Patent Trolls: Advising Businesses in a Patent Assertion Climate
Problem: Your client receives a cease and desist letter or a letter offering a patent license from an entity that the business has never heard of. The letter offers a license and freedom from suit for either a small upfront fee or a small percentage of all of the business’ revenue. The letter might not even identify what it is that your client does that allegedly infringes the patent. The businessperson’s first response is probably to dismiss the letter as ridiculous. However, in today’s climate of patent assertion, the letter should not be ignored. It is possible that a troll has come knocking.
What is a troll?
A “patent troll” has been defined in a variety of ways. It is generally used to describe an entity that asserts its patents against businesses without having contributed anything to the state of the technology.
The earliest use of the term seems to come from Peter Detkin, while he was patent counsel at Intel Corp. Intel was sued for libel when Detkin referred to two companies suing Intel for patent infringement as “patent extortionists.” Detkin then adopted “patent troll” instead, noting that “a patent troll is somebody who tries to make a lot of money off a patent that they are not practicing and have no intention of practicing and in most cases never practiced.” Brenda Sandburg, “Inventor’s lawyers make a pile from patents,” The Recorder, July 30, 2001.
How do you know a troll when it comes knocking?
Patent trolls often send a mass mailing to a large number of companies seeking a low up-front payment in exchange for the troll not seeking an injunction against the target’s business. They often tout a long list of companies that have already paid a license. One benefit a troll may emphasize is the fact that it is often cheaper to pay the requested amount than to pay a patent lawyer to evaluate the merits of the patent, mush less actually challenge the troll in any sort of litigation.
Another way to spot a troll is if the asserting entity is not interested in discussing any sort of cross-licensing or business relationship and does not make a product itself. Often the patent has been bought out of a bankruptcy sale and is being asserted, not by a competitor, but someone seeking to profit off of a licensing program under the patent. Certainly not all companies engaging in licensing programs could be said to be trolls. Many large and well known companies are in the business of licensing patents. However, these companies tend to engage in research and development and offer products in areas related to the patent being asserted. Patent trolls, in contrast, have contributed little or nothing to the advancement of a science or an industry. They merely take what others have toiled to develop and attempt to apply their patent claims to these endeavors.
Arguably one of the most successful patent trolls was Jerome Lemelson. Mr. Lemelson was the named inventor on several patents which he claimed covered bar coding. Mr. Lemelson did not manufacture bar code equipment, never worked for any bar code manufacturer and, in fact, is reported to have admitted that he did not invent bar coding. However, Mr. Lemelson had patent claims which predated the invention of bar coding and, which he asserted, covered any bar coding activity. Mr. Lemelson and his estate have collected well over one billion dollars in royalties from hundreds of companies. His strategy was to demand a very small percentage of a large volume of revenue from hundreds of companies allegedly practicing the patents. This strategy worked for many years until the Federal Circuit, this year, affirmed a trial court’s finding that most of his bar code patents were unenforceable. Symbol v. Lemelson, --- F.3d ---, 2005 WL 2173572 (Fed. Cir. Sept. 9, 2005).
What are the options in answering a troll?
If your client receives a letter alleging that some portion of their business, or even all of it, is infringing a patent and they have never heard of the sender, it may be that the sender is a troll. Most companies have enough competitive information to know who their competitors are. However, a letter from an entity or individual that they do not recognize may be from a troll who has acquired a patent out of bankruptcy, or through some other means short of an actual research and development program.
Unfortunately, there is no tried and true method of defeating a troll. A call to patent counsel may help you discover if this is a troll. If it is, it is likely that your client is not the first to receive such a letter. An internet search may also help the client determine whether the sender is a potential troll. Gathering as much information about the sender is important in evaluating the client’s response options. Further, because there is a duty of due care when one has notice of another’s patent’s rights, patent counsel may also be able to recommend whether a patent opinion is advisable to protect the company from a willfulness finding. Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983).
Because the amounts requested are often very low, settlement is certainly an option. These letters can request an amount that is far less than the client would pay in a patent infringement suit. Often the request is for a small, one-time payment that is less than you might pay a patent lawyer to conduct a complete investigation in order to even advise the recipient of the merits and weaknesses of a patent infringement case. Many companies settle quickly rather than spend money on attorney fees.
At least one caveat to quick settlement is in order. Word may spread among the industry or among patent trolls that the company paid an easy and quick settlement. It is possible that these “settler” lists are circulated on the internet or via email and used to decide which companies future trolls may target. In other words, quick settlers may make themselves targets to multiple patent trolls.
Another common approach to dealing with a troll is to form a joint interest or joint defense group both to evaluate the merits of the assertion and to handle any litigation that results. Again, it is likely that there are many other companies in the same industry or related industries that have received similar letters from the same entity. Pooling information, litigation resources and strategies often allows for a cost-effective and strong response.
There are caveats with this approach as well. For example, the use of joint defense groups can have antitrust implications. There are certain steps that the members can take to help protect themselves against an allegation that they are engaging in the unreasonable restraint of trade. Further considerations include the choice and expense of keeping separate counsel from that of the group and the lessening of control over the group’s strategy decisions.
One method used by some targets is to push back with the reasons that the company does not infringe the patent or with the reasons that the patent is invalid. The effect may be to demonstrate to the troll that the company will not roll over and the troll may go looking for an easier target. Ignoring the letter and hoping that the troll picks an easier target or that an industry group takes on the troll is another possible approach. This option could result in the business being sued in an unfriendly jurisdiction, but it is a choice worth weighing.
Again, there are no proven methods to fight patent trolls in the current legal climate. There are, however, some current legislative activities that may help in this effort.
Legislative efforts to combat the troll
Currently, one of the most powerful weapons in the arsenal of a troll is the threat of an injunction against the whole or a part of the target’s business. The current statute governing injunctions in patent cases, 35 USC § 283, permits a court to enter an injunction based on principles of equity. In particular, the courts have said that the following four factors govern the issuance of an injunction: irreparable harm to patentee if injunction does not issue, no adequate remedy at law for the patentee, balance of hardships tipping in favor of patentee’s favor, and no adverse impact on the public interest if the injunction is granted.
Although the issuance of an injunction is discretionary, the Federal Circuit has recently stated that injunctions are the norm when a patent has been determined to be valid and infringed. Mercexchange, LLC v. eBay, Inc. and Half.com, Inc., 401 F.3d 1323 (Fed. Cir. 2005). The Federal Circuit has noted that a trial “court may decline to enter an injunction when ‘a patentee’s failure to practice the patented invention frustrates an important public need for the invention,’ such as the need to use an invention to protect public health.” Rite-Hite Corp. v. Kelley, Inc., 56 F.3d 1538, 1547 (Fed. Cir. 1995). However, it has cautioned that “injunctions are not reserved for patentees who intend to practice their patents, as opposed to those who choose to license.” Mercexchange, 401 F.3d at 1339. This holding may bolster the patent troll’s threat to obtain an injunction against an infringing business.
Several interest groups are attempting to limit the injunction power of the Courts in a patent infringement action. Congress is currently considering H.R. 2975, a bill introduced by House IP Subcommittee Chairman Lamar Smith that seeks to significantly reform current patent law. As introduced, the bill contained several provisions aimed at curbing the patent troll concerns of some industry groups. The bill aimed to make it more difficult for patent holders who do not actually practice the patent to obtain a permanent injunction against those who are found to be practicing the patent. However, as of the printing of this article, this provision had been removed from the bill under consideration in the House. The Senate is not expected to take up the bill until some time next year.
In sum, there is currently no easy way to deal with a patent troll when it comes calling. Awareness of the problem and information gathering if approached, will at least permit most businesses to make a reasonable assessment of the threat and act accordingly.
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* Text of article as appearing in the October 17, 2005 issue of Missouri Lawyers Weekly