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.

The Huge Challenge of Litigating Content Posted Online

Barbra Streisand House -- the "Streisand Effect"
The "Streisand Effect": Barbra Streisand's Malibu compound.
The “brave new world” of the Internet and social media is having interesting side effects. One of these is the heartburn that some companies are feeling as unflattering portraits of their inside operations are painted, or other types of gossip are published for all the world to see.

In a recent example of this, we’ve had a chance to see how it’s playing out with Mechanical Dynamics & Analysis, an engineering services firm that repairs turbine generators. In court papers filed in U.S. District Court in St. Louis a few weeks back, it alleges that the Sound Off blog defamed current and former officers of the company. It also alleges that the blog revealed confidential company information.

The Sound Off blog doesn’t shy away from its mission. At the top of its masthead, it trumpets: “What we cannot say at the office, we can say here.” The postings in question pinpoint certain MD&A executives and reveal salary levels (that may or may not be accurate).

Another blog post reports that a former executive of the firm made a cool $4 million from the sale of the company.

Other posts just sound snippy. For example, there’s one that opines that one of the company’s officers “has two faces” – one “charming and cordial” … the other that of “a low-life crooked bastard.”

MD&A is asking the court to order Google to disclose the identity of the author(s) of the posts, after having unsuccessfully requested that Google remove the blog.

What are the chances of success of this legal action? Probably not very good.

For one thing, the U.S. District Court may lack jurisdiction because defamation cases can only be brought in federal court when the plaintiffs and defendants live in different states. As this point, there’s no way of knowing where the people who authored the anonymous blog posts reside … so it’s impossible to determine whether the suit should be brought at the federal or state level.

Also, the dates on the blog posts are all in the year 2006, which means that the statute of limitations in Missouri would come into play. But is it possible that the posts were backdated? That might be the case, because the creator of the blog has supposedly been on Blogger, the Google-owned blogging service platform, just since 2008.

The bottom line on all this: It’s quite murky.

And then there’s the issue of confidential data. The company alleges that the blog posts contain confidential information about its executives. But that information is then repeated in the court papers filed in the case. That makes it part of the public record – hence blunting the charge that publishing this confidential information was so horrible or damaging in the first place.

I have a feeling that this lawsuit isn’t going to get very far. That’s kind of a shame, really, because it’s pretty stinky when supposed corporate “dirty laundry” is aired in this fashion. Often, the allegations are hyped way beyond the reality of the situation. In almost every instance, there are two sides to the story – one of which gets short shrift (or no shift at all) in the online postings.

Alas, companies had better get used to the “transparent everything world” in which we live today. And it’s good to heed the warning of TechDirt’s technology blogger Mike Masnick not to become a victim of the “Streisand Effect.”

What’s that? It stems from a multi-million dollar lawsuit brought by Barbra Streisand to remove a photo of her house from the Internet. Not only did her suit fail … it brought far more attention to the photo than if she had ignored the whole thing in the first place.