Scam artist patent trolls can create major headaches for some companies.
A patent troll is any entity that acquires patent rights and exclusively licenses them for the sole purpose of generating revenue. Typically those entities do not produce the product, nor do they have the technology to do so.
According to Steve Becker, a partner in the law firm of Foley and Lardner LLP’s Milwaukee office, a patent troll will typically acquire the rights to multiple patents and set out on a search for companies that may be using that technology, similar technology, or even a portion of that technology within its products. The troll then sends a letter to the company claiming that the company is infringing on the troll’s patent. The troll offers the company a patent license for the technology in exchange for royalties.
“When a company receives one of these letters, they have to assess the validity of the claim, and weigh their options.” Becker said. “The letters typically mean a trial lawsuit will ensue, and so a company has to weigh the licensing company’s claim and asking royalty against the cost of an impending lawsuit.”
“This is a huge problem for companies like ours,” said David Bates, intellectual property counsel for GE Healthcare. “It’s extortion, and we do face (these problems) on a regular basis, and because of the way the system is set up we can’t possibly keep up. It is definitely an unfair playing field. It can cost several millions of dollars to defend ourselves in some cases. It’s just a matter of fighting on principle when we believe the claim being asserted against us is inept. Even if it costs more money to fight (than to settle), (GE Healthcare) will fight because we don’t want to be seen as a weak target.”
According to Jeff Costakos, partner in the intellectual property and litigation department at Foley and Lardner, trolls will often look at the cost of a lawsuit, and ask for royalties that add up to less than that in order to make it seem like a more attractive option.
To protect themselves from trolls, Costakos recommends that companies be aware of the patents that might affect their product lines.
“Companies can attempt to do a periodic patent search for patents that might be out there, to avoid infringement all together,” he said.
Something that GE healthcare has considered is joining a consortium.
“Companies like Google and probably Intel have joined together to try and buy up all the patents that they think could be used against the companies in the consortium,” Bates said. “Basically the consortiums just take those patents out of the market, and the companies in the consortium are able to retain a license for themselves.”
The federal government has stepped in to also try and level the playing field between trolls and corporations, but according to Bates it hasn’t helped all that much.
“The way it used to be, (patent trolls) could show that a company like GE was infringing on one of their patents, and they could essentially shut down our business. We couldn’t produce or sell our products,” Bates said.
The federal government has stepped in to say that injunctions on production should be decided on a more stringent basis.
“So they have at least managed to take away the hammer they used to have,” Bates said.
More proposed legislation would apply to the damages that are awarded in a patent case.
“There is some pending legislation known as patent reform bills that desire to more narrowly tailor the damages that might be awarded to the creator of the invention,” Becker said. “For example, if an individual creates a computer, and has a patent for that computer, but it is later used in a car, the actual contribution was just the computer, so there would be ‘x’ amount of royalties applied to that contribution.”
According to Costakos, there is a fair amount of controversy associated with that type of reform.
“Not everyone agrees that damages should be appropriated that way,” he said.
“I’m not sure the laws could ever change enough to take away (the troll’s) business model,” Bates said. “Trolls have very little cost of discovery in their patents, they don’t have any products or any exposed revenue, it is just an unfair playing field.” n
