President Obama announced earlier this month a set of executive actions directed at cracking down on patent-holding firms that interfere with competition and abuse the patent system.

The Wall Street Journal reports that these “patent trolls” are forcing technology companies, financial institutions and others into costly lawsuits to protect their products by collecting large numbers of patents and then pursuing licensing fees while not actually producing any products themselves. Many technology companies have dealt with multiple lawsuits from so-called “patent trolls,” which aim to make money primarily through licensing fees.

These firms, also known as non-practicing entities (NPE) or patent assertion entities (PAE), say they are doing nothing wrong, just using patents that were legally granted by the U.S. Patent and Trademark Office. They say they promote a fair market by protecting smaller inventors.

Obama has constructed a five-step plan with a total of seven legislative changes, which will be released as part of a White House report on patent trolls. The plan includes a recommendation that the U.S. Patent and Trademark Office create rules that require patent owners to be identified and a request for Congress to pass legislation that puts sanctions on questionable lawsuits filed by patent-holding firms.

Additionally, Obama hopes to cut down on the International Trade Commission’s involvement in patent disputes. Claims filed with the ITC are often resolved more quickly than standard federal lawsuits. The Obama administration would like Congress to change certain ITC legal standards and ensure that the agency has flexibility in hiring its judges. Officials say that the President will order a review of existing procedures at the ITC. Reliance on the ITC has not been limited to patent trolls, as a number of technology companies such as Apple, Samsung, and Google have increasingly used the International Trade Commission to settle a number of patent disputes. The so-called “Smartphone Patent Wars” have ballooned in recent years and today, several major companies spend more on patent litigation and defensive acquisition than on research and development.

According to President Obama, patent-holding firms are a drain on progress. The firms, he says, “don’t actually produce anything themselves. They’re just trying to essentially leverage and hijack someone else’s idea to see if they can extort some money out of them.”

The US patent system is meant to reward Americans for their hard work, risk-taking and creativity and encourage innovation and invention. But in recent years, there has been an explosion of abusive patent litigation designed not to enforce intellectual property rights, but to threaten companies in order to extract settlements costing the economy billions of dollars.

According to the White House blog, in the last two years the number of lawsuits brought by patent trolls has nearly tripled, and account for 62% of all patent lawsuits in America. All told, the victims of patent trolls paid $29 billion in 2011, a 400% increase from 2005 — not to mention tens of billions dollars more in lost shareholder value.

It’s a problem not limited to wealthy multinational corporations and venture capitalists, but small business owners as well. Businesses of any size are vulnerable to these tactics. The White House estimates that last year patent trolls sent out over 100,000 demand letters, threatening everyone from Fortune 500 companies to corner coffee shops and even regular consumers to pay a settlement or face a day in court.

Obama’s initiative will help protect against frivolous litigation, and deter patent trolls from simply racking up licensing fees through the threat of litigation. This firm will be closely watching the bills being introduced under Obama’s plan as it will greatly affect the number and type of patent litigations that can be brought by these NPEs.