STAFF NEWS & ANALYSIS
How Trolls Use Patent Law to Make an Easy Buck
By The Daily Bell Staff - October 06, 2017

Patents seem like a good idea on paper. If you come up with something innovative, you should reap the rewards. That safeguards the hard work and money someone puts into an invention or technology.

But patents really amount to a legal monopoly, granted by government. And as is typical with government, this intervention into the economy creates some interesting side effects.

Patent trolls are businesses which own patents for the sole purpose of litigation. They don’t make their money from producing whatever the patent secures. They make their money suing companies for patent infringement.

This works best when the patent is something that probably should have never been patented in the first place.

For instance, a company called Personal Audio managed to successfully sue Apple in 2011 for $8 million. The patent they say Apple infringed on: downloadable playlists.

Personal Audio would be considered a patent troll because the patents they hold are pretty obvious and broad technologies. Luckily, courts recently struck down their attempts to sue based on their patent on podcasts.

You can get a patent for a complicated medical device which costs millions of dollars to invent. And you can get a patent for recording audio, and creating playlists.

Another part of the problem is that patent trolls don’t have to successfully defend their patents at trial in order to make money. Many depend on settlements reached out of the courtroom. For the troll, they just have to draw things out in court long enough so that the costs of defense would rival the cost of the settlement.

If you are being sued for $1 million, and defense will cost you $750,000 then from a business standpoint it makes sense to settle. After spending the $750,000 defending yourself, you may lose another million! Better to cut your losses, and just settle for $750,000 in the first place.

And one particular federal court is a favorite for patent trolls. In the Eastern District of Texas, they aren’t quick to issue a summary judgment. That means that patent cases are basically guaranteed to go to trial, which makes the cost of defense skyrocket.

And that means companies are even more likely to settle rather than spend time and money defending themselves against a patent troll.

But last May, the TC Heartland Supreme Court decision made it harder for patent trolls to use the East District Texas court to file their patent litigation. It ruled defendants must be established in a district in order to be sued there.

Previously, patent trolls would set up their business headquarters in the district so that anyone they sued would be dragged down to a court more favorable to the trolls.

But the trolls could not be so easily vanquished. The defense contractor Raytheon sued a company called Clay inc. for patent infringement. They filed in the Eastern District of Texas. According to the Supreme Court decision, Clay inc. would have to be established within the district in order to be sued there.

A judge ruled that because Clay inc. had just one lone sales representative who lived in the district, that the lawsuit could take place there.

Luckily, again the trolls were struck down. A court reversed that judgment, saying that one salesman who works from home and covers multiple states does not constitute a presence of the company in the district.

They are splitting legal hairs. All too often, it seems like courts come down to silly arguments. The lack of an Oxford comma in their contract once cost a company millions of dollars.

It’s great this loophole is being closed, but this highlights the issues with government statute. Too many cases are a flip of the coin. They depend on the costs of litigation rather than right or wrong. And that makes the government enforced monopoly of patent law questionable, to say the least.

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  • M David Hoyle

    You really have absolutely no idea what you are talking about. Whatsmore, you don’t understand the basics of Patent Law. These companies are stealing intellectual property from people and small businesses that you call “trolls” who have angel investors behind them. Most seed money requires a patent to be secured. But these “Titans of technology” come and take what they wish without paying a cent for it. A patent is very similar to a deed to a piece of land. The Supreme Court has ruled this way for over 200 years. But now with the laws that you so proudly and ignorantly claim will solve the “troll problem” has forced the USA from their vaunted position of #1 in intellectual property to now #10 (tied with Hungary) So don’t speak about things you either have not researched or no absolutely nothing about. Don’t buy into the propaganda of the “titans of technologies” who are no better than the 1900s Standard Oil!!

    • TnDoc

      David… You are dead on the money! As the victim of some serial “trollers” (quite successful ones, at that), I have learned first hand whereof you speak. Patent trolls cost the US Economy $20-40 billion a year according to some sources I have read. Pirate Corporatism thrives in Amerika, Inc.

    • robertsgt40

      Bingo. Anyone old enough to remember the “Weedeater” case, or the “intermittent windshield wiper” case? Talk about a couple of true inventors getting fkg over.

      • M David Hoyle

        IS anyone surprised that the former head of the U.S. Patent Office, was the former head of Intellectual Property for Google and that her staff admitted before the Federal Circuit that they “stack the deck” with Administrative Judges in the “America Invents Act” tribunal so that they are guaranteed a victory!! And this rag want to say “trolls are the problem???” GIVE me a BREAK

        • bernard palmer

          David, seeing as you know how the current patent systems work could you please have a look at this web site of mine which offers an alternative patent system and gently tell me its obvious faults.
          many thanks
          http://www.cashrampatent.com/

  • georgesilver

    Patents and copyright are a bad idea. They are supposed to protect the initiator from others. In fact they work for the large organisations as a form of control. Big business is only able to remain in business by controlling competitors by the laws that they have bought and paid for in a corrupt legal system.
    If large organisations didn’t have this control then they could be undercut by thousands of other small leaner organisations producing a better cheaper product.
    This also goes for the music and film industry with their ridiculously highly paid “stars”.
    Before recordings were invented people acted and sung for their supper. Then recordings were invented and subsequently recording companies had laws made to stop competition. Then along came the internet and everyone was free to copy and distribute music and films. Now the big boys are trying to use their muscle to stop this but they won’t succeed.

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