New Hampshire Bar Journal
2011 Fall, Pg. 40.
PATENT TROLLS WHO, WHAT, WHERE and HOW TO DEFEND AGAINST THEM
New Hampshire State Bar JournalVolume 52, No. 3Fall 2011PATENT TROLLS WHO, WHAT, WHERE and HOW TO DEFEND AGAINST THEMBy Christopher T. Vrountas, Richard S. Loftus, and Cori Phillips Palmer"Trip trap trip trap," went the bridge Who's that tripping over my bridge!" roared the Troll
The rising tide of patent litigation has threatened to swamp businesses of all sorts, including those not traditionally considered to be within the "high technology" sector Restaurants, hotels, publishers and others have recently faced unexpected demands from "patent trolls" to pay substantial royalties for using what has become basic technology (such as website search engines, searchable data bases, or wi-f internet connections) or face the daunting prospect of defending a patent litigation suit potentially a continent away from the company's home offce. Trolls and the litigation they spawn have become the subject of bipartisan concern in Congress, and have led to the recent passage of the America Invents Act which was developed in part to mitigate the negative economic effects patent troll litigation can have on the economy and on innovation generally This article will review the "patent troll" phenomenon, the developments in the U.S. patent laws that contributed to its occurrence, and the recent reform enacted to address it. Finally it shall briefy discuss how a company should respond to a demand from a purported patentee seeking payment of a license fee.
WHAT IS A PATENT TROLL?
What is a patent troll? The very term conjures a Grimm's fairy tale image of a hunched and hungry monster who lays in wait under a bridge to catch unsuspecting and innocent passers-by Indeed, the Grimm image is often not far from the fact. Typically a patent troll is a company that does not create products, but purchases patents from bankrupt entities or other companies that hold patents but no longer actively use them. The patent troll (euphemistically referred to as "non-practicing entities") may never intend to put the inventions claimed in its patents into practice, or to make or manufacture anything at all. Rather, the troll's business model typically involves threatening litigation against potential infringers and collecting any royalties they can extract through such threats.
Patent trolls operate by hoarding as many patents as possible with the goal of obtaining broad patents in an essential technology. With such patents, the patent troll searches for companies that could potentially be infringing. After assembling its patent portfolio and identifying its targets, the troll serves its demand letters to hosts of businesses, alleging that they may be infringing its patents and that they can avoid litigation only by paying a "reasonable royalty" or "licensing fee" that will be available for "a limited time." Often, these demand letters are short on specifcs yet they may make very broad claims.
On occasion, a patent troll may fle suit based on a vaguely worded and potentially invalid patent.(fn1) It is not necessary however, for the troll's suit to have a reasonable likelihood of success for the troll to have a reasonable expectation of success. Patent trolls with weaker patents often target small companies that cannot afford the legal fees required to defend a patent infringement matter in court. These companies frequently opt to pay the demanded license fee rather than defend to avoid the expense of litigation that could dwarf the amount of the demanded license fee. Not surprisingly trolls will use the license fees collected from smaller entities to fund litigation against larger alleged infringers.
The Eastern District of Texas has become a frequent venue for patent infringement matters, especially those brought by patent trolls. The venue has the reputation for an expeditious "rocket docket," and has a history of verdicts in favor of patent holders. Although the venue in the Eastern District may not be convenient for many defendants in any given case, patent plaintiffs often seek to maintain this venue by joining so many defendants that no other forum could be claimed as more convenient.(fn2)
One matter ftting within this profle involves over 300 retail and hospitality industry defendants sued by Geotag, Inc., in the Eastern District of Texas.(fn3) Defendants include Starbucks, Barnes and Noble, Best Buy and McDonald's, and other companies scattered throughout the entire United States. These defendants, like many other targets of patent trolls, have been forced to defend themselves in the Eastern District of Texas against Geotag's claim that the store-locator function on the defendants' websites allegedly infringes a search technology patent held by Geotag.
While Geotag has targeted customers for this technology, other suppliers of this technology including Google and Microsoft, obviously have a signifcant stake in the outcome of the litigation and have accordingly fled a separate declaratory judgment action against Geotag in Delaware. The suppliers seek, among other things, to invalidate the patent at issue and to stay the Texas claims pending the Delaware litigation.(fn4) Meanwhile, the cases against most of the original defendants remain pending in the Eastern District of Texas.
Another example of patent troll litigation against the hospitality industry includes a string of lawsuits fled by Innovatio IP Ventures, against multiple defendants including Panera Bread and various hotels.(fn5) Innovatio essentially claims that businesses providing "hot spot" wireless networking capability to customers infringe on a series of patents it claims to hold.
Innovatio has also been engaged in campaign of sending demand letters to numerous businesses seeking quick payment of licensing fees in lieu of litigation. Similar to the pattern in the Geotag litigation, the large providers of the service or product at issue (in this case Cisco and Motorola) have fled a separate action against the Innovatio IP Venturesl in another court, seeking, among other things, invalidation of the patent at issue, while the cases against the customers of such suppliers continue. Numerous cases brought by Innovatio are pending.
PATENT TROLL LITIGATION
The term "patent troll" first came in use in 2001, when it was coined by Peter Detkiin, then Assistant General Counsel to Intel, to describe TechSearch, a patent holder and plaintiff that had sued Intel for patent infringement. Detkin referred to the plaintiff as a "patent extortionist," a comment that led to even further litigation. Somewhat chastened by the objection to the term "patent extortionist," Detkin asked his young daughter how she would describe someone who operated like the plaintiff had in his case. She said that it sounded like a troll under a bridge, and thus out of the mouths of babes the term "patent troll" was born.