Why you and this man should be worried about Patent Trolls
July 29, 2014
You get a letter in the mail from an attorney and it goes something like this: “you are infringing on a patent we own please see the invoice enclosed for what we believe you owe us.”
Ok, that’s probably a little too simplistic but let’s face it that’s where the journey with what is commonly known as “Patent Trolls” begins and the amount of pressure it can put on business large and small is only now becoming apparent. To try and keep it all in laments terms (for fear of using so much legal jargon you’ll feel it’s all too much) a patent troll is a person or entity who seeks to enforce their ownership rights by way of collecting licensing fees.
The irony is that they themselves don’t actually manufacture, invent or create anything other than buying up a whole lot of existing patents and attempting to enforce them by finding commonalities in what your business does with the patent they have purchased. To put things further in perspective the US Patent and Trademark Office granted 300,000 patents in 2013, a 7% growth from 2012. According to data from the office the real story is in the number of cases now being litigated. In 2013 alone patent holders filed more than 6,500 cases up 25 % from 2012.
According to a recent PriceWaterhouseCoopers report it gets worse. When cases were bought before the courts patent trolls and other established entities won two thirds of cases that went to trial and it’s the consumer products, biotechnology / pharma and industrial/construction sectors that are most at risk.
So concerned is the White House that in 2013 they began to talk about the impact patent trolls are having on business. Gene Sperling, former Director of the National Economic Council and Assistant to the President for Economic Policy, noted that “Our patent system — as enshrined in our Constitution — is meant to encourage innovation and invention. It was designed to reward Americans for their hard work, risk-taking and genius. It has spurred progress that has driven economic growth and transformed the way we live, work, communicate, and stay healthy. But in recent years, there has been an explosion of abusive patent litigation designed not to reward innovation and enforce intellectual property, but to threaten companies in order to extract settlements based on questionable claims.”
In fact, President Obama also said at the time that patent trolls “don’t actually produce anything themselves. They’re just trying to essentially leverage and hijack somebody else’s idea and see if they can extort some money out of them.”
Gene Sperling has said patent trolls are estimated to be "costing the economy billions of dollars and undermining American innovation. In the last two years, the number of lawsuits brought by patent trolls has nearly tripled, and account for 62% of all patent lawsuits in America. All told, the victims of patent trolls paid $29 billion in 2011, a 400% increase from 2005 — not to mention tens of billions dollars more in lost shareholder value.”
Of course while the problem is growing in the United States the impacts to small business in particular is still anecdotal given many think that just because they receive something in the mail from an attorney (and they don’t often understand it) they end up paying or reaching a settlement. In fact, one of the biggest challenges is that when someone actually does pay it begins a path to legitimisation of a claim even though it may have been questionable at the beginning – often this is a tactic used in court submissions or correspondence where the patent troll will allude that others have paid and therefore if they have they must have accepted the patent holder had a legal right to enforce.
In Australia back in 2003 this exact situation began to unfold when letters began arriving from a US based patent troll claiming the right to enforce a patent around what they claimed was a unique electronic payment gateway. In reality, they were suggesting that for every electronic transaction conducted over a payment gateway they were entitled to 2.5% of the value of the transaction. In some cases the value was relatively small but in others the 2.5% would have been in the millions of dollars for some transactions. I took the cause up in partnership with then Senator John Tierney of the Australian Parliament and together we pushed back and began a public campaign highlighting the tactics of the patent trolls. What we discovered was incredible.
Firstly, the patent was originally granted in the United States and as time went by the patent trolls lodged the same patent in other jurisdictions such as New Zealand and Singapore. They used the claim that as the patent had been lodged and accepted there was additional legitimacy to their claim. But they did this knowing full well that even through the process of gazetting and making the detail public that very few people would pick it up – especially those in business – because it’s just not a process the general community are familiar with. Using this to their advantage they were granted patents in other jurisdictions and, from their patent attorney office in Virginia began enforcement. Of course, the public campaign exposing them worked and the matter died.
The fact that the US is experiencing a growth in patent registrations is not necessarily a good thing. Some may argue that it is a sign of innovation returning because more and more people are inventing and creating. But, just because there may be a 7% growth in 2013 doesn’t mean to say that all of those patents are, in fact, new inventions. More research needs to be done to look at who is registering them and regular audits as additional over sight in lieu of the public not being in a position to themselves understand what the process is thereby allowing many patent applications to slip through the cracks.
The reality is this is not an article putting people off filing legitimate patent applications because let’s face it, innovation and creation go hand in hand with a growing economy – its more an article alluding to the fact that patent trolls are out there and you need to be aware of them!
So, the message is – if you receive a letter in the mail don’t just believe them. Call your local Patent office or speak to a lawyer for some initial advice.
About the Author: Matthew Tukaki was Head of Syntropy Systems in 2003 when he joined with Senator John Tierney in a fight against a patent troll that, if successful in enforcing a business method patent, could have had a multi-hundred million impact to Australian business. Since then Matthew has gone on to head one of the world’s largest and oldest employment companies, represent Australia at the United Nations Global Compact, Chair Australia’s Deakin Universities Research Institute (CSaRO), Chair social investment business The Sustain Group and co-found EntreHub.org.
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