The patent troll that demanded money from "Webtech," a Vermont website developer (name changed), was just doing business in the same way trolls have for more than a decade now. Patent trolls typically buy up old patents that can arguably be interpreted to cover new technology. They assert these patents, demanding money in exchange for a promise not to sue. For example, one outfit has demanded $1,000 per employee from hundreds or thousands of companies that use document scanners attached to networks.

But that troll may have gone one step too far. This wasn't Webtech's first patent assertion letter—the company had received seven over the last two years—but this one was too much. The patent accusations consumed a large amount of management time. Also, Webtech had lost two contracts each worth a million dollars because its customers wanted to be protected against patent suits. Because patent litigation is so expensive, Webtech could not afford to indemnify them.

So Webtech and several other small Vermont companies fought back. After consulting lawyer Peter Kunin, they formed an informal group to lobby politicians for better protection against patent trolls last year. This May, the Vermont state legislature unanimously passed a bill that provides new tools to fight trolls under state consumer protection laws. Vermont Governor Peter Shumlin signed the bill into law, and William Sorrell, the Vermont Attorney General, sued a patent troll the same day for engaging in “unfair and deceptive acts.” The Vermont coalition also met with their senator, Patrick Leahy (D), Chairman of the Senate Judiciary Committee, to discuss patent trolls. Now both Leahy and Vermont Representative Peter Welch (D) have co-authored separate legislative proposals in Congress.

Patent trolls are going after the proverbial Main Street. And that may very well be their undoing.

Target: small business

Until recently, most of the complaints about patent trolls came from large tech companies. That is changing. In 2005, about 800 patent lawsuits were filed by patent trolls against small firms, ones that earned less than $100 million in revenue per year. But in 2011, nearly 2,900 small firms were sued for patent infringement by trolls. And many more small companies—an estimated 100,000—received letters from patent trolls claiming infringement and demanding payment. Indeed, while the trolls cost large firms more money in the aggregate, the typical company now sued by a patent troll is a small one. The median defendant firm has revenues of only $10.3 million per year.

This new focus on small businesses is significant for two reasons. First, it undermines the argument that patent trolls provide funds to “little guy” inventors by enforcing their patents so that they are no longer “at the mercy of larger competitors.” Small firms themselves are getting hit hard, and patent litigation costs them dearly compared to firms who have their own legal departments. Moreover, an analysis of the annual reports of publicly listed patent troll firms shows that very little of the money paid out by defendants ends up in the pockets of small inventors—no more than 10 percent at most.

But more importantly, small firms are the sleeping giant of American politics and they are being roused. For example, the Application Developers Alliance, which includes 20,000 individual developers and 100 companies, began a series of “Developer Patent Summits” in cities across the country to discuss strategies for dealing with patent trolls and to promote reform of software patents. And as trolls have begun targeting the customers of tech companies, a broader range of industries are becoming active. A recent meeting held by the Coalition for Patent Fairness in Washington drew representatives from advertising agencies, the grocery industry, retailing, banking, and more.

Across the nation, businesses are complaining and politicians are responding. At a recent meeting in Austin, Texas, online retailers, software companies, and other tech firms told Senator John Cornyn (R) of their troubles with patent trolls, including one firm that was facing bankruptcy after being targeted eight times. Senator Cornyn introduced legislation to deal with patent trolls in May. Indeed, there are now seven legislative proposals in Congress. And in June, the White House announced additional legislative recommendations and changes at the Patent Office. Other state Attorneys General are taking action, too, including Nebraska.

New political landscape

This responsiveness marks a sharp change. It’s not that the patent troll issue is new to Congress. In fact, tech companies raised the issue during the seven years of legislative wrangling that produced a new patent statute in 2011, the America Invents Act. But efforts by the tech industry were blocked by other powerful lobbies, including those representing pharmaceutical companies and patent lawyers. The act did little to limit patent trolls except in one industry, the politically powerful finance industry. Senator Charles Schumer (D-NY) was able to insert a special section in the law allowing banks and finance companies to challenge financial patents asserted by trolls. But the Act provides little help for anyone else.

What’s different now is the political calculus. Cisco, Google, and Intel do have major and legitimate concerns about patent trolls. But they only have facilities in a few states and a few Congressional districts. Small businesses, on the other hand, are everywhere. And, once roused, they can be a politically potent force.

In fact, something similar played out over a hundred years ago. In the latter half of the 19th century, “patent sharks” asserted dubious patents on mechanical devices. Then, as now, the problem arose because large numbers of poorly defined patents were granted, making it difficult for businesses to avoid inadvertently infringing. The problem was with patents that were granted for trivial ornamental design improvements to mechanical devices (now, the problem is with patents on software and business methods). The patent sharks initially went after the railroads. Then, in the 1870s, the sharks went after farmers, claiming that ordinary farm tools violated these design patents. This provoked a significant backlash. At first Congress did not act. But the other branches of government responded more rapidly. In an 1883 decision, the Supreme Court made clear that patents required a substantial invention and should not be granted for “every slight advance made.” By the late 1880s, the Patent Office had reversed course and only granted design patents for major ornamental improvements. Congress eventually followed in 1902, modifying the design patent statute to also require major improvements.

Of course, today’s patent trolls are very different from yesterday's patent sharks. For one thing, the majority of patent litigation today involves trolls; patent sharks did not actually file many lawsuits. And the sheer scale of patent trolls’ economic impact—estimated to cost businesses $29 billion in 2011—appears to be much larger than in the past. So the stakes are bigger today, yet there is no guarantee that anti-troll activists will be successful.

Where are we headed?

Activists will likely be able to reduce the worst sorts of troll behavior, but the bigger question is whether anti-troll activists can win the deeper changes in the patent system needed to eliminate most trolling. State actions, like those in Vermont, attack trolls who make deceptive claims, but not all trolls do that. Moreover, courts might ultimately decide that states lack jurisdiction over patent-related litigation since patent law is federal. And many of the legislative proposals now in Congress would discourage trolls from filing frivolous suits that stand little chance of winning at trial. But although troll patents are less likely than others to win at trial, many are not frivolous.

These solutions might reduce the most extreme troll behavior without really solving the problem. Most troll lawsuits arise because trolls broadly interpret patents on old inventions to cover new technology. Most are software patents; on average they are 12 years old and many are vaguely worded. It is not clear exactly what they cover, but if you are sued, your choice is to pay up or to engage in uncertain and expensive litigation. Trolls will continue to be a problem until most of these patents are eliminated or made invalid. Legal scholars have proposed a number of reforms that would help, including eliminating software patents, narrowing the way patents are interpreted, and charging higher fees to keep old patents in force. Most likely, a combination of such reforms will be needed to undo years of bad patents.

Unfortunately, many of the political interests who opposed patent reform in the past are also critical of today's far-reaching proposals. For example, the White House has proposed expanding the rules that facilitate challenges to financial patents more broadly to include “computer-implemented” inventions, that is, software patents. Senator Schumer has introduced a similar proposal. But some of the firms that make money from software patents are not happy about that. For example, Microsoft is eager to limit frivolous lawsuits by patent trolls, but is opposed to this proposal that might challenge software patents. Horacio Gutierrez, a deputy general counsel at Microsoft, warns it would put at risk “jobs and innovation in the technology and manufacturing sectors of the economy.” Microsoft is currently defending over 50 patent troll lawsuits, but Microsoft also earns hundreds of millions of dollars licensing its software patents, much of that from makers of Android smartphones.

Congress has just returned to Washington after its summer break. Patent problems certainly won't top the agenda, with Syria in the news; but they won't be ignored, either. "Patent trolls" have been brought up in six separate bills in the House and Senate. Many reformers believe the coming year is the best chance yet for taking action on this issue.

And there is little doubt that the political balance has changed since the last patent reform effort. Indeed, David Kappos, former head of the Patent Office and now a patent lawyer in private practice, complained recently about the “mob atmosphere” affecting Congress. This time the political negotiations are not taking place just among patent lawyers from companies that make money from patents. And the final outcome may depend on whether that “mob” goes home or, instead, grabs their pitchforks. Even if the anti-troll forces are not yet strong enough to prevail now, the growing troll activity, targeted at small business, will only strengthen the call for real reform.

James Bessen is a Lecturer at the Boston University School of Law. He is co-author of "Patent Failure: How Judges, Bureaucrats, and Lawyers Put Innovators at Risk" (Princeton 2008) and several studies of patent trolls.