There is no denying that intellectual property, and patents in particular, can provide significant competitive and economic benefits to individuals, corporations, and universities. In fact, the Association of University Technology Managers estimates that universities in the United States collect about $2 billion a year in licensing revenue. In recent years, however, a new breed of patent enforcers, commonly referred to as patent trolls, has begun to aggressively enforce patents for products and processes with no intention of ever producing or selling the products in the marketplace. Patent trolls typically send cease and desist letters that offer to settle infringement claims for less than $100,000, and many of their targets choose to settle even questionable claims rather than risk engaging in patent litigation that can often cost well over $1 million. It is now estimated that patent trolls file the majority of patent lawsuits in the United States, and their efforts cost companies and individuals $29 billion in direct outof-pocket costs in 2011 alone. Universities are uniquely situated because, perhaps counter-intuitively, they risk falling under the often broad definitions of a “patent troll.” How? Universities are engaged in innovation for research and educational purposes, and typically do not sell their innovations directly to the public. Instead, universities commonly obtain patents that are used to establish startup companies or are licensed to companies that interact directly with consumers. Therefore, universities are in danger of being labelled as patent trolls whenever they choose to directly enforce patents for technologies that they do not sell directly to the public. Universities, the federal government, and corporations have begun to voice their concerns regarding the practices of patent trolls. Notably, this past February, the Innovation Act (HR 9) was introduced to the U.S. House of Representatives to attempt to reduce an “ever increasing problem of abusive patent litigation.” The Innovation Act includes various mechanisms for attempting to curb so-called patent trolls. Generally, these mechanisms include: Attorneys’ Fees - Requiring a non-prevailing party in a lawsuit which took a legally or factually unjustifiable position to pay reasonable attorneys’ fees to the prevailing party. www.wallerlaw.com 2 4839-8386-0771.1 Real Party in Interest - Requiring parties having an actual financial and/or ownership interest in the patent to be identified and potentially join a lawsuit, thus putting them on the hook for attorneys’ fees. Demand Letters - A presumption that vague letters alleging patent infringement sent to consumers, rather than manufacturers, are indicative of abusive patent litigation practices. Initiating Lawsuits - Requiring that legal complaints more specifically identify how each allegedly infringing product or process infringes the patent being enforced. Consumer Litigation - Generally, requiring that lawsuits be filed against manufacturers whenever possible, rather than end users and consumers. While the legislation is designed to curtail patent trolling practices, given the unique position of universities discussed above, the broad language of the Innovation Act may have an unintentional, and potentially negative, impact on universities. In this regard, 145 universities have collectively drafted a letter expressing their concerns that the Innovation Act’s broad language may cover the activities of some universities. The letter explains that facilitating payment of attorneys’ fees to prevailing parties could disproportionately raise the risk for universities and university-based startup companies considering enforcement of their patent rights. The letter raises the prospect that the legislation might require specific schools – or even faculty members – to be responsible for paying attorneys’ fees even in patent lawsuits filed by university startup companies, licensees, or university research foundations. Similar concerns about the allocation of risk in patent enforcement are shared others outside of Higher Ed, including some federal judges who believe that it is preferable to leave the issue of patent trolling to the courts rather than Congress. Indeed, in 2014 the Supreme Court issued two separate opinions that now make it easier for prevailing parties to obtain attorneys’ fees in exception cases. Furthermore, the America Invents Act of 2011 implemented procedures whereby issued patents can be reviewed and potentially invalidated at the U.S. Patent and Trademark Office. These procedures have proved to be highly effective for invalidating or cancelling patent claims of questionable quality, and, as of September 2014, the final decisions issued by the Patent Office cancelled 65% of all challenged patent claims. Congress also appears to be divided on how to best address the issue of patent trolls. On April 29, 2015, the Targeting Rogue and Opaque Letters (“TROL”) Act was advanced to the House and the Protecting American Talent and Entrepreneurship (“PATENT”) Act was released to the Senate. While the TROL Act is more narrowly focused on abusive demand letter practices, the broader PATENT Act more closely resembles the Innovation Act. Nevertheless, the PATENT Act’s rules regarding attorneys’ fees are less strict than those set forth in the Innovation Act, possibly answering some of the primary concerns that have been already voiced by universities. www.wallerlaw.com 3 4839-8386-0771.1 Accordingly, while patent trolls have significantly altered the patent litigation landscape, universities should monitor the changing legal landscape carefully with an eye to the unintentional impact that efforts to restrict patent trolls may have on academic institutions.