Tag Archives: patent trolls

Texan judges and juries can’t hold high tech hostage any more

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Goodbye to all that.

A particularly pathological cottage industry in east Texas is coming to an end, much to the delight of high tech entrepreneurs, and they have a low tech court case to thank for it. The federal supreme court ruled that patent trolls can’t go shopping for the most easily bamboozled judges and juries, but instead have to file law suits in the home state of the companies they’re trying to shake down.

According to a story in the Hill, the decision came in a case where Kraft – decidedly not a troll – tried to sue an Indiana-based company, TC Heartland, over water flavoring technology in a Delaware-based court…

The ruling will have broad implications for patent lawsuits, which are frequently moved to certain districts that have a track record of being favorable to patent infringement claims.

In delivering the court’s opinion, Justice Clarence Thomas wrote that much of the decision hinged on the word “resides,” which the court found to mean state of incorporation. Thomas wrote that because of this interpretation, updates to the rules by Congress did not change a 1957 Supreme Court decision that had previously found that patent suits must take place in the targeted company’s home state.

Though the TC Heartland and Kraft case focused on a disagreement between whether the case should take place in Indiana or Delaware, 40 percent of all patent suits are filed in east Texas. Ninety percent are brought in by “patent trolls,” or companies that hold patents but do not manufacture or produce anything, according to the Stanford Law Journal.

The decision hits trolls and the east Texas predatory bar that serves them, but it will also impact communities there. Big corporations, such as Samsung, have focused community relations dollars on east Texas, in the hope of building friendly relations with potential future jurors. Samsung might be able to afford to waste money on such endeavors, but few others can. The court’s ruling isn’t the end of the war against patent trolls, but it is a decisive battle.

Patent trolls come in two sizes, FTC says

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Watch out for the little one.

It’s the small patent trolls, the kind cultivated by the predatory bar, that cause the most problems for entrepreneurs and other small businesses. Not problems with million dollar price tags or even vaguely legitimate claims. Just the most problems.

That’s the conclusion of a study by the Federal Trade Commission that looked at what it politely calls “patent assertion entities” (PAEs) and what anyone else – at least anyone who’s actually tried to create something – calls patent trolls. The FTC thinks it’s unhelpful to characterise them as trolls but, hey, they’re paid to be bureaucratically correct.

According to the FTC, there are two flavors of trolls, I’m sorry, patent assertion entities: portfolio PAEs and litigation PAEs. Both prey disproportionately on the tech sector. The portfolio trolls are the big boys. They have massive files full of marginal but arguably enforceable patents, and might well include among their investors honest businesses, like manufacturers, that are trying to manage risks. Okay, maybe trying to take a bite out of competitors too. They’re picking on kids their own size: mutually assured destruction might not be the most morally palatable strategy but it got us through the Cold War without the U.S. and the Soviet Union nuking humanity back to the stone age. It sucks, but it works.

Litigation PAEs, on the other hand, don’t generate as much money – only 20% or so of the $3.2 billion identified by the study (although that’s still a lot of money) – but they wreak the most havoc, going after bushels of small fry who can’t afford to fight…

The licenses typically yielded total royalties of less than $300,000. According to one estimate, $300,000 approximates the lower bound of early-stage litigation costs of defending a patent infringement suit. Given the relatively low dollar amounts of the licenses, the behavior of Litigation PAEs is consistent with nuisance litigation.

These mosquitoes of the digital age fly quickly, shuffling handfuls of patents between shell corporations and dodging attorney fee judgements as they buzz away in search of their next victim. The FTC has measured recommendations for congress and the federal courts to consider – all a good start, but control is a half measure. Eradication is the answer.

Patent Assertion Entity Activity: an FTC Study

Information can’t be stopped and frisked at the border, federal court rules

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Internet data is not a material thing. That was the ruling from a federal appeals court in Washington, as it told the International Trade Commission – a federal agency involved in policing intellectual property disputes, among other, um, things – to stay out of the business of trying to regulate international Internet traffic

The Tariff Act of 1930 provides the International Trade Commission (“Commission”) with authority to remedy only those unfair acts that involve the importation of “articles”…Here, [the ITC] concluded that “articles” “should be construed to include electronic transmission of digital data…” We disagree.

[The ITC’s] decision to expand the scope of its jurisdiction to include electronic transmissions of digital data runs counter to the “unambiguously expressed intent of Congress.”

“We begin with the text of [the statute].” Here, it is clear that “articles” means “material things”…

We recognize, of course, that electronic transmissions have some physical properties—for example an electron’s invariant mass is a known quantity—but commonsense dictates that there is a fundamental difference between electronic transmissions and “material things.”

The case at issue involved a U.S. company that was sending images of dental patients’ teeth to an affiliate in Pakistan, where custom orthodontic appliances were designed and then transmitted back to a 3D printer in the U.S. In the process the company infringed someone else’s patent, according to the ITC. The remedy was “to order [the company] to stop electronically importing digital models into the United States”.

It’s an obscure dispute, but it has huge implications. Under the ITC’s logic, it could block the transmission of any international data that it believed violated someone’s intellectual property rights. That would have left global Internet traffic to the tender mercies of the predatory bar and patent trolls.

Luckily, two federal judges thought otherwise. But the dispute might not be over: the decision could be appealed to the supreme court. The dissenting judge on the panel offered a possible line of attack…

It is reported that the elusive Higgs boson, a fundamental particle of matter, has been detected by observing its effects. By the same laws of physics, digital matter is most readily observed in its effects. The panel majority’s ruling that such matter is not “material” is contrary to the law of the courts, the Customs agency, and the Commission.

The Higgs boson is the particle that gives other particles mass. It would be ironic if it also gave weight to the idea that information can be blocked, censored or otherwise regulated as if was just cargo in a ship’s hold.

Patent troll fight moves to, but not through the senate

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The U.S. senate started working on its own version of an anti-patent troll bill with great optimism last week but, like a similar effort in the house of representatives, it’s bogging down in the Washington legislative swamp.

The objective is to keep shell companies from buying up patents and engaging the services of the predatory bar to launch bogus lawsuits and collection efforts against thousands of small companies, in the hopes that maybe hundreds of them will just write a check to make them go away.

There’s a good article in The Verge that explains what the senate bill originally set out to do. The bullet points from that article are…

1) Give defendants a chance to defeat a lawsuit before the costly “discovery” process starts.
2) Force trolls to pay for filing lawsuits that are not “objectively reasonable”.
3) Make it easier for manufacturers to defend their customers.
4) Rein in the abuse of demand letters.
5) Require patent lawsuits to be more specific.

Unfortunately, senate friends of the trolls – no doubt keeping in mind the generous wads of money trial lawyers stuff in their pockets – struck back, as a story in The Hill relates

Sen. David Vitter (R-La.), ahead of the hearing, announced he was signing onto a pared back patent proposal sponsored by Judiciary members Sen. Chris Coons (D-Del.) and Senate Minority Whip Dick Durbin (D-Ill.). Sen. Mazie Hirono (D-Hawaii), who is not a member of the committee, is also a sponsor…

Durbin took a familiar role as attack dog, scolding committee leaders for stacking the witness list with “those who love the bill and those who really love the bill.”

“There is another side to the story that has not been given a chance to speak this morning and I hope that during the course of considering this bill we can reflect on it,” he said.

Next step is for the senate’s bill to go through the same kind of meat grinder used on the house version. There’s still hope that it will emerge reasonably intact sometime in the next couple of weeks.

Congress and trolls: who’s feeding whom?

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Trolls and trial lawyers are gaining the upper hand in Washington, as congress once again considers a bill that was originally aimed at stopping abusive demand letters from legal bottom feeders. According to an article in Ars Technica, a house subcommittee watered down provisions that would have created penalties for trolls that keep sending reams of bogus patent infringement letters in the hopes that a few people and businesses will simply pay up, rather than fight

For instance, the bill would only ban demand letters sent in “bad faith,” which will make enforcement actions harder. “Regardless of the intention of the sender, misrepresentations or omissions can be harmful to consumers,” the letter points out.

The bill also requires that offenders show a “pattern of practice” of sending demand letters, which UFPR says is ambiguous language that leaves unclear how many letters need to be sent. UFPR also objects to an “affirmative defense” allowed in the bill, which could let patent owners off the hook if they show that deceptive statements in their letters were honest mistakes.

Finally, there’s no requirement in the bill that a demand letter state what claims are supposedly being infringed.

It’s become an annual ritual: business and free speech groups propose slapping down trolls, a few congress critters agree to help, a few more oppose them and nothing happens. Except that plenty of favors were done for potential campaign contributors on both sides of the issue. Meanwhile, the trolls keep merrily sending out letters, costing businesses – and, consequently, their customers – millions of dollars a year.

Senators enjoy a clubbing from patent trolls

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Patent reform legislation is dead in Washington right now, killed by senate majority leader Harry Reid as a favor to trial lawyers, who have given him as much as $4 million in campaign contributions in the past 5 years, and pharmaceutical companies. The senate has backed off from anti-troll measures passed last year by a wide, bipartisan majority in the house.

The heart of the package was a loser-pay provision, which would have given judges the power to make patent trolls pay defence costs when the verdict goes against them. That alone was enough to make the predatory bar foam at the mouth, and the fear that the concept could spread to other sorts of viciously frivolous lawsuits sent them howling through the corridors of congress.

Vermont senator Patrick Leahy, an earlier advocate for new patent enforcement rules, says he took the issue off the agenda of the judiciary committee, which he chairs…

Unfortunately, there has been no agreement on how to combat the scourge of patent trolls on our economy without burdening the companies and universities who rely on the patent system every day to protect their inventions.

Translation: this is an election year and we need the money.

Other reforms in the package – letting manufacturers defend people who buy their products in good faith and preventing trolls from hiding behind corporate shells, for example – would pose little or no burden for universities or companies with honest patent claims.

There’s one measure still in play. A proposal to curb demand letters – mass mailings threatening small businesses with law suits if they don’t pay the troll – might move forward as a substitute, although it’s expected to run into the same and likely fatal opposition.

Mom and pop store bashing earns patent trolls a whack from congress

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Which way to the senate?

Patent trolls aren’t on the run yet, but life could get bleaker for them if a bill passed this week by a bipartisan majority – 325 to 91– in the U.S. house of representatives is approved by the senate. Called the Innovation Act, the legislation would make it harder for the predatory bar to weave dubious theories about why stockpiled patents apply to common, everyday products and business practices, and then try to intimidate small businesses into coughing up cash to avoid a court battle.

It was the growth in bully boy letters to stores and coffee shops, among others, that enticed 130 house democrats take up a cause usually owned by republicans, and vote for the measure. The bill would make several changes to current patent law, but three are particularly important:

  • Trolls that lose in court will have to pay the legal costs for both sides. Right now, a losing defendant can get tagged for costs, but not a losing plaintiff.
  • Equipment manufacturers can take the lead on lawsuits that claim their products infringe a patent. Currently, trolls can ignore deep-pocketed manufacturers and go directly after customers that have purchased a product.
  • Trolls would have to disclose who’s really behind a lawsuit, and couldn’t hide behind shell companies as they do now.

It’s the “loser pays” provision that gives the bill teeth, but it’s also the bit that could draw fatal opposition in the senate. Democrats, who hold the majority there, traditionally oppose loser pays rules. It might be because impoverished plaintiffs would have a harder time getting justice when McDonalds serves them a hot cup of coffee. Or it might be because trial lawyers are huge contributors of campaign cash to democrats (and not a few republicans) and the prospect of a loser pays system, even just limited to patents, fills them with sheer terror.

Whatever you think about the Innovation Act, let your senators know.