'Patent trolls' could meet their match in the crowd
- 25 June 2013
- From the section Business
You open the letter. It's from a company you've never heard of - and they're threatening to sue you and your company for what seems like an astronomical sum.
Apparently, the flux capacitor you developed that has taken the market by storm - after all, who doesn't want to travel through time - infringes a patent held by another company. And they're not happy about it.
It's hard to finish reading the letter as you picture your nearest and dearest out on the street after your company has gone bankrupt, but you persevere. And there it is - several paragraphs down.
To avoid a ruinous trip through the courts that could take years, all you have to do is send a cheque for $75,000 to the company as a licensing fee.
Feeding the trolls
Congratulations. You may have been contacted by a so-called 'patent troll'. These aren't the kind that live under bridges or abuse people on internet message boards, but are companies also known as non-practicing entities (NPE) or patent assertion entities (PAE).
"Their business model is to buy a patent and then try and monetise that through license fees, and of course if people won't sign licenses then they will assert patent," says James Marshall, a partner at international technology law firm Taylor Wessing.
The patents may not stand up to close scrutiny in court - but the cost of litigation could be prohibitive.
Especially as in the US, the jurisdiction where most of these cases are brought, the winning party won't be able to recover their costs from the people that brought the action, unlike most European jurisdictions including the UK.
"I think a lot of people also feel you've got a more significant random element in some litigation in the US, it's a jury who is going to try it, and it's technically complex and quite difficult for the jury to grapple with some of the issues perhaps. And that's another reason why it's perhaps a more attractive forum for a patent assertion entity," says Mr Marshall.
According to the US government 62% of all patent lawsuits in the country are brought by NPEs, and in 2011 their victims paid out $29bn, a 400% increase from 2005.
This prompted legislation designed to overhaul the patent system, the America Invents Act, in 2011. Plans to introduce further changes intended to tackle what the White House perceives as the problem with NPEs were announced earlier this month.
Trolling the trolls
Not everyone is taking the onslaught lying down.
Article One Partners (AOP) is a crowdsourced patent research company that uses an online community of 27,000 researchers in 170 countries.
To be granted a patent an invention must fulfil a number of criteria - one of which is that the technology is original. Weak patents happen because overworked patent offices have limited resources, and some fall through the cracks.
Many hands in this case make much lighter work. Researchers scour sources for examples of 'prior art' - documents and other evidence that prove that the technology existed before the patent.
In the case of our flux capacitor, this would be Dr Emmett Brown's 1955 drawing and calculations.
"We really want the public to participate more in the patent space at its most fundamental level," says AOP founder and chief executive Cheryl Milone.
Requests are presented in as jargon-free and straightforward way as possible. Community members then go away and search for evidence. Submissions are sorted using an automated system until there is a small number of similar answers, which are looked at manually.
The best answers earn rewards of $3,000 - $5,000. The company has paid out more than $4m so far. Clients include Microsoft, Phillips, Sony and smart thermostat start-up Nest.
Ms Milone is quick to point out that not every challenger is a patent troll.
"I believe in the patent system. I believe very strongly that individual innovators should have patents so that they can protect themselves," she says.
"The most important thing to do in defending in litigation is to understand from a fundamental level, is this a good patent? If it's a good patent it should be settled and the patent owner should be compensated."
"[But where it is] a low quality patent, you can put a piece of evidence in front of the patent owner and say look, go away."
With this in mind, AOP is embarking on a project aimed at opening up some of their database to create an online repository for small companies and start-ups who have received demands from NPEs.
"We have data, we have it readily available, we can put it in the hands of people against that complaint. We're just stepping up to do our part and contribute to the problem," says Ms Milone.
She advises small companies to approach threats aggressively, and educate themselves about the patent process. Finding others who have been targeted through organisations like Appsterdam is also a good idea, as you can then pool resources.
"You have a [legal] representative go right back to the patent owner and you say, look, we've got this document. If you want to move ahead, not only will you lose this case but you're going to lose this patent," she says.
"If they lose based on the validity of the patent, all rights are extinguished."
Head to head
Cloud computing specialists Rackspace are among the tech companies meeting the NPEs head on in court.
"We are defending a number of...cases. And these by and large are patents that were on technology that already existed when the patent was granted or when it was filed, so we think they are all invalid," says the company's general counsel Alan Schoenbaum.
"They are broadly written, hard to understand and based on our analysis from our engineers and lawyers we don't infringe."
"We decided enough is enough, we are going to take advantage of a new law that was passed in 2011 under the American Invents Act which allows us to go to the patent office and have the patent office take another look at their patents," he says.
"In that way, they are at risk if we invalidate the patent - then you are out of business for that particular patent. It takes them out."
The company has already had one victory. A lawsuit filed by an NPE called Uniloc was dismissed in March.
"[They] claimed to have the right to any computer function that allowed for a floating point decimal calculation, which is pure math," says Mr Schoenbaum.
"If you round up or round down a number based on a mathematical calculation, they said they owned that, and we have to pay them a royalty or license for that, which is ridiculous."
The court agreed, finding that the patent was a mathematical formula and as such invalid.
Mr Schoenbaum blogs regularly about what has become something of a crusade, pointing to the fact that this litigation costs the economy around $29bn, according to a study by researchers at Boston University.
"Over 80% of the companies that are hit with these suits are small, less than $100m in revenue. It's a serious drag and it really impairs our competitiveness with other countries," he says.
Unsurprisingly, the NPEs don't agree. One company involved in another case with Rackspace has defended itself against the charges, claiming they are merely defending their client's rightful interests. And the head of Intellectual Ventures, another NPE, robustly defended their strategy at a conference last year.
This type of litigation is not only expensive, it's slow, taking on average two to three years to grind through the courts.
"We consider it to be one of the most stifling phenomena in technology today," says Mr Schoenbaum.
"It is really hard on developers, it's hard on small businesses, it creates a lot of perverse incentives, it takes up a lot of time, it is a drag.
"I mean, there is almost as much money being spent defending and settling these troll cases as being spent in R&D - no kidding, it's crazy."