The New York Times reported that in 2006, more patent lawsuits would be filed in tiny Marshall, Texas, than in San Francisco (including Silicon Valley), Chicago, New York and Washington.  According to current projections for 2007, more patent lawsuits will be filed in the Eastern District of Texas than in any other jurisdiction, an 11-fold increase over five years, and a staggering 12% of all cases filed in the U.S.

For plaintiffs claiming patent infringement against companies with deep pockets, Marshall is the ideal venue.  Since 1991, patent holders have a winning record of 78%, compared to a nationwide average of 59%.  Not surprisingly, most corporations choose to settle rather than face such daunting odds (only 5% of cases go to trial).  Marshall has also become fertile ground for “patent trolls,” a term coined in 2001 by former Intel General Counsel Peter Detkin, and defined in FORTUNE Magazine:

“Patent troll (n., derogatory): An entity that neither invents nor makes products but instead acquires patents and uses them to extort money from legitimate businesses by suing or threatening to sue.”

One such patent holding firm, Polaris IP, filed suit in Marshall last month against Google, Yahoo!, Amazon.com, Borders, AOL, A9, and IAC, alleging infringement of a broad patent which, according to the Electronic Frontier Foundation, “uses basic natural language processing techniques taught in introductory computer science courses.”  Even though this patent will almost certainly be invalidated, experts predict that these companies will settle rather than risk the threat of a crippling injunction.

The patent system should provide an incentive for innovation, not a weapon for extortion.  The House of Representatives last week took steps to address these flaws by passing the Patent Reform Act of 2007, the first major overhaul of the U.S. patent system since 1952.  An amendment by Rep. Zoe Lofgren (D-CA 16^th) closes the loophole which permits plaintiffs to shop for the most favorable jurisdiction.  While this should end the glut of infringement suits in Marshall, Texas, this legislation fails to adequately address the underlying problem: too many patents are being routinely awarded for inventions that are too broad, too obvious, or not novel.  

After 20 years of stability, the number of patent infringement lawsuits doubled in the 1990s, and continues to skyrocket.  Many of these cases are brought by patent trolls armed with junk patents, seeking to obstruct innovation by extorting the innovators.  Long term solutions will not be found through imposing complicated and unmanageable restrictions on damages.  The best remedy to prevent frivolous lawsuits is to stop awarding frivolous patents.

While the Patent Reform Act establishes extensive new procedures for post-grant review, this is a de facto admission that the current system is simply incapable of preventing patents from being awarded erroneously.  With 5,300 patent examiners reviewing a backlog of 750,000 applications, the U.S. Patent and Trademark Office cannot possibly keep pace with the current rate of discovery and technical specialization.  Fortunately, the USPTO has recognized this fact, and recently introduced an innovative pilot program to open the patent process to peer review.  As described last week in The Economist, the “Peer to Patent Project” will subject 250 applications to public scrutiny.  With a system to rank suggestions, the community will self-select the most credible and knowledgeable reviewers, improving the examiner’s ability to efficiently render accurate decisions.

As new and complex technologies arise, the patent system must evolve.  A patent can be essential in providing innovators and entrepreneurs the freedom to create.  The lesson of Marshall, Texas is that patent abuse achieves the opposite effect.  Public participation, through programs such as “Peer to Patent,” will be essential for adapting an obsolete system to the modern age.  Rapid development and implementation of these programs should be the centerpiece of any effective patent reform legislation.