Universities fear being lumped in with 'patent trolls' by reform proposals

By Jessica M. Karmasek | Apr 8, 2014

WASHINGTON (Legal Newsline) - Academic institutions are among those players often not addressed in the current patent reform debate. They don't have the financial resources that big businesses like Apple and IBM, two companies that are part of a coordinated lobbying campaign, do.

But university officials argue they could be impacted just as much by proposed reforms.

Under currently proposed patent reform bills -- on the federal level, and in some states -- they could be more easily swept into a lawsuit and end up under a pile of legal bills, the officials say.

That's because, they point out, under much of the proposed legislation, their institutions could be lumped in with so-called "patent trolls," or those bad actors that some argue are currently driving the patent reform rhetoric.

Difficult to define, a patent troll purchases groups of patents without an intent to market or develop a product. In some cases, but not all, the non-practicing entity or patent assertion entity then targets other businesses with lawsuits alleging infringement of the patents it bought.

"We don't make things. We do research, and we get patents for our research," said Kerry Bolognese, director of federal relations at George Mason University, noting the similarities.

The problem being, most universities don't have much of a legal budget.

Hence, their apprehension about the current proposals in Washington, D.C., and state legislatures across the country.

"That really is the crux of our concern," Bolognese said. "We don't want to be swept into something and then have to pay out. We can't really afford it."

Under some of the proposed legislation, losing parties would have to pay the winners' legal bills. Lawmakers contend doing so would deter frivolous litigation.

But university officials argue that such fee-shifting -- combined with joinder, heightened pleading requirements and other provisions -- could end up hurting their institutions, especially those that generate significant revenue from patent licensing.

GMU, Bolognese admitted, isn't one of those institutions.

"There are a few universities that do," he said. "But, in general, that's not the incentive.

"We do research in hopes that there's some benefit to society, but then we leave it up to someone else to take that next step."

According to the most recent report by the Association of University Technology Managers, or AUTM, more than 14,000 new patent applications were filed by nearly 200 U.S. institutions surveyed.

Of those 194 institutions that responded, 161 were universities, according to the AUTM report of fiscal year 2012.

The total license income for those institutions was $2.6 billion, according to the report, which was published in January.

John Vaughn, executive vice president of the Association of American Universities, said most university technology transfer offices -- they handle transferring scientific findings for the purpose of development and commercialization -- break even.

"Every now and then, a university has a blockbuster patent and they can get significant revenue from that," he said. "But, overall, any revenue generally offsets the costs of running those offices."

So he and others have concerns over the handful of bills before Congress and various proposed state measures.

The more notable federal bills include the Patent Transparency and Improvements Act, sponsored by U.S. Sen. Patrick Leahy, D-Vt. Introduced in November, the legislation was expected to be marked up by a Senate panel Tuesday.

Leahy's bill is considered by some to be the "less ambitious" version of the House's Innovation Act.

That measure, introduced by U.S. Rep. Bob Goodlatte, R-Va., was approved by the House in an overwhelming bipartisan vote of 325-91 in December and has since been sent to the Senate, where lawmakers are still considering it.

And just last month, U.S. Sen. Claire McCaskill, D-Mo., introduced her own legislation aimed at targeting trolls.

Her bill, the Transparency in Assertion of Patents Act, would empower the Federal Trade Commission by requiring minimum disclosures in demand letters.

McCaskill's bill also would allow the FTC to specify for businesses exactly what constitutes a deceptive demand letter.

"Small university start-ups are critically dependent on venture capital because they are mostly inventions from fundamental research," Vaughn said.

Those early patents, he explained, often are riskier. But they have a potentially high payoff.

"With this legislation, we're really concerned capitalists/funders will shy away," Vaughn said. "We're worried they'll find something less risky to put their money in."

Some universities said it also could force them to change their own legitimate business practices at their own expense.

"We actively seek licensees for many of our patents," explained Michael Falk, general counsel for the Wisconsin Alumni Research Foundation.

WARF, a nonprofit entity, serves as the University of Wisconsin's tech transfer office.

"We go to trade shows. We have a website. We call people and make offers. We send letters," Falk said.

But the suggested federal bills and Wisconsin's proposed state law, which has been sent to Gov. Scott Walker's desk for his signature, could change that.

"We would have to change our business practices, provide different or more information, or we could be subject to eventual crime under these laws," Falk said.

The problem with much of the legislation offered up thus far, federal or otherwise, is that it isn't focused enough, university officials contend.

"Don't get me wrong, we're not indifferent to trolls," Vaughn said. "They cause a problem for universities, and small start-up companies are particularly vulnerable.

"Our concern is that a number of the provisions in the bills proposed are so far overreaching. They're sweeping in legitimate patent holders and patent enforcement activities."

Bolognese agreed.

"We don't like patent trolls, or these bad actors, as much as anyone else," he said. "But we want a good-sense approach."

So, what's the answer?

Though they agreed that lawmakers are going about fixing the troll problem the wrong way, officials said it's difficult to pinpoint an exact solution.

Vaughn said some "tweaks" could be made to the current bills, at least.

"I think there are some provisions where changing the language, sharpening the language, getting it more focused could effectively target the right parties without hurting legitimate transactions," he said.

Falk offered up a bleaker view.

"I don't know that there is an answer," he said. "It's a very difficult thing in today's modern economy. To control how things are done with all of the players that can be involved is tough.

"I haven't seen anything, in terms of a bill, that gets it right."

And state efforts to legislate the issue, he said, are even worse.

"The state legislative approach is not a good one," Falk said. "State efforts to legislate really confuse the issue. And they make it quite complicated for businesses that do business in more than one state."

Plus, states already have laws in place they can use to go after bad actors in the system, Falk argued.

"These attorneys general can go after these deceptive business practices," he said. "They already have tools they can use.

"Instead, we're going to add a lot more complications for those legitimate patent holders on a day-to-day basis."

In turn, it could end up really hurting innovation, instead of helping it, Vaughn said.

"It's just not good for the country," he said.

From Legal Newsline: Reach Jessica Karmasek by email at patents@legalnewsline.com.

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