Patent Trolls Are Running Wild—and Consumers Are Paying the Price

This year has seen a surge in patent-troll litigation: patent lawsuits brought by companies whose only business is suing and who do not make any products or provide any services to consumers.

Typically, when we think of patents, we think of an innovator who invents a new technology and then brings it to market. And we assume that when that inventor has to sue, it is because another company copied his idea.

This is not how patent trolls operate. They either buy their patents from others, or they patent ideas that have been around and are already being utilized in the market. Patent trolls take advantage of the fact that many of the patents are actually invalid due to the lack of resources the Patent Office has to adequately review them. As the U.S. Supreme Court put it, “sometimes bad patents slip through.”

An example of these troll abuses is a lawsuit that was filed in Maryland last May against Pepco, the local power company. The patents asserted in the patent claim to have invented “demand response”—the idea that to balance energy needs, you persuade consumers to use less power during peak hours. Not only is this idea obvious—it is not a real invention: it is an economic idea rather than an advance in technology.

Nor can Pepco be accused of having “copied” someone else’s idea. Pepco uses software systems that were built by others to manage consumer demand, and it is required by state and federal regulators to use these systems. In other words, Pepco did not develop the relevant product, it is required by law to regulate demand response, and the patents at issue claim ownership of an economic idea that is not even eligible for patenting. Yet Pepco is still being sued by a troll and will likely have to spend millions of dollars to defend itself.

Ultimately, it is Maryland and Washington electricity customers who will pay the price: Pepco’s costs will get passed on to these consumers. The bills that thousands of households pay this year for power will be consumed by this lawsuit. Everyone will have to pay more to make up the difference.

These types of lawsuits—targeting downstream service providers who did nothing wrong—have become increasingly common. A patent allows its owner to sue the manufacturer of an infringing product. But more and more trolls have discovered that you can also sue anyone who sells or uses the product, even if the seller or user had nothing to do with making it. And it is easier to sue these customers: the downstream user typically has no idea how a software program or electronic communications system works and is in no position to defend against patent lawsuits.

In the last year, trolls have exploited this asymmetry to sue service providers rather than the manufacturer. Troll lawsuits have targeted the discount grocer Aldi for using open-source software platforms. Rather than sue the makers of these platforms, they sue a grocer. Aldi knows about food, not software databases. Other recent lawsuits have targeted Men’s Wearhouse and Mattress Firm for using electronic transactions systems; American Eagle Outfitters, Costco, and Dollar Tree for using mobile apps; and Petco and Starbucks for allowing electronic payment.

Trolls are also targeting the hospitality industry—again, for technology they had no role in developing. Recent troll suits have gone after hotels such as Marriott, Best Western, Drury, and Hyatt. And they have targeted restaurants such as Dickey’s Barbecue, Taco Bueno, Chick-Fil-A, Wingstop, Krispy Kreme, and El Pollo Loco for using technologies like mobile apps or allowing transactions through their websites.

These are ordinary businesses that have no reason to be sued in a patent lawsuit. But the trolls strategically avoid suing the technology companies that make the accused technology because those companies are in a much better position to fight back. Instead, the trolls are pursuing a strategy of putting the burden of patent litigation on these service companies and their franchisees. This raises costs for the American consumer.

As Chairman of the House Judiciary Committee’s Subcommittee on Intellectual Property, Competition, and the Internet, I helped lead congressional consideration of the America Invents Act. Later, as Chairman of the full Judiciary Committee, I worked with colleagues on both sides of the aisle to confront the growing harm caused by patent trolls and advance practical, balanced reforms. Recent trends make clear that Congress must once again give this problem the serious attention it deserves.