Senator Charles Schumer Targets Patent Trolls, Wants USPTO To Review Infringement Suits Before They Head To Court

Companies like Google, BlackBerry, Earthlink, Red Hat, and others in the tech community, have been piling pressure on the U.S. government to take a stronger stand against companies that file patent suits but don’t actually make any products themselves — known formally as “patent assertion entities” but more commonly as patent trolls and patent privateers (a term favored by Google). Now someone in government is responding. Today, U.S. Sen. Charles Schumer (D-NY) is expected to announce legislation that looks to snuff out patent suits brought by these companies in their early stages, by sending the suits to the U.S. Patent and Trademark Office for vetting before they hit the courts.

This could not only help snuff out bogus suits, but it could also highlight which patents may be bogus as well, creating a framework for preventing their use in subsequent suits.

Patent trolling is a lucrative business, and they are even costlier when including extra business like legal costs: in a recent document submitted to the Department of Justice and the Federal Trade Commission, Google, BlackBerry, Earthlink and Red Hat estimated that patents abused for financial gain cost U.S. companies alone nearly $30 billion in 2011, “and $80 billion when accounting for all costs — direct and indirect.” The average patent settlement reached by PEEs can cost a small or medium company $1.33 million, while an in-court defense would cost the same company an average of $1.75 million per case.

Senator Schumer’s bill will address exactly that latter aspect of the issue, around the prosecution system. The announcement was made while Schumer was in his home state of New York, and it will get introduced formally next week, when Congress is comes back in session starting May 6.

In a phone interview with TechCrunch, Senator Schumer says the impetus for the bill came from feedback he was getting from the tech community “from one end to the other”:

“From large companies like Google to the smaller startups, this is one of the major barriers to business across the country,” he said. “Fred Wilson alerted me to how it especially hurts startups as well. Several small companies that have been put out of business. When asked by people about what I can do to help the tech industry, the top two things they ask me about is immigration reform and this. I’m working on both.”

What’s interesting is that the bill proposes a new process by which all patent cases will get vetted by the USPTO — not just the “extortion” (his word) brought by trolls. “This will apple to all patent cases, but if you have a legitimate case it will go forward in a month. It just eliminates all the frivolous suits. We think it’s the best solution.”

There are other solutions being suggested for how to deal with the overrun tech patent lawsuit situation. Another suggestion has been for the losers in the cases to cover legal costs for both parties. The idea is that this would be a deterrent for those looking just for a financial return, but Schumer said he believes this would get quashed by the trial lawyer lobby.

“Even if you have to pick up the court costs, you might still be scared into settling because it could take years before a court makes a determination,” he noted. “We would have it before it goes to court and discovery stage.”

This bill is a variation on another piece of legislation that Schumer pushed through Congress successfully in 2011. That update, called the Schumer-Kyl program, was to the America Invents Act and specifically concerned patents in the financial services industry. So far the USPTO has examined some 20 patent cases as part of that patent review program.

But tech patent trolling is a much bigger issue in terms of numbers, says Schumer. Some 62% of patents asserted by trolls from 1990-2010 were software patents; 75% were in computer and communications technology. The case brought by Lodsys against dozens of app developers is typical of how many of these suits run, it appears: some 82% of companies targeted by trolls have annual revenues of less than $100 million.