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The future of U.S. innovation might rest on this obscure patent lawsuit

By on December 16, 2014 0 6 Views

Patent trolls: They’re a huge suck on the economy, eating up untold millions in legal fees and deliberately suing innocent companies just because they’re flush with cash. Tech companies hate them. Lawmakers hate them. But despite bipartisan efforts, limiting their influence has proven a difficult legislative task.

Now an obscure court case could inject new momentum into  a bill that tackles patent trolls. The case, Versata v. SAP, challenges how broadly the U.S. Patent and Trademark Office can interpret a congressional mandate to invalidate “bad” patents, the ones that patent trolls so often use to extort companies for easy settlement money.

The U.S. Patent and Trademark Office in Alexandria

The U.S. Patent and Trademark Office in Alexandria

This month, a federal appeals court heard oral arguments in the case. If the court rules next year for a narrow interpretation of the law, that would put pressure on patent reform advocates who see the law  as a key weapon against predatory lawsuits. In response, they would likely ramp up lobbying for a fix from Congress — and set up a big showdown with industry.

To understand how all this plays out, we have to introduce a bit of jargon, something known as the “covered business method.” This is the program at the core of the Versata case. Essentially, it’s a way for companies to make a claim at the patent office that a certain patent should be invalidated and no longer enforced. It’s useful for when, say, a tech firm gets sued by a patent troll looking for a quick settlement for “infringement.” The tech company can avoid the expensive step of going to court and instead simply ask the patent office to intervene. No patent, no lawsuit.

The thing about the covered business method, or CBM, is that it only applies to “financial services” patents; other types aren’t eligible for this treatment. If you’re wondering what that means, you’re not alone. The patent office has interpreted “financial services” much more broadly than anyone expected in just the two or three years CBM has been around. This is a big win for pleasantly surprised patent reform advocates but a frustrating situation for big players, such as the pharmaceutical industry. If the government defines “financial services” expansively as pretty muchanything having to do with money, then almost any patent could become subject to an invalidation request. That’s a little scary for patent holders.

This is where the Versata case comes in: It involves the first CBM petition ever to be filed at the patent office, and the agency’s broad interpretation of “financial services” set the tone for the entire CBM program. A decision that overrules the patent office would effectively narrow the definition of “financial services.” That’s what makes the case a big deal; as a result, only a smaller range of patents could be eligible for CBM treatment, and that would have ripple effects nationwide.

 

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