Issues & Advocacy

Issue Brief

Patent abuse

It may just be a matter of time before a patent troll targets your restaurant.

The background: Patent assertion entities, also known as PAEs or “patent trolls,” are a true threat to restaurant innovation. Patent trolls are companies that seek to profit by purchasing vaguely worded patents at low prices and accusing businesses of infringing on those patents. Their profits come from licensing fees or settlements they demand in exchange for businesses’ use of the often ubiquitous technologies PAEs have pursued, which include WiFi, digital menu boards, text messages containing hyperlinks, or online restaurant locators.

The economic costs are staggering: Patent trolls threatened more than 100,000 businesses with lawsuits in 2013 and cost businesses more than $29 billion.

Why it matters: Patent trolls are forcing restaurants and other companies to spend billions of dollars simply to continue to use common technologies that are widely available and used by businesses across the country. Some restaurant companies have reported that patent troll claims consume 20 percent or more of their legal budget. The ever-present threat of patent-troll lawsuits has prevented some restaurants from employing technology that could help expand their business.

Even frivolous claims put restaurants in a tough position. They must choose between not offering the service, paying the fee demanded by the patent troll, or spending $1 million or more to defend the claim. In addition, it’s often difficult for restaurants to determine the nature of the claim or the patent troll’s interest. The demand letters PAEs send are notoriously vague, which drives up costs for businesses as they research whether a claim is valid.

Who’s at risk: All businesses are at risk, but a 2012 study by Boston University researchers found that most defendants in suits brought by patent trolls were small or medium-sized companies — those that can least afford the steep cost of defending a lawsuit.

What’s needed: The National Restaurant Association supports a number of reforms that would limit patent trolls’ ability to file frivolous lawsuits:

  • Transparency: The letters sent by PAEs are often vague and difficult to understand. They usually fail to disclose the patent troll’s interest in the patent. PAEs must be required to completely disclose the patent in question and their interest in it.
  • Delayed discovery: PAEs often take the aggressive path of skipping demand letters and filing immediate lawsuits, forcing businesses to immediately spend the costly legal fees determine whether the case has merit. No business owner should be forced into the discovery phase of a lawsuit until a judge has ruled whether a case has merit.
  • Reduced court costs and responsible fee shifting: Even in the case of a frivolous claim, the high cost of legal action can deter a business from defending itself against a PAE’s claim. Reforms must reduce the costs associated with defending claims by PAEs. In addition, defendants who fight and win should be able to recoup some or all of their legal costs.

Key legislation: The National Restaurant Association supports S. 1137, the PATENT Act, and H.R. 9, the Innovation Act. Both would implement a number of steps to curb frivolous patent-troll lawsuits, including requiring those who send demand letters to be more specific regarding their interest and allowing successful defendants to recover reasonable legal fees from the plaintiffs.