Patent Trolls—the Malpractice Lawyers of the Tech Sector

The term “troll”, was heretofore considered in the context of a Grimm’s fairytale such as The Three Billy Goats Gruff. However, its current meaning relates to the technology sector and describes no less a villain than the trolls of Norse mythology and Scandinavian folklore.

The Patent Troll Defined

In general terms, a patent troll is a person, business or corporation that perverts the use of patents as a business model or strategy. The patent troll can be described in one or more of the following ways:

1. Patent or patents are purchased or otherwise acquired from struggling or bankrupt firms and then suit for patent infringement is brought against a company under the guise that the company has a product or products that infringe on said patent or patents.

2. Patent or patents are enforced against alleged patent infringers, even though the enforcer has no intent to utilize the patent

3. Acts as a patent enforcement boiler room having no manufacturing or research function to call its own

4. Exists for the sole purpose of enforcing the patents it has acquired

Why Is This Bad?

Isn’t there something inherently evil in lying in ambush for a business to infringe on patents which would otherwise contribute nothing to society? More to the point, these infringements are not typically the result of a company’s overt act of patent theft. It is much more likely that the company developed the technology independently, with no prior knowledge of the patent.

I would argue that these patent trolls are nothing more than shakedown artists, akin to the protection rackets which exploited small businesses in the first half of the twentieth century.

Paraphrasing Mike Mesnick’s article in Techdirt, we see a company by the name of Innovatio IP who claims ownership of patents that its lawyers believe cover virtually every aspect of Wi-Fi implementation. As a result, these malpractice lawyers of the high technology world are suing coffee shops, hotel and fast food chains for—yes, patent infringement.

Obviously these are soft targets for these vultures … I mean attorneys. Such enterprises have no experience in patent infringement litigation but, as it turns out, Innovatio IP’s attorneys are all heart and are agreeing to settlements in the $2300 to $5000 range. Whew! Let’s put a pencil to that.

McDonald’s has 11,500 restaurants with free Wi-Fi for its customers and the overwhelming majority of these restaurants are a franchise, which means they are privately owned by the way.

Then 11,500 multiplied by an average settlement of, well, let’s be conservative and say $3000, will yield Innovatio IP a gross settlement of $34.5 million. Of course the vultures … I mean the lawyers, will take their cut, which even at 40 percent leaves Innovatio IP a cool $20.7 million in the black. Oh yes, mustn’t forget—that’s just from MickeyD’s. Then, they can move on to Starbuck’s, Caribou Coffee, Comfort Inn, etc. The firm has no immediate plans to go after homeowners who have Wi-Fi (how comforting).

It easy to understand why venture capitalist and blogger Fred Wilson tweeted the following:

“Just in case you didn’t know how I feel: patent trolls are a tax on innovation and are evil of the highest order”

Compulsory Patent Licensing

One solution under discussion is compulsory patent licensing. Under such a system, the owner of a patent must license the patent to third parties in exchange for a set payment which would be determined by law or by arbitration.

While this approach would effectively de-fang the patent trolls, there may well be unintended consequences more troubling than the current one.

There is a superb white paper on the subject co-authored by Carol M. Nielsen and Michael R. Samardzija, both of whom are practicing attorneys and recognized experts in patent and intellectual property law. I highly recommend it for anyone interested in learning more on the subject.

Big Brother Shows Interest

On the heels of President Obama’s issuance of several executive orders, which direct executive agencies to take steps to “protect innovators from frivolous litigation”, Edith Ramirez, chairwoman of the Federal Trade Commission, announced plans to seek the full commission’s authority to subpoena companies that are known to be patent-assertion entities (yep—patent trolls). These companies will be queried on their methods of operation, how and if they coordinate litigation with other patent holders and whether the proceeds of successful litigation and/or licenses are paid back to the original patent holder.

Next, we will discuss the economic havoc patent trolls caused targeted companies and the broader havoc these trolls perpetrate on our economy and innovative spirit.

Photo credit to Adrienne Yancey and opensource.com via Flickr.