Fighting Patent Trolls is the REAL Solution

Last week ZDNet ran an article about how Kaspersky Lab took on and prevailed against Lodsys, one of the more notorious patent trolls operating presently. Lodsys first appeared on the scene several months ago when it started chasing Apple App Developers and demanding that they take a license to the Lodsys patent portfolio, and then later going after Google Developers who provide Apps for the Android operating system. Essentially, the model followed by Lodsys is to sue everyone, big and small and everywhere in between. Lodsys purchased its patents from Intellectual Ventures, who as they were amassing a giant patent portfolio lead the industry to believe it was for the benevolent purpose of taking patents out of the hands of patent trolls, thereby insulating them from such lawsuits. See Tech Guru Riles Industry by Seeking Huge Patent Fees. IV has at times found it easier to sell patents to willing patent trolls or has used various shell companies, but also now files lawsuits of their own. See, for example, IV Sues Motorola Again and Intellectual Ventures Becomes Patent Troll.

I have absolutely no problem with enforcing patent rights, and frankly I don’t think it should matter how the patents were acquired, but there is something exceptionally seedy about the use of shell companies and taking a back-end on revenues like Intellectual Ventures is routinely accused of doing. But if there is infringement of solid patents then there should be recourse. Having said that, it would be naive to pretend that there is not real evil lurking in the patent infringement realm. Stories of $500 to $1,000 offers to settle and avoid patent infringement litigation that would cost millions of dollars to defend abound. Some courts have openly acknowledged what feels like “extortion-like” activity. See Indicia of Extortion and Troll Turning Point? 

That there are bad actors is hardly surprising, particularly given the lucrative nature of the business model and the fact that many district courts feel as if they do not have the tools to do anything other than allow their courtrooms to be used as the main prop in the extortion-like shakedown. Of course, despite what some district court judge say, there are considerable powers that can be exercised if judges really do want to stop the bad behavior. See Judges Can Make Patent Trolls Pay. But the shell game played with the ownership of patents does add a layer of complexity to figuring out what is really going on and who is calling the shots. Why is it so necessary to have such secrecy? As Justice Brandeis once said “sunlight is the best disinfectant.” The troll industry could use some disinfecting. It is a sin that these nefarious actors tar those innovators with real, strong patents that are infringed.

Of course, judges cannot stop the bad actors alone. All too often companies settle crap cases for a few thousand dollars and then naively proclaim that it is better business to settle than to fight. Unless and until the Silicon Valley elite stand up and fight this problem will continue to go on and there is little or nothing the Congress can or will do to stop it, and nothing that even willing district court judges can do to prevent it from damaging the patent system and the integrity of the Federal Judiciary.

At an earlier time in my career, when I was a new associate fresh out of law school, I worked for a general civil litigation firm that did any type of litigation, regardless of subject matter. There was an attorney for practically every specialty, but virtually everyone handled automobile accidents, although it was a rapidly decreasing line of business for the firm.

During the 1980s the auto insurance companies would settle everything, just like the Silicon Valley elite tech companies do today when faced by bad patent infringement cases. If you were to sue an insured motorist the insurance company would calculate how much they would spend on defending the litigation and then offer you nuisance value to settle, which was of course a little less. They would dispose of the case and feel confident in the believe that they had saved money doing so because, after all, they could pay their attorneys and ultimately lose. So if they could pay less than what they calculated the attorneys would charge they did.

It doesn’t take a rocket scientist to know what happened next. Every attorney with a pulse signed up every client they could who had been in an auto accident and sued. There was easy money to be had because insurance companies would settle bad cases. It was win-win for everyone except the insurance companies. You see, their decision to settle everything without a fight lead to far more claims and that cost them big over time. In fact, it wasn’t until about the early 1990s that the gravy train was over and auto insurers figured out that they had to fight and stop settling specious claims. And fight they did. They fought everything and for a while it was difficult, if not virtually impossible, to settle even good cases where there were real damages and solid liability. The lesson was and is clear: If you don’t fight, and if you make yourself an easy target, people will sue you on both good and bad cases.

Whenever I explain this I get push back from those in Silicon Valley who would like to pretend that I don’t know what I’m talking about. They say it is complicated and they have to settle. Of course, they are talking out of both sides of their mouth because while they will settle crap cases where there is clearly no infringement and/or the patent claims are almost certainly invalid, they will fight solid patent infringement claims to the end. There is no business justification for settling bad claims and wasting time and money fighting good cases, unless of course there is a hidden agenda. The hidden agenda here seems to be to settle bad cases to fuel the patent troll problem so that they can run to Capitol Hill complaining that they are unable to do anything and are helpless. They need reforms that weaken the patent system damn it, and they need them now!

Those companies advocating for a weakening of the patent system have been hard at work since at least 2005. When they were unable to get what they wanted from Congress initially they turned to the courts, and for the most part the Supreme Court has complied with a string of anti-patent decisions that not only ignore the Patent Statute, but also ignore several generations of Supreme Court patent jurisprudence. Ultimately, however, they managed to achieve sweeping patent reform, but now they are back again seeking additional changes. See A Summary of the Goodlatte Patent Bill. Eventually on their wish list is an International Trade Commission that lacks the authority to issue exclusion orders. See Infringer Lobby Seeks to Strip ITC of Patent Powers.

These companies supporting a weaker patent system want to make issued patents easy to challenge and much more difficult to get. They are companies who built their corporate empires on patents and other forms of intellectual property rights, growing from small company to mega-giant company while building an enormous intellectual property portfolio heavily dominated with patents. Those patents gave them a competitive advantage and now that they have their market dominant position they really don’t need the patents as much. They seek insulate themselves from competition by making it harder for the next individual inventor, start-up tech business or small business to innovate, protect and grow up the corporate food chain. They know what they did to succeed and they know to keep their dominance they cannot allow others the same benefits and rights. The self created patent troll problem is merely a diversion to accomplish their end goal.

In the end the strategy being pursued by the Silicon Valley elite is extraordinarily short-sighted. Sure, a weaker patent system will prevent start-up technology companies from gaining meaningful patent rights on their new innovations, which will make it very difficult for smaller companies to grow and challenge larger companies that have lost the ability to implement paradigm shifting innovation. Of course, by weakening the patent system and patent rights, and by stripping the ITC of its authority, the Silicon Valley elite will make themselves extremely vulnerable to challenges from abroad, particularly from China.

You see, if patents are weaker, getting injunctions are unlikely and there is no ability to stop infringing products before the enter the U.S. what will stop Chinese companies from becoming the dominant technology corporations in America? Absolutely nothing! This is particularly true since technology companies doing business in China have to open up their patent and intellectual property portfolios, including trade secrets, to their Chinese “partners.” We see over and over how those one time “partners” soon become worldwide competitors using technology not invented in China, but rather technology handed over to China. A strong patent system, with strong patent rights and a meaningful ITC with real jurisdiction is the only thing that will prevent the ultimate gutting of the U.S. technology sector.

What I don’t understand is where are the shareholders in these companies? Where are the lawyers and law firms that specialize in shareholder derivative lawsuits? The strategies being pursued by much of Silicon Valley are calculated to lead to irrelevance and utter disaster, which will cripple shareholder value. Maybe the legal system is set up so that the only recourse is to address the disaster once it has happened, which would be truly unfortunate.

What we need are more visionary leaders who understand how to deal with bullies and know the lessons of history. Eugene Kaspersky, the CEO of Kaspersky Labs, is one of the few who will stand up to patent trolls. In this case because he stood up Lodsys ultimately caved as trial approached and rather than obtain a negative ruling about the questionable patent claims at issue they dismissed the case with prejudice. Now if that doesn’t speak volumes I don’t know what will.

Time will tell, as it tells with all things, but I suspect Kaspersky Labs will be scratched off the “easy target” list because they have shown the will to fight and prevail. True patent trolls, with specious patents and no legitimate claims of patent infringement, don’t want to fight those who will fight back. They are like the school-yard bully. Stand up to the bully once and the bully leaves you alone. The added benefit is that other bullies normally also take notice.

The ONLY real solution is to fight patent trolls. That means no longer settling bad cases and showing that you have the backbone to fight and win, as the insurance companies proved would work on a much larger scale in the 1980s. Of course, not all non-practicing entities are patent trolls, so let’s also cease with the ridiculous rhetoric and actually make a distinction between innovators and those who use bad patents where there is no infringement as a weapon to exploit judicial inefficiencies. Innovators are not patent trolls and those who exploit inefficiencies without regard to whether there is infringement of a valid patent claim are the extortion artists. It won’t kill you to acknowledge that objective truth, nor will it kill you to start negotiating fair license deals with true innovators with solid patents.

In life and in business you never make a mistake by doing the objectively right thing, and here there is clearly an objectively right thing to do. The solution is (or should be) obvious: Stop paying litigators to settle with the extortionists and stop fighting to the end against innovators.