QR code violates patent? Industries pushing to curb ‘patent trolls’

WASHINGTON — In the past few years, patent litigation has become such a widespread problem that industries traditionally outside the patent system are demanding that Congress take action.

Last week several high-tech lobbying groups wrote a letter asking Congress to make it easier to invalidate low-quality patents. The effort is aimed at stopping “patent trolls,” firms that use frivolous lawsuits to extract money from companies for what are often common business activities.

The tech world has long been pushing the issue, but this time the letter drew support from some surprisingly low-tech sectors of the economy, including casinos, supermarkets, chain restaurants, airlines and printers.

“It’s important to recognize that the problem of patent trolls is no longer limited to technology companies,” says Whit Askew of the American Gaming Association, which represents casinos and the manufacturers of gambling devices. “Over the last couple of years, we’ve unfortunately been bit by the patent-troll lawsuit bug, where frivolous lawsuits have been filed against many in our industry.”

These predominantly bricks-and-mortar business groups aren’t just demanding patent reform in the abstract. Askew and other letter signers are endorsing expansion of the clumsily named “covered business method” program, which provides an expedited process for challenging patents at the U.S. Patent and Trademark Office. That’s significant because expansion of the CBM program has drawn the ire of some patent-rich software companies, including Microsoft, IBM and Adobe.

Opponents of expanding the CBM program say that procedural reforms, such as allowing technology vendors to intervene on behalf of their customers and forcing defeated patent plaintiffs to pay defendants’ legal bills, will be sufficient to bring the patent litigation crisis under control. And they worry that the defendant-friendly provisions of the CBM program will make it too difficult for the owners of legitimate patents to enforce their rights.

But Monday’s letter, whose more than two dozen signers also included groups representing advertising agencies, publicly owned power plants, real estate agents, hotels and retailers, says that these process-oriented reforms aren’t sufficient to solve the patent troll problem.

“Companies need an effective alternative for challenging validity [of patents] outside of the courtroom,” the letter argues. The CBM program “gives threatened companies a substantially less expensive way to challenge low quality patents. Other programs for challenging patent validity at the PTO do not allow the PTO to consider whether the patent is abstract, vague, or too broad,” which are common problems with patents used by trolls, the letter says.

Industry groups that signed the letter say they were motivated by a dramatic increase in the frequency of frivolous patent lawsuits. “We are now seeing [real estate] brokers receive demand letters for use of common technologies like scanner-copiers and website alert technologies,” said Gary Thomas, president of the National Association of Realtors.

“I’m a food lawyer,” said Erik Lieberman of the Food Marketing Institute, which represents grocery wholesalers as well as supermarkets. “Members bring us issues that impact them. A couple years ago they start coming to me saying, ‘Look, this entity we’ve never heard of is sending us a demand letter asking us for $300,000 or $500,000 claiming we’re violating their patent.’”

Lieberman says many of the patents covered common technologies such as the store locator function on a grocery store’s website or the use of QR codes in advertisements. Lieberman said that patent threats have now cost some of his larger clients millions of dollars in legal fees and staff time. And the burden can be especially serious for smaller supermarket chains that don’t have anyone on staff with experience handling patent issues.

In contrast, the CBM program can end a lawsuit — and permanently eliminate a low-quality patent — in a matter of months, saving hundreds of thousands of dollars in legal fees.

The letter also notes that under the program, “small businesses are able to pool their resources in order to pay to have a [patent troll]’s patent reviewed.” That makes the program a particularly potent weapon against trolls that send letters to a large number of defendants seeking nuisance settlements.

Lieberman said that in the grocery business, “the profit margin is well under 1 percent,” so the costs of patent litigation “get passed down to consumers.”

The industries that signed the letter collectively have significant lobbying muscle. They could provide a counterweight to patent-rich companies that are squeamish about seeing their patent portfolios subjected to the kind of serious scrutiny the CBM program could make possible.