Patent Trolls

Moderated by Rick Badie

Ever heard of patent trolls? It’s a term used to describe individuals or investors who purchase patents with no intent to manufacture or market the product. Rather, they generally sue for patent infringement or try to settle with companies that use the innovations. It’s a growing trend that today’s guest writers say cripples creativity and exerts a financial toll on small businesses.

Patent trolls restrain innovation

By Tino Mantella

An elementary schoolgirl named Suzy set up a lemonade stand in her parents’ front yard.  Each glass was sold for 50 cents. At the end of her sales, she made $12.50.

But what if Suzy was forced to shut down because a law firm sent her a letter demanding 75 cents per glass of lemonade sold because the technology she used for payment, including emailing a copy of each receipt to her customers, was under a so-called “patent?” Outrageous as that may seem, this type of practice is happening everyday as “patent trolls” target Georgia small businesses and organizations.

As a technology organization, our goal would never be to stifle innovation and technology growth. We understand firsthand the need to safeguard true innovative products and new technology inventions. But with little protection against patent trolls, often resulting in settlements totaling millions, it’s difficult to stand by while small businesses are forced to close or pay fake companies with no truthful, new innovation.

More formally known as Patent Assertion Entities, patent trolls are people or shell companies that enforce patents — their only assets — for the sole purpose of filing lawsuits. These shell companies have no employees, assets or products. They only hold “patents” and sue for their patent rights. These patents are typically vague and overly broad and hurt business owners.

A recent Boston University School of Law study, “The Direct Costs from Non-Practicing Entity Disputes,” shows that in 2011, patent trolls cost the American economy $29 billion. What’s more, a huge number of patent lawsuits were patent trolls against small businesses. In her paper, “Start-ups and Patent Trolls,” Professor Colleen Chien of the Santa Clara University School of Law reported that “companies with less than $100 million annual revenue represent at least 66 percent of defendants in troll suits, and that at least 55 percent of those defendants make $10 million per year or less.”

This is proof that the number of outrageous patent cases is on the rise. Patent trolls target small business around the country. We have seen a growing number of cases in Georgia. It’s time for Washington to take the lead against the patent troll epidemic for the sake of innovation and good of our nation’s entrepreneurs.

Our elected representatives in Washington  have begun to take notice. Their support reflects a bipartisan desire to take action and challenge these patent trolls with solid regulations. Earlier this month, the White House issued five executive actions and seven legislative recommendations designed to protect innovators from frivolous litigation and ensure the highest-quality patents in our system.

I am proud our leaders in Washington are making progress to improve patent quality and prevent litigation abuse. But business owners and technology innovators must continue to drive efforts for patent troll awareness to ensure that the patent system is not taken advantage of in a way that restrains innovation.

Tino Mantella is president of the Technology Association of Georgia.

Atlanta entrepreneurs experience patent trolls

By Jon Potter

Atlanta’s tech start-up community has a lot to be proud of. Companies are emerging from Georgia Tech, being nurtured in communities like Hypepotomous and Atlanta Tech Village, getting funded locally. Unfortunately, success can also result in high-class problems. Atlanta entrepreneurs have recently begun experiencing the scourge of patent trolls, just like their industry colleagues in Silicon Valley and  New York.

Patent trolls — or Patent Assertion Entities, as they prefer to be called — operate unusual businesses. They do not create products or provide services. They typically own a handful of poor-quality patents that do not support real products or operating businesses. They hire lawyers to scour the country for “targets,” whom they offer a deal that is hard to refuse: License our patents for several thousand dollars and a percentage of future revenue, or spend hundreds of thousands of dollars defending a patent infringement lawsuit in federal court.

Several trolls are public companies that focus on large targets like Cisco, Motorola and AT&T. But a new class of  has recently started to attack small companies, even pre-revenue start-ups. These trolls finance their operations by obtaining nuisance-fee settlements from small companies. The settlements create the patina of legitimate patents by documenting dozens of licensees and also fund the troll’s focus on larger targets. It’s a business model that’s bad for innovators and entrepreneurs in Atlanta and nationwide.

Recently, one Atlanta-based company fought back against a troll and won. BlueWave Computing was targeted by a prominent troll that claims a patent on technology that converts scanned documents into email attachments. BlueWave’s CEO thought the troll’s original demand letter was laughable, and he ignored it. But when a lawsuit followed, the CEO hired a prominent Atlanta law firm and successfully defeated the troll. It cost tens of thousands of dollars in legal fees.

Unfortunately, the absurdity of a troll’s patent claims usually does not matter because most small companies — including many in Atlanta — cannot afford to pay lawyers and fight back. They simply pay the troll to go away. This is a tax on innovation that threatens Georgia’s vibrant start-up community and burgeoning tech industry.

Last year, the app industry generated more than $1 billion in economic activity in Georgia. Georgia’s app economy is the seventh-largest in the nation, and the tech start-up scene is growing. Investment and energy are destabilized when a single patent troll letter can shutter a company, force it to change business models or scare investors.

Congress is just beginning to pay attention to patent trolls. Georgia Congressman Hank Johnson Jr. is a member of the influential Judiciary Committee that will consider new patent reform laws later this year. If you agree that Congress should stop patent trolls, visit devsbuild.it/fightpatenttrolls and send a letter to your Congressional representative.

Jon Potter is president of the Washington, D.C. based Application Developers Alliance.

 

 

4 comments Add your comment

[...] Patent Trolls (Tino Mantella & Jon Potter / blogs.ajc.com) [...]

MANGLER

July 24th, 2013
1:00 pm

I’ve just patented irrational behavior. You shall all owe me money.

SAWB

July 24th, 2013
12:29 pm

Protecting personal property including intellectual property is one of the legitimate roles of government. Obviously this has become much more difficult as products become more complicated and the actually designs less apparent. I agree that Patent Trolls are a real problem and support discussion on better ways to handle this. However, I’m slow to support new regulation and wonder if current policies could be “tweaked” to better address the issue without creating more layers of bureaucracy that itself stifles innovation.

Dave

July 24th, 2013
11:20 am

Okay, I pretty much agree that something should be done. So what does the new law say? How do you distinguish between a “good” patent and a “troll” patent. Given how Congress operates, or doesn’t operate these days, I’m not so sure I trust it to get it right.