Nailing the ‘Trolls’

Gregory A. Piccionelli

It seems like there is nothing that Republicans and Democrats in Washington D.C. agree on these days. The partisan chasm dividing the parties has practically petrified the lawmaking process in Congress. But amid all the rancor and differences, there is one issue that has not only inspired bipartisan agreement, but has surprisingly motivated both parties to actually cooperate with each other. Even more surprising, is the fact that many Democrats, including the president, and many Republicans are on the same side of this issue with ... brace yourself ... most adult entertainment companies. What could possibly bring together bitter partisan foes and, of all things, the adult entertainment industry? The answer is that most amazing of bedfellow makers, the “patent troll.”

Patent trolls are companies that make money from the enforcement of patent rights rather than from developing or selling products or services based on the patents they own. These companies, also known as patent assertion entities (PAEs), often amass large patent portfolios of hundreds, or even thousands of patents that they then enforce against companies through patent infringement lawsuits or the threat of such actions.

As a result of the broad and widening scope of companies affected by the activities of PAEs, diverse interests have been lobbying Congress to do something to reign in the activities the patent trolls.

Patent trolls exploit the fact that patent infringement is a serious legal matter. Under U.S. law, patent infringement occurs when a party, without a license or other authorization from a patent owner, uses, manufactures, imports, sells or offers for sale, the patented invention during the term of the patent within the U.S. For example, if a company provides an online service, such as providing live or recorded entertainment, and the service uses one or more patented computer applications or computer-based business methods, without an appropriate patent license, the company may be liable for damages resulting from the infringement of one or more patents.

In many cases patent infringement damages can be quite substantial. In fact, when it comes to damages for patent infringement, pretty much the sky is the limit. Patent damage awards over $10 million are common, and larger awards have ranged as high as the $1.5 billion award to Lucent Technologies in a patent infringement suit against Microsoft (Lucent Technologies, Inc. vs. Gateway Inc. and Microsoft Corp.).

For the unfortunate companies that are targeted by patent trolls, responding to their lawsuits or threats of lawsuits is almost always a costly matter. And it’s easy to see why. Mounting a defense against a patent troll, even if the defendant is in the right and has never infringed the patent in question, is an expensive undertaking. One critic of patent trolls estimates that the average cost for small and medium sized companies to defend against a patent infringement action brought by a patent troll to be approximately $1.75 million. Making matters worse for a company accused of infringement is the fact that under current law, legal fees spent defending a patent infringement lawsuit are not generally recoverable if the defendant prevails. In fact, even if a defendant is successful in convincing the court to rule that the patent claims asserted by a plaintiff are entirely invalid, the defendant is still unlikely to get any reimbursement of attorneys fees unless the defendant can show that the patentee committed fraud on the patent office, which is rare and very difficult to prove.

Also, there are a lot fewer defenses to patent infringement than there are for other types of intellectual property rights violations. Unlike copyright infringement actions, for example, which provide defenses for the fair use of copyrighted material by non-owners for purposes such as parody and commentary, there are no such exceptions to the intellectual property rights monopoly granted in a patent. If a party, even innocently, infringes a patent, they are generally liable for damages, period.

The cost of defending a patent infringement action, and the general unavailability of reimbursement of attorneys fees if the defense is successful somewhat stacks the legal deck in favor of patent owners or those engaged to enforce them, such as patent trolls. This enables PAEs to often force a lesser of two evils choice onto a company accused of infringement, that is, to either pay an exorbitant patent licensing fee to the patent troll or pay for costly litigation to defend the matter in court.

Given the foregoing, it is not surprising that patent enforcement by PAEs has become a very successful business model. According to a White House report published in June, patent actions brought by PAEs have tripled in the last two years and now account for 62 percent of all patent infringement suits. The report entitled “Patent Assertion and U.S. Innovation” also estimates that PAEs may have threatened over 100,000 companies with patent infringement in 2012 alone.

Patent enforcement actions by patent trolls against online businesses in particular are also expected to increase at an accelerating rate over the new few years because of a very large and growing number of recently issued domestic and foreign patents pertaining to technologies that are used in providing online services, such as entertainment. These include patents directed to online content distribution technologies, webpage navigation methods, video clip previews, affiliate marketing programs, live videoconferencing technologies, geo-marketing, geo-tracking, haptics, virtual worlds, and almost every other technology and business method used by online entertainment businesses today, or likely to be used by them in the near future.

It is not surprising that the activities of patent trolls have provoked a strong negative, and often vitriolic, response from many quarters. Those critical of the activities of patent trolls often claim that the PAEs intimidate and wrongly exploit businesses by asserting patent rights based on dubious or overly broad patents. Many critics of patent trolls also believe that their activities stifle innovation and hurt the economy.

As a result of the broad and widening scope of companies affected by the activities of PAEs, diverse interests have been lobbying Congress to do something to reign in the activities the patent trolls. In response, the so-called “Do Nothing Congress” is now considering no less than five separate pieces of legislation to combat what some legislators have called the “plague” of patent troll litigation. The following is a brief summary of the pending antipatent troll legislation.

• The SHIELD Act, H.R, 845. This bill, formally titled the “Saving High-Tech Innovators from Egregious Legal Disputes (“SHIELD”) Act” was introduced by Peter DeFazio (DOr) and Jason Chaffetz (R-Ut). If enacted it would institute a mandatory attorneys fees reimbursement that would require the loser in a patent infringement action to pay, but only if the loser is a patent troll. H.R. 845 is available at: http://www.gpo.gov/fdsys/pkg/BILLS-113hr845ih/pdf/BILLS-113845ih.pdf.

• The Patent Abuse Reduction Act, S.1013. This bill, introduced by John Cornyn (R-Tx), would substantially change the litigation of patent troll lawsuits making it more difficult to file such actions. The bill would, for example, impose tougher requirements for the plaintiff to plead infringement by requiring, for example, a complaint to identify on an element-by-element basis why the accused product or process infringes specific claims in the plaintiff’s patent. The Patent Abuse Reduction Act, S.1013 is available at: http://www.gpo.gov/fdsys/pkg/BILLS-113s1013is/pdf/BILLS-113s1013is.pdf.

• S.866. Under current law a party charged with the infringement of a business method patent relating to a financial product or service can petition the U.S. Patent and Trademark Office to review the validity of the patent at issue. S.866, introduced by Senator Chuck Schumer (D-NY) would substantially broaden the scope of the types of business method patents subject to post issuance review and possible invalidation by the USPTO to any one that relates to “an enterprise, product or service”. S.866 is available at: http://www.gpo.gov/fdsys/pkg/BILLS-113s866is/pdf/BILLS-113s866is.pdf.

• The End Anonymous Patents Act, H.R. 2024. This bill, introduced by Ted Deutch (D-Fla) requires that a patent owner and each other real party in interest to disclose its identity to the USPTO at certain times during the life of patent, and to record each transfer of patent ownership. Patent infringement damages would be limited only to those incurred after full compliance with the bills requirements. The End Anonymous Patents Act, H.R. 2024 is available at: http://www.gpo.gov/fdsys/pkg/BILLS-113hr2024ih/pdf/BILLS-1132024ih.pdf.

• Anti-Patent Troll “Discussion Draft.” A discussion draft for the introduction of a fifth antipatent troll bill has been circulated by Senator Patrick Leahy (D-Vt.) and Congressman Bob Goodlatte (R-Va.). The discussion draft would adopt a combination of anti-PAE measures found in the bills discussed above and would also add some additional anti-patent troll provisions. If the discussion draft becomes pending legislation, it will be by far the most comprehensive and far-reaching anti-PAE bill so far.

A final note: While they operate a perfectly legal business model, patent trolls have attracted an unusually large amount of criticism from an unusually broad spectrum of companies and other concerned parties. But leaving aside the legitimate questions of whether they stifle innovation or whether they are nothing more than a legal shakedown operation, one thing is for sure, patent trolls are likely to be around for some time, regardless of what steps Congress takes to reign in their activities. Consequently, if you are contacted by a patent troll, are served with notice of a patent lawsuit against you or your company, or if you receive a threatening letter that alleges or intimates that you or your company are infringing patent rights, you should immediately contact experienced patent counsel regarding the matter. Simply ignoring a legal summons or any other threatening communication from a patent owner is never a good idea. Failure to respond to a lawsuit can result in a default judgment, and continued infringement after notice could result in a trebling of damages awarded to the patent owner.

This article is not intended to be, nor should be considered to be, legal advice.

Gregory A. Piccionelli is an entertainment and Internet attorney and free speech advocate. He can be reached at (818) 201-3955 or greg@piccionellisarno.com.


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