stand byThe software patent system is one of the greatest challenges that app developers face. Vague claims, product life cycles shorter than the PTO review process, secretive trolls with unlimited litigation budgets, and recent uncertainty about so-called “standard essential patents” are all threats to app innovators. Fortunately, as 2012 ends, and a new year begins, progress toward reducing patent litigation may be on the horizon.

Standard essential patents claim an invention that is necessarily used in order to utilize a technical standard, eg Wi-fi or HTML, and they are usually disclosed to standards-setting organizations. Owners of standard essential patents promise to make them available on fair and reasonable terms to those who use the standard, and attempts by owners to leverage these patents through litigation can cause innovation paralysis.

Recently, in one battle in the massive smartphone/tablet patent wars, Google has been criticized for seeking sales injunctions against competitors that are knowingly using Google-owned (formerly Motorola-owned) patents incorporated into smartphone standards, but which have not reached royalty agreements after months – or even years – of negotiations.  The Federal Trade Commission has criticized requests for injunctions on standard essential patents, but recent reports suggest that the FTC and Google are nearing an agreement that will limit the uses of injunctions when royalty negotiations around standard essential patents are unsuccessful.

If Google and the FTC reach agreement, it could be the first good news on patents for app developers in quite some time.  If the Google-FTC agreement establishes a patent injunction framework, and other technology companies make the same commitments – which seems prudent in order to avoid their own FTC problems – then smartphone patent litigation could actually decrease in 2013.

Notably, this progress on standard essential patents comes on the heels of a recent government workshop on Patent Assertion Entities, a fancy term for “patent trolls.” Many patents asserted by trolls are trivial, vague, and overbroad, and trolls mercilessly exploit the high-costs of litigation to obtain “nuisance settlements” from app developers.

Trolls stack the deck against small businesses, with a majority sending “license request” demand letters to target companies with less than $10 million in annual revenue. Those letters cause big problems – one recent survey documented that 40 percent of startups that received a patent troll’s demand letter experienced a “significant operational impact” as a result. Most startups simply cannot afford these setbacks.

As the app industry has created 519,000 jobs since 2007, the troll problem deserves more government attention to ensure that innovation and job creation do not slow down. The patent troll workshop, hosted by the FTC and the Justice Department, was a significant step in documenting and addressing the threat of trolls.

Some of the troll evidence was convincing. For example, RPX, a defensive patent aggregator, testified that in one instance patent trolls generated only $8 million in revenue while causing $80 million in costs – primarily borne by startups and other recipients of demand letters. This exemplifies economic inefficiency at its worst – especially for app developers and entrepreneurs.

Another software patent problem is caused by a more recent trend, which involves large technology companies transferring patents to trolls as a way to surreptitiously demand licenses and royalties from competitors. At the recent workshop, FTC Commissioner Jon Leibowitz called patent transfer to trolls “unsavory,” and we agree.

The FTC is on the cusp of providing a framework for standard essential patents, and the FTC/DOJ workshop was a significant step toward addressing the acute problems presented by patent trolls. In 2013, we hope that Congress, regulators, and the courts build on this progress and aggressively tackle the challenges software patents present to app developers. It’s time to provide developers clarity, certainty, and protection from trolls – these are foundations of innovation that will keep our economy growing.

[Image courtesy x-ray delta one]