Patent Trolls: Is a Day of Reckoning Finally at Hand?

When the banks get involved … watch out.

patent holding companiesIn recent weeks, I’ve begun reading more news items about legislation being passed to limit the damage so-called “patent trolls” can do to unsuspecting businesses.

These are the bottom-feeding firms which exist only to collect royalty payments and fines from companies due to supposed infringement on patents the firms have purchased.

Many of the victims of these schemes are smaller businesses with fewer than $10 million in annual revenues.

The reasons they’re targeted are pretty obvious:  smaller companies are less able to defend themselves against such charges, and it’s often easier and less expensive to settle out of court — and avoid all the hassles that accompany litigation as well.

But the cumulative impact is pretty enormous.  Patent risk specialist RPX Corporation estimates that it’s nearly $13 billion in legal fees, settlements or judgments.

The University of California’s Hastings College of the Law has also been studying the numbers.  It finds that patent infringement claims against the portfolio companies of venture-capital firms cost an average of $100,000 each to settle.

Predictably, only a smidgeon of the monies collected by these patent-holding companies actually makes it back to the inventors.  The rest goes right in the deep pockets of the people trolling the business world for easy money.

And then …

come down hardThen some patent trolls made the mistake of sending demand notifications to banking firms, related to things like the software used in ATMs.

Oops.  Bad move.

Once the banking institutions got sensitized to the issue,  a lot of legislators did, too.  Funny how that works.

The results are now beginning to show.  In recent months, more states have enacted legislation curbing the ability of patent trolls to make “bad faith” assertions of patent claims.

What is a questionable patent claim?  It’s a claim that isn’t based on any clear evidence of infringement — but instead on vague accusations.

(In other words, these questionable claims represent the vast majority of the notifications delivered to the unsuspecting victims.)

States jumping on the “put the trolls on trial” bandwagon range from New York, Vermont to Oklahoma and Minnesota.  Twelve so far, and the tally will surely increase in the coming months.

One of the interesting twists is the fact that most of new legislation also allows targeted companies to strike back in state courts with their own litigation … against the patent-holding companies themselves.

I guess turnabout is fair play.

Another twist …

Here’s an interesting case where financial institutions – an industry not particularly loved in many quarters – is helping to rout a particularly pernicious and avaricious bunch of businesspeople.

This sort of activity, based not only on any sense of commercial fair play but instead on playing mercantile “gotcha” games, is reprehensible and gives “the business of business” a bad name.

Too, it has to have had a chilling effect on the activities of smaller businesses in particular – especially those who rely on established technologies to create and commercialize new products.

Constantly looking over one’s shoulder to make sure no one is coming after you for something as innocuous as using an e-mail tool on a FAX machine is hardly the kind of environment that fosters innovation.

So let the cheering begin … and no stopping until these trolls are banished back under the bridge.

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