By Ros Krasny
WASHINGTON (Reuters) - Technology companies on Tuesday urged fast action on a patent reform bill in testimony before the House Judiciary Committee, including tackling what they termed the rising tide of costly lawsuits by "patent trolls."
The Innovation Act, introduced last week by Representative Bob Goodlatte, a Virginia Republican who chairs the committee, aims to increase transparency and accountability in the patent litigation system.
Patent Assertion Entities (PAEs), called patent trolls by critics, are companies that typically do not invent or manufacture products but instead buy or license patents from others, primarily for the purpose of obtaining licensing fees or filing infringement lawsuits.
Companies have said the increase in such litigation stifles innovation and costs billions of dollars in legal fees.
Patent litigation costs have grown from $7 billion in 2005 to $29 billion in 2011, when 5,842 lawsuits were initiated by PAEs against 2,150 companies, Krish Gupta, deputy general counsel with EMC Corp, said in testimony.
While hurtful to giant businesses like EMC, a multinational computing company, "they have done much more profound damage to small and medium-sized companies that lack the resources to counter these frivolous lawsuits," said Gupta.
Abusive PAE suits often claim ownership over what are now seen as "basic ideas," such as using a "shopping cart" function on a website or aggregating news articles, Goodlatte said in his opening statement.
A group representing the U.S. lodging industry applauded the bill, saying its members had been targeted for providing wireless Internet access to guests using wireless routers that the PAEs say infringe on their patents.
Kevin Kramer, deputy general counsel for intellectual property at Internet company Yahoo Inc, said the high cost of litigation "means that settlement is almost always the least costly option, and the patent trolls know it."
About 75 percent of cases settle, creating a "virtually guaranteed payoff" for assertion entities, Kramer said.
The former head of the U.S. Patent and Trademark Office warned that some provisions of the bill "would best be deferred" because of the danger of over-correction.
"We are not tinkering with just any system here; we are reworking the greatest innovation engine the world," David Kappos, who stepped down as head of the patent office in January and is now a lawyer in private practice, told the hearing.
While united against abusive patent litigation, companies are less unified on how to curtail it.
A coalition of over a dozen small technology companies wrote this week to Goodlatte expressing concerns about how certain types of financial software patents known as "covered business method" (CBM) patents would be addressed.
The bill contains a provision "which extends indefinite post-grant review at the United States Patent and Trade Office," the coalition said in a letter.
"Instead of prolonging the post-grant process, we believe the next stage of patent improvement should come from a more robust pre-grant examination process."
Several larger companies, from Caterpillar to Adobe Systems to Boston Scientific, also opposed the CBM patent proposals in September, when a draft of Goodlatte's bill was circulated.
Goodlatte has not announced the timing of the next action on his bill. A companion bill is expected to be launched in the Senate by his counterpart, Democrat Patrick Leahy.
Intellectual Ventures, based in Bellevue, Washington, is possibly the best-known patent aggregator in the United States.
In a statement, its chief policy counsel, Russ Merbeth, said the company has "been pleased with Chairman Goodlatte's collaborative approach on patent litigation reform" but had some concerns.
"With careful consideration and certain alterations it will be an effective bill for reducing frivolous lawsuits," Merbeth said.
To read the text of H.R. 3309, the Innovation Act, see: http://www.gpo.gov/fdsys/pkg/BILLS-113hr3309ih/pdf/BILLS-113hr3309ih.pdffun
(Reporting by Ros Krasny; Editing by Dan Grebler and Prudence Crowther)