July 2, 2015

New Mexico businesses need patent reform

New Mexico businesses may be on the verge of seeing one form of commercial piracy go away, a plague that can seriously damage any business’ ability to survive. Congress is debating “The Innovation Act” which is currently awaiting a vote in the House of Representatives.  It is New Mexico’s best hope for protection against “patent trolling”, the filing of patent infringement lawsuits which drain innovation—and form a sort of “tax” on creative businesses.

State Senator Jerry Ortiz y Pino

State Senator Jerry Ortiz y Pino (D-Bernalillo)

This parasitic practice has in the last five years become a genuine impediment to companies’ profitability by preying on innocent businesses, trapping them into expensive settlements over broad, vaguely written patents that the pirates claim the legitimate businesses are infringing. Most such targeted companies have settled rather than dragging out the litigation over many years and great costs.

But there is hope on the horizon. The Innovation Act is a step forward that does much to protect our cities, businesses and industries from patent litigation without undermining the rights of legitimate patent owners. While another version is currently awaiting a vote in the U.S. Senate, the Innovation Act in the U.S. House of Representatives is the stronger version and will afford more protection.

No business is immune from patent trolls today, and as a result patent litigation rates continue at historically high levels. Notably, lawsuits brought by patent trolls were up nearly 42 percent in the first quarter of 2015 over the previous quarter. Frivolous patent lawsuits against small businesses in New Mexico won’t go away unless Congress steps in, and passes the Innovation Act.

The House version includes a number of key reforms.  The Act says that patent infringement claims can only be addressed in judicial districts where both parties have a clear presence.  As it stands now, the majority of patent lawsuits against New Mexico businesses are filed and decided in the Eastern District of Texas!  New Mexico businesses should not have to close down their shops for days to attend court in another state.

Additionally, the Act would advise district courts on how to create efficient guidelines to curb excessive discovery costs that patent trolls use as a ploy to force unnecessary settlements from innocent businesses. Today, a troll settlement can cost hundreds of thousands. If one chooses to mount a full in-court defense, they could spend an average of $1.75 million in legal costs; that alone could force many to shut their doors.

In the same vein, the Act includes a provision that would require a losing party who brings forth a baseless patent claim to pay the prevailing party’s legal fees. For a small New Mexico business that is now being cornered into settling and paying thousands of dollars in fees – even though they have a valid case against the suit – this provision now gives them the extra support and encouragement they need to defend a patent in court, and get their money back.

Patent trolls have been going after many small businesses which use common technology products in conducting day-to-day business, unaware that they may be infringing a patent. The Innovation Act would protect these innocent businesses by ensuring that claims between patent trolls and manufacturers of these products are addressed before those between trolls and the companies simply using these products.

Although the Innovation Act is a step in the right direction to fix the American patent system, there is still more to be done with patent reform. Specifically, without a stronger pleadings requirement, small businesses are unable to clearly understand what they are accused of, and therefore are left not knowing how to respond. Without this provision, other aspects of the bill are weakened as patent trolls can continue to shake down businesses with their vague claims.

In a time of a hyper-polarized Congress, patent reform seems to be one thing both parties can agree on. As it stands now, the current patent system opens the floodgates to frivolous lawsuits that are a drain on industry and cost New Mexico millions of dollars in innovation. New Mexico businesses should be focused on creating jobs, developing new businesses, and encouraging innovation, rather than wasting time and money on attorney fees and settlements.

It is time for Congress to step in, and pass the Innovation Act this year, so New Mexico can get back to work and never again have to deal with patent troll lawsuit pirates. Our delegation should lead the charge in this regard.