Well, it would be inaccurate to see patent-defense companies like Vringo, Inc. (NASDAQ:VRNG), InterDigital, Inc. (NASDAQ:IDCC), and Acacia Research Corp. (NASDAQ:ACTG) have been forced into going out of business. But, it wouldn't be inaccurate to say some of these so-called patent trolls are now potentially facing a much bigger legal headwind. Investors of companies like IDCC, ACTG, and VRNG may want to reassess the upside of their holdings, now that new laws regarding patent litigation have all but been put into place.
It's called the Innovation Act, and it's designed to eliminate what's become known as "smash and grab" patent trolling. Smash-and-grab is the practice of extorting cash from a small business for a relatively small amount of money.... usually less than it would cost to go to court to mount a legal defense. It's a very scalable model though - attorneys can send out these threatening "patent infringement" letters to thousands of people and small businesses at a time. Even if most are ignored - as they should be - a handful of recipients will be compelled to pay up.
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But what does that mean for Acacia Research, Vringo, InterDigital, and most of the country's other major IP companies? Truth be told, not a lot. These companies tend to focus their litigation on the proverbial big Kahuna... companies with a big wallet that are worth pursuing in court, citing patents they own that at least hold a little more validity than the average smash-and-grabber.
In that light, HR 3309 doesn't have a lot of the teeth many consumers were hoping a patent reform bill would have. More directly, even if the Innovation Act (as it reads today) would have been in place two years ago, it likely wouldn't have stopped the well-publicized legal battles between Google and Vringo, or the war being waged between Samsung and Apple.
Still, it's a start towards restoring some sanity to the patent enforcement process, even for the major patent owners and defenders, as the bill makes two universal provisions that apply to anyone bringing forth a patent infringement case.
One of those provisions is the elimination of the discovery requirement until after a judge examines the patent claims being made, to determine whether or not a trial is even merited. Discovery is an expensive and time-consuming discovery process that's most disruptive to a business simply, well, trying to do business, sometimes requiring the retrieval of millions of documents. Many would-be plaintiffs simply acquiesce and write a check rather than go through that debilitating torture (only to then go through the expensive torture of a trial). By only requiring a minimum plaintiff-requested "core discovery" documents be produced, an alleged infringer isn't unduly punished just to prove his or her innocence.
That same stipulation - perhaps inadvertently - could quell litigation before it ever even comes into the courtroom.
This is where the relatively anemic bill could not only impact IP enforcers like Vringo, Inc., InterDigital, Inc., and Acacia Research Corp., but frequent lawsuit targets like Google and Apple (though AAPL and GOOG are also just as apt to become a patent plaintiff). With only a minimal amount of discovery-required documentation in hand, it's conceivable that a judge could nix a case before it went to trial, if the claim construction (the explanation of what patent was being illegally used, and a clear example of how it was being illegally used) appeared to be weak, the case may never actually get to trial. This is huge for patent case defendants, as it could put their destinies in the hands of a hopefully-unbiased judge instead of putting their destinies of a biased jury that knows less about the law and more about the quality and "feel" of the grand-standing occurring in U.S. courtrooms. It's still something of a long shot for most defendants, but it will at least have some impact.
For the time being, Acacia Research, Vringo, and InterDigital don't have a lot to worry about. Neither do Google or Apple, especially considering the Senate has yet to sign ff on the House's bill (though the Senate is widely expected to do so). And, even once the bill becomes a law, it will be an untested one in courtrooms for a while. But, the patent troll business landscape has at least been somewhat altered for the saner, and some big name patent litigation names are a tad weaker for it.
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