Star Ledger/ NJ.com
New Jersey firm stands up to patent trolls
Posted September 06, 2013 at 7:30 AM
In April, a South Plainfield company received notice it was being sued by a Florida law firm alleging six instances of patent infringement. The Florida firm, ArrivalStar, was willing to accept a settlement of $15,000.
Most companies would have paid the money to make the matter go away. Fighting a patent lawsuit in court all the way can cost several million dollars.
But Tumi, a worldwide manufacturer of luggage and handbags with U.S. headquarters in South Plainfield, sensed its company was the target of patent trolls — firms that own a few meaningless patents and send out frightening letters to hundreds of companies demanding payment for “infringement.”
So it fought back.
The patents in this case had nothing to do with luggage design but were loosely linked to how the company tracked customer orders and shipments through its website.
The lawsuit had been filed by a Luxembourg-based nonpracticing entity, or NPE. Nonpracticing entities don’t produce or sell anything or offer services. They make money by getting license fees from companies that use technology that, they allege, is based broadly on patents they have acquired.
Tumi filed a counterclaim, alleging ArrivalStar’s lawsuit was “frivolous,” “baseless” and a “sham” meant to extort money.
A judge dismissed the case because ArrivalStar failed to respond to the counterclaim. Tumi didn’t have to pay a penny to ArrivalStar, and the patent holders promised not to file any more suits against the luggage maker.
It was a rare instance of standing up to what some may call a bully.
There has been a proliferation of patent infringement suits in the past three years by so-called patent trolls — NPEs that fire off lawsuits like buckshot. According to the Government Accountability Office, the number of patent infringement cases had been static between 2000 and 2010. But from 2010 to 2011, patent lawsuits surged by about a third. And one of every five lawsuits was brought by an NPE. The GAO’s analysis also found that lawsuits involving software-related patents accounted for about 89 percent of the increase.
“It’s extremely damaging to the entire economy and it’s gotten worse in the past few years,” said Michael Beckerman, president and chief executive officer of Internet Association, a trade group.
A study published in the Cornell Law Review showed NPE lawsuits cost the economy more than $29 billion in 2011.
Beckerman said patent trolls “come to you and say, ‘It’ll cost you $1 million to settle with us or $10 million to fight us. Why not give us a million bucks now and call it a day?’ It’s a business decision you have to make.”
CHEAPER TO SETTLE
According to Beckerman, patent trolls lose 85 percent of the time if a case goes to trial, but their business model is based on most companies agreeing to settle because it’s cheaper.
The Internet Association, along with the National Restaurant Association, National Retail Federation and Food Marketing Institute, is rolling out a 17-state ad campaign urging Congress to put an end to patent trolling abuse.
The campaign urges people to tell lawmakers to tighten the patent process and level the litigation playing field.
Just because an NPE sues doesn’t mean it’s a troll.
– Jon Fallon
“The way the system is set up now, trolls have nothing to lose. They have no skin in the game,” Beckerman said.
Not all NPEs are created evil, however. Many legitimately defend inventors and their patents from infringement.
“Just because an NPE sues doesn’t mean it’s a troll,” said Jon Fallon, a partner in the West Orange law firm Mandelbaum Salsberg, which represented Tumi. “There are a lot of NPEs that are acting with the best interests of the inventor in mind. The difference is that trolls have designed a business model that says, ‘We can sustain profitability through nuisance suits.’”
According to the countersuit brought by Tumi, ArrivalStar filed 340 patent infringement claims in the past seven years, and “hundreds of additional defendants have received threatening demands.”
It also noted that the settlement costs are less than the price of hiring an attorney, which encourages the companies to play “let’s make a deal.”
Fallon alleged it was a criminal enterprise under RICO statues and summed it up as nothing more than an extortion scheme — the first time such a defense had been used.
William McMahon, the Florida attorney who represents ArrivalStar, said the company is not a troll.
“The typical patent troll does not send out pre-suit notice letters,” he said. “The typical patent troll holds one to three patents: ArrivalStar holds 32. Typical patent trolls are third parties unrelated to the inventor. The inventor is intimately involved in the licensing operation. We’re talking about infringement the owner has seen.”
Patent trolls often buy a patent from a company that is looking to sell some of its resources for cash. They then troll the internet, looking for companies potentially infringing on the patent.
According to McMahon, Martin K. Jones, the owner of ArrivalStar and Melvino Technologies, spent 26 years and millions of dollars to patent technology that can track vehicles such as buses and trucks.
Several years ago, ArrivalStar began suing metropolitan transit agencies and the Port Authority of New York and New Jersey, which post arrival and departure times on their websites for commuters. In 2011, it expanded its reach to retailers such as Tumi, and others that track shipping and customer deliveries online — which is nearly every company that sells products over the internet. L.L. Bean, Billabong and even Gatorade have been sued by ArrivalStar.
“Patent law states we can go after customers, suppliers, vendors, users,” McMahon said.
“My job is to protect an individual inventor’s rights,” he said. “Any inventor who is not part of a large corporation and sues to protect his intellectual property is automatically labeled a troll and a shakedown artist, and that’s not right.”
PatentFreedom, a website that tracks patent litigation, charted 588 NPE-brought cases in 2004, and more than 4,600 in 2011.
“You can’t ignore them,” said Bob Marin, vice president and general counsel for Panasonic Corp. of North America. The Newark-based electronics giant has been sued nearly 70 times by NPEs since 2009, according to PatentFreedom.
“We have fought some of them, and fought successfully, and we’ve settled with some,” he said. “But that doesn’t stop them. There’s an endless flood of these patent trolls. It’s an epidemic for business. It just sucks the money out of everyone.”