PATENT TROLLING: TURNING A TWIST ON THE CONSUMER PROTECTION LAWS

PATENT TROLLING:
TURNING A TWIST ON THE CONSUMER PROTECTION LAWS

“Patent trolling” describes companies that try to enforce dubious patent rights against innocent individuals or companies that use, in most cases, a newer technological product. An example is a company that claimed to have acquired a patent related to the transfer of a document to a hard drive via a scanner. The company then mass mailed American companies claiming that use of a scanner was violating its patent rights, demanding damages or “license fees” of $1,000 per employee.

Patent trolls generally focus on existing technology and then claim patent infringement on a product already in the market. The patent system, like all other human institutions, is vulnerable to abuse. This abuse is most notable in the form of low-quality patents that are asserted against innovative companies by entities that often don’t even make any products.

The trolling may begin when lawyers serve template lawsuits alleging patent infringement. The company receiving the lawsuit could contest the patent claim, but to do so would incur thousands of dollars (sometimes tens or hundreds of thousands of dollars) in attorneys’ fees. The better option, so goes the thinking, is to simply pay the company $1,000 per employee and get on with business.

Patents have been claimed on digital verification systems, systems that sort photos, various types of stock trading, internet maps, online ads, and even store locators.

The cost of patent trolling has proven to be enormously expensive. In 2014 the Harvard Business Review estimated that patent trolls caused a decline of $22 billion in venture investments per year. The study found that trollers often target smaller companies that cannot afford litigation, with the end result that they had little budget left to invest in research and development.

Patent trolling can be lucrative. In 2012 there were 2,900 patent infringement lawsuits filed in American courts, six times higher than the amount filed in 2006. In February of 2014 Apple filed two amicus briefs in cases pending before the U.S. Supreme Court, claiming that it faced over 100 “trolling” lawsuits in the preceding three years.

There had been many attempts to curb patent trollers, but the practice still persisted. In 2013, Attorney General Lori Swanson became the first state official in the country to address the practice. In 2014 the Wall Street Journal reported that the Swanson was quite innovative in using the consumer laws to curb patent trolling. Swanson’s action was a twist on the consumer protection laws. Because the patent claim was essentially illegitimate, she argued that the patent troller violated the consumer product laws when it released the innocent company, effectively “selling” the use of a dubious patented product.

After the case was settled, patent trollers largely stayed out of Minnesota and concentrated their efforts elsewhere.

References:

Malanga, “States Move to Do-It-Yourself Patent Reform,” Wall Street Journal, September 4, 2015
Bjorhus, “Minnesota Targets East Coat Patent Troll,” Star Tribune, August 27, 2013
Baxter, “Company’s “Patent Trolling” will End in Minnesota After Attorney General Investigation,” Minnesota Public Radio, August 20, 2013
https://www.startribune.com/minnesota-targets-patent-troll/220375171/