Patent Trolls

When the banks get involved … watch out.

In 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 …

Then 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.

After reading one too many articles about patent issuance failures on the part of the United States Patent and Trademark Office, I’ve come to the conclusion that the USPTO just isn’t able to keep up with galloping technology.

How else to explain its staff lawyers granting patents for applications they have no business authorizing?

And when that happens, the courts have to step in and fix the problem – as in the recent U.S. Supreme Court case overturning the patents of Myriad Genetics on BRCA1 and BRCA2 human breast cancer genes.

Even worse … through ineptitude, completely obvious ideas get patented, inhibiting innovation and keeping beneficial technology out of the hands of the public – which goes completely counter to the USPTO’s stated aims.

One of the USPTO’s doozies that has made it into the news was issuing a patent for scanning a document and then e-mailing it.

That is correct: the USPTO viewed this simple function as a “unique” invention worthy of patent protection.

… Never mind the fact that thousands of people had already “invented” this idea before – but never in their right minds would they have thought it was patentable!

So what happened after patent protection was granted in this case? The patent is now owned by one of those infamous firms that exists only to sue people and extort money from them. In this case, a company with the deliberately innocuous-sounding and forgettable name of MPHJ.

Today, this firm’s legal counsel is demanding $1,000 in licensing fees from anyone who scans a document and then e-mails it.

At least Hewlett-Packard decided to fight back earlier this year, pointing out that it had been selling printers that could scan and e-mail documents long before the patent in question was ever granted.

But why do we even have to go there? Is it really appropriate for a patent to be granted to someone who didn’t really invent anything … nor create a new technology … nor develop a unique engineering design or manufacturing process?

Patenting ideas for computer-related functions and programs as falling under the general category of “business methods” – a dreadful practice the USPTO started allowing about 20 years ago – is partially how we got into this mess.

The unfortunate part is this: There will be major challenges facing anyone who decides to promote patent reform. Too many “patent trolls” and their partner-in-crime attorneys have a vested interest in a current system which – similar to the cyber-squatting industry – enables them to make a tidy sum for very little effort.

Expect these “upstanding corporate citizens” to obstruct any moves to change the system with the same kind of zeal they employ to go after the citizens and companies who are the hapless targets of their extortion efforts.

In fact, a 2012 study commissioned by the Government Accountability Office found that of ~500 randomly selected patent lawsuits that were filed the previous year, nearly 40% of the cases were brought by “patent monetizers” (trolls). And that doesn’t even begin to account for the untold numbers of threatened suits that were settled without going to court.

But I’m pleased to see that several states have taken up the gauntlet in the MPHJ saga. The attorneys general of Nebraska and Vermont have sent letters to the company and its legal counsel, warning them to leave their state residents alone.

Vermont has even passed legislation allowing victims of patent trolls to countersue. Wouldn’t that be a nice turn of events?

Greed is never pretty – but especially when greed is this transparently obvious. It would be nice if the USPTO started contributing to the solution by making some much-needed changes of its own.