#innovationact

By: Steven K. Berry, President & CEO, CCA & Tim Donovan, VP of Legislative Affairs, CCA

In recent years, harmful legal activities of patent assertion entities, also known as PAEs or patent trolls, have increased exponentially.  While PAEs have continued to frustrate large high-tech corporations, they have expanded their reach to smaller companies across the country, and their abusive actions can be absolutely devastating for a small company.  Like many small and medium sized businesses, competitive wireless carriers are now the frequent targets of patent trolls. To push back against these distracting and destructive trolling activities, CCA joined in the call to address these abuses.

This week, the House Judiciary Committee will consider H.R. 3309, the “Innovation Act.”  CCA supports this bipartisan effort and hopes that Wednesday’s markup will take us one step closer to addressing these abusive activities.  We commend Chairman Goodlatte and the 14 cosponsors for their work.

As the Committee gears up for the markup, there is no better time to highlight specific ways CCA members are impacted by patent trolls:

Competitive carriers, particularly smaller rural and regional carriers, typically have smaller legal departments – sometimes only one or two individuals – who must marshal resources to defend against claims.  Even if outside patent counsel is retained, in-house staff must direct defense efforts, resulting in an unquantifiable time drain and distraction from other business activities, such as transactions, network deployments, or other compliance work—in addition to the added expense of retaining outside counsel.

Smaller carriers have a smaller voice in industry standards bodies, and accordingly may be subject to mandates or other industry standards.  Sometimes compliance with such standards, even on critically important requirements such as providing 911 services, makes them targets for trolls.

Carriers may lack scope and scale, and in turn negotiating power, in discussions with vendors, and may have difficulty reaching indemnification agreements or prompting a vendor to defend the carrier.  Conversely, smaller vendors that serve competitive carriers may be more likely to indemnify and defend a carrier, but the resulting burdens and costs disproportionately impact smaller companies, potentially driving them out of the market as a result of trying to defend against a frivolous suit.

Trolling has impacts well beyond the carrier initially targeted.  Indeed, trolls often target smaller providers first to develop a “war chest” of funds to use in actions against larger companies.  This also allows trolls an opportunity to establish a distorted market license value for the patent based on settlements reached by smaller firms with insufficient resources or who are otherwise unable to successfully fight the claims.  For example, a carrier with 20,000 subscribers may not have the resources to litigate, so may settle for $20,000.  The trolling entity agrees, and moves up to larger companies, using $1/subscriber as the purported market value for a license.  Because the small business could not fight back, the problem snowballs throughout the industry.