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ICYMI- States Target ‘Patent Trolls’

Australian Associated Press, Yahoo! Finance
States Target ‘Patent Trolls’
Posted: Wed, Jan 8, 2014 4:01 PM

A handful of US states have launched aggressive efforts to thwart “patent trolls” that have bedeviled businesses ranging from giants like Inc and Facebook Inc to small high street stores.

Patent trolls are people or companies that buy broadly worded technology patents, sometimes from firms that go bankrupt, with the intent of suing other companies for illegally infringing on these patents.

The trolls hope that the companies will pay to avoid litigation that can cost millions of dollars. Sometimes the trolls create shell companies that make it difficult for the businesses to know who is threatening to sue them.

Patent trolls have targeted the big online players like Google and Yahoo for years, according to the Internet Association, an industry group. More recently, they’ve gone after grocery stores, restaurants and nonprofit organisations – attractive targets because they generally lack the resources to defend a lengthy lawsuit.

One patent troll sent 8,000 letters to coffee chains, hotels and retailers seeking compensation for offering Wi-Fi to customers, according to a White House report. Other trolls have sued, or threatened to sue, restaurants alleging patent infringement for using electronic bar codes on packaging, sending tweets with URLs, or using digital menu boards.

The White House estimates that lawsuits from trolls have tripled in the past two years, rising from 29 per cent of all infringement suits to 62 per cent. In a separate study, Boston University researchers estimated that in 2011, more than 2,100 companies in the US were forced to mount 5,842 defences in lawsuits from patent trolls, up from 1,401 in 2005, at a cost of $US29 billion ($A31.76 billion).

A handful of US attorneys-general last year began using state consumer laws to combat trolling, a strategy pioneered by Vermont Attorney-General William Sorrell. Vermont became the first state this year to sue MPHJ Technology, alleging the company’s letters to businesses threatening patent infringement on a basic scan-to-email technology were unfair and deceptive acts under Vermont’s Consumer Protection Act.

“There’s no question that the patent system is broken,” Sorrell said. “I hope Congress takes action.”

Nebraska Attorney-General Jon Bruning has ordered Farney Daniels, a Texas law firm working with MPHJ, to stop sending letters similar to those in Vermont. That case is still active.

Minnesota Attorney-General Lori Swanson reached a settlement with MPHJ in August. MPHJ agreed to stop its campaign in the state and won’t resume such business without the permission of the attorney-general.

Vermont also became the first state to pass legislation allowing businesses sued by trolls to counter-sue.

The issue also has got the attention of Washington policymakers. A House panel on November 20 approved legislation aimed at making it more difficult for trolls to file lawsuits with vague patent claims by requiring the lawsuit to specifically identify the patent being infringed. Vermont senator Patrick Leahy and Utah senator Mike Lee have also introduced patent legislation.

President Barack Obama in June signed a series of executive orders aimed at cracking down on trolls and called on Congress to act. Obama described trolls as companies that “essentially leverage and hijack somebody else’s idea and see if they can extort some money out of them”.

The average patent litigation costs $US6 million, and small businesses typically spend $US1.75 million, according to a letter from a number of trade groups representing the high-tech industry, airlines, hotels, utilities, casinos and restaurants. The co-founders of Twitter and Facebook are among 50 inventors also seeking legislation.

Neither Sorrell nor Bruning has endorsed a particular federal proposal. But Bruning called improving the patent system “a bipartisan issue that is gaining momentum nationwide,” and expressed optimism that Congress will “close the loopholes in our patent system that allow this abuse”.

The Federal Trade Commission also has stepped up its efforts, and the US Supreme Court will hear two cases that might make it easier for those being targeted by trolls to collect legal costs.

But not everyone thinks there is a problem. Gene Quinn, a patent lawyer and founder of IPWatchdog, criticises what he calls “the hype and hyperbole associated with the so-called patent troll problem”.

Quinn pointed to recent report from the Government Accountability Office (GAO), which found that the number of lawsuits alleging patent infringement increased by about one-third from 2010-2011, after 10 years of fluctuating only slightly. Instead of blaming trolls, GAO attributed the spike to 2011 patent legislation that limited the number of defendants in a lawsuit. This caused some firms that would have previously filed a single lawsuit to instead break the lawsuit into multiple lawsuits, GAO said.

GAO also found that so-called trolls brought about only one-fifth of patent infringement lawsuits between 2007 and 2011 while companies that make products brought the rest.

Critics, however, argue that patent troll litigation has exploded in the past two years, after GAO’s report was finished.