than anywhere else.

PAUL SOLMAN: So what, if anything, should be done? Enact that bill passed by the House Judiciary Committee? It would toughen requirements for filing patent challenges in court, could make plaintiffs pay the legal bills of defendants if a claim's considered unreasonable.

However, the bill has yet to see a vote on the House floor. Same with a similar bill in the Senate. At a conference, the head of the U.S. Patent and Trademark Office, Michelle Lee, said changes to the law can help and that past changes already have, letting her office hire more examiners to improve the quality of the patents it issues.

MICHELLE K. LEE, Director, U.S. Patent and Trademark Office: All this discussion about abusive patent litigation, it is even more important for us to issue patents that should issue and not to issue patents that shouldn't, because there's a cost both ways.

PAUL SOLMAN: And ever since his run-in with Lodsys, developer Todd Moore, himself named on a handful of patents, has pushed for reform.

TODD MOORE: I believe in having a strong patent system, but what I don't believe in is just suing everybody without actually building anything, without helping people, without helping society in any way.

PAUL SOLMAN: For the "PBS NewsHour," this is economics correspondent Paul Solman, likely to sleep more soundly tonight, unless I start thinking about the patent system, that is.