Trolling Effects Blog

2013 in Review: What a Year for Patent Reform

adi — Wed, 19 Feb 2014 00:42:16 +0000

It was the best of times, it was the worst of times. In 2013, patent trolls continued to run rampant, suing everyone from app developers to small businesses to podcasters. But the trolls' abusive tactics finally caught up to them in the policy arena—to put it lightly, they had a miserable year. All three branches of government have set their sights on patent reform, and the fundamental question of the patentability of software has reentered the conversation.

This year, EFF and several tech policy organizations launched Trolling Effects, a database of demand letters that patent trolls use as perhaps their strongest—and stealthiest—weapon. Such efforts on the grassroots level, including excellent media coverage of trolls' extortionate practices and the hit on small businesses, created an opportunity for meaningful reform.

The biggest victory was the passage of the Innovation Act in the House of Representatives, an extremely promising bill that provides a number of fixes to the patent troll problem—from fee-shifting provisions to much-needed transparency reforms. The 325-91 bipartisan vote exemplifies how pressing of an issue this is in the minds of lawmakers—not to mention the introduction of nearly a dozen bills in the last year alone that tackle patent trolls. The White House—which, earlier this year, released its own report and recommendation on patent trolls—came out in support of the Innovation Act. 2014 will see the Senate take its place as the patent reform battleground to watch. We're hoping that, in addition to dealing with abusive litigation tactics, the key issue of patent quality is addressed.

The courts are also getting into the patent mix. After a chaotic opinion from the Federal Circuit Court of Appeals, the Supreme Court agreed to take up the case in Alice v. CLS Bank, which covers the patentability of abstract software patents. These low-quality patents arm a majority of trolls and are fueling the boom in patent litigation.

EFF also submitted an amicus brief in the Supreme Court case Octane Fitness v. Icon Health & Fitness, addressing the near-impossible potentiality for a defendant to get fees after winning a patent case. Not only is fee-shifting—which already exists in the Patent Act—good policy, but it would serve as a deterrent for bottom-feeding patent trolls who are more-than-likely to lose the cases they bring.

Lastly, the executive has its eye on patent reform on both the federal and state levels. The Federal Trade Commission, for example, is investigating the costs of patent trolls on competition. And several state attorneys general are using their consumer protection mandates to tackle the troll problem. (Vermont went a step further and passed an anti-troll law.) The Patent and Trademark Office has also been proactive about this issue; we applaud them for hosting several software patent roundtables across the nation, bringing lawyers, engineers, and businesspeople together to address underlying patent quality issues.

The momentum is there. Patents are on people's minds. Let's make sure 2014 not only brings the reform we want, but also the reform we need.

Organizations:

EFF

Infamous Wi-Fi Patent Troll Settles For Peanuts

adi — Fri, 07 Feb 2014 08:00:00 +0000

Beginning in 2011, a patent troll named Innovatio IP Ventures, LLP, began a massive shakedown campaign. Armed with some patents purchased from Broadcom, Innovatio sent thousands of letters targeting hotels and cafes that provide Wi-Fi for customers. The troll demanded as much as $2,500 per location. Router manufacturer Cisco stepped in to defend its customers and yesterday settled with Innovatio for just 3.2 cents a unit. The settlement counts as a victory. But we still need reform to stop the next abusive troll.

The Innovatio story illustrates just about everything wrong with today’s patent system. It is a classic patent troll whose entire business model is to buy patents and sue. Even worse, rather than sue manufacturers, Innovatio targeted end-users that had simply purchased off-the-shelf routers. Many of these end-users, like mom and pop coffee shops, lack the resources to defend against an expensive patent suit. As a result, the cost of litigation, and not the value of the patents, drives settlement – a hallmark of lawsuit abuse.

If that sounds bad, it gets worse. Many of the largest chip makers (such as Broadcom) retained licenses to Innovatio’s patents. So a café with a router containing a Wi-Fi chip from one of those companies was already protected by a license (this is known as patent exhaustion). Of course, Innovatio did not tell its targets that they might already be protected. Frankly, that is deceptive conduct.

And if that sounds bad, it gets worse still. All of Innovatio’s patents were subject to FRAND promises. These are important promises companies make to license patents—usually patents relating to industry standards like Wi-Fi or Bluetooth—on “Fair, Reasonable, And Non-Discriminatory” terms. A judge recently ruled that even if its patents were valid and infringed, Innovatio would, at most, be entitled to a FRAND royalty of 9.56 cents per device. Recall that Innovatio was demanding as much as $2,500 per location (like a café with a Wi-Fi router). To give you an idea of just how extortionate this demand was, Innovatio’s markup was the equivalent of charging $120,000 for a Big Mac.

When it began fighting back, Cisco took the unusual step of bringing civil RICO (fraud and racketeering) claims against Innovatio. The judge rejected those claims. We believe that Cisco did plead facts establishing a campaign of fraud (such as Innovatio sending demand letters to targets protected by a license and failing to disclose that some of its patents had expired). Fortunately, Cisco continued to fight until it secured a settlement much lower than the billions Innovatio claimed to be entitled to.

Without seeing the Cisco settlement, it is difficult to know if Innovatio will continue its campaign against businesses using non-Cisco routers. If Innovatio continues to breach its FRAND commitments by demanding thousands of dollars per location, we hope that the Federal Trade Commission or state attorneys general will consider taking action against it.

Unfortunately, Innovatio is just one part of a disturbing trend of trolls targeting end-users. Each of these trolls is imposing a massive tax on productive businesses (Cisco spent $13 million on legal fees in just this case). Copycat trolls, such as Innovative Wireless Solutions, LLC, are adopting the same tactic of sending letters to businesses that provide Wi-Fi. We urgently need reform from Congress and the courts to slow down the trolls, protect end-users, and defend innovation.

Organizations:

EFF

It's a Bad Week to be a Patent Troll: Big Updates from New York and Newegg

adi — Tue, 14 Jan 2014 08:00:00 +0000

Patent trolls are having a bad week. Today the New York Attorney General announced it had reached a settlement with MPHJ, the so-called scanner troll. That deal, not entirely unlike the one already in place in Minnesota, is great news for New Yorkers who have found themselves facing the notorious patent troll as well as anyone planning to do business in the Empire State. The settlement itself requires that the scanner troll actually investigate before it sends threatening demand letters and prohibits it from bothering businesses it has already contacted. Even better, the settlement allows those who've already taken a license from MPHJ to get a refund.

The actual settlement document itself is quite an interesting read—it lays out in some detail just how shady MPHJ really is. For instance, MPHJ sent more than 1,000 demand letters to New Yorkers alone (which means it must have sent at least tens of thousands of letters nationwide!) and more than 300 draft complaints despite the fact that it has never sued anyone in that state.

New York's Attorney General deserves credit for protecting its state's businesses and creators by shutting down one of the worst patent trolls. It joins not only Minnesota, but Vermont and Nebraska in targeting this particularly bad actor.

Another anti-patent troll crusader, Newegg, is also having a good week. Yesterday, the Supreme Court refused to hear a case about the "shopping cart" patent, leaving undisturbed a lower court ruling invalidating that pernicious patent. The shopping cart patent is a good example of what happens when low-quality patents end up in the hands of bad actors—Soverain, the patent's owner, has reportedly made more than $70 million in settlements and lawsuits claiming it owns basic, obvious shopping cart technology. That's $70 million that is not hiring new employees, growing businesses (other than the troll's!), or engaging in important research and development.

News of New York's settlement and Newegg's victory put even more pressure on the patent troll business model. When taken with momentum on the Hill to pass legislation and increased attention from the Supreme Court, we're getting closer and closer to the days when patent trolls and poor-quality patents get out of the way of innovation. It can't come soon enough.

Organizations:

EFF

MPHJ Exposed: The Real Dirt on the Notorious Scanner Troll

adi — Tue, 14 Jan 2014 08:00:00 +0000

To the extent there's a poster child for patent abuse, it's MPHJ, the infamous "scanner troll." This week's revelations show us for the first time just how much damage the patent troll has caused. Hint: it's a lot.

MPHJ owns a handful of patents, which it claims covers the basic technology for scanning documents to email. You read that right—simply scanning documents to email.

On Monday, MPJH sued the Federal Trade Commission (FTC) in federal court in Texas. Apparently, the FTC has been investigating MPJHJ since this summer, using its subpoena power, which allows it to get information that ordinary citizens cannot. In December, it presented MPHJ with a draft complaint and, according to MPHJ, threatened to file suit if MPHJ would not enter into a consent judgment (a kind of settlement agreement).

Notably, the MPHJ complaint and the FTC draft complaint provide many missing details surrounding MPHJ's shady dealings, and we've got some highlights for you:

MPHJ has sent letters to approximately 16,465 small businesses nationwide.
MPHJ sent more than 9,000 letters claiming that "most businesses, upon being informed that they are infringing someone's patent rights, are interested in operating lawfully and taking a license promptly" and that "[m]any companies have responded to this licensing program in such a manner." The letters also claimed that the price for a license—either $1,000 or $1,200 per employee—was reached through the responses of "many companies." However, when the first 7,366 of those letters were sent, MPHJ hadn't sold a single license though its "licensing program."
Of the 16,465 letters that MPHJ sent, it only received 17 (yes, 17!) licenses. Yet the price of these 17 licenses was thousands of small businesses going through the stress and expense of facing a threat of patent litigation.
MPHJ began sending letters in September 2012. It did not file an infringement suit until November 18, 2013—after it had been sued by the states of Nebraska and Vermont.

In other words, this is run-of-the-mill extortion, or an attempt to get a quick buck out of small businesses. And not just some small businesses—essentially every small business. MPHJ believes that as long as a business has at least 20 employees and works in certain fields, such as the vaguely defined "professional services," it "very likely" infringes. And if a business has at least 100 employees, no matter what kind of industry it's in? Then, according to MPHJ, it, too, "very likely" infringes. You read that right. Every. Business. In. America.

So what's going on here isn't just about MPHJ and its desire to squeeze money from wherever it can (there are some unsurprising and troubling hints that MPHJ is using the letters to pressure the scanner manufacturers to pay them to lay off their consumers—just another layer of mob-like behavior). Think, for a second, about the proposition that one party can claim that its patents (in this case five—four of which come from the same family) tie up every American business that uses basic scanning technology. Clearly, the patent system isn't working. The patents are too broad and vague, and there is no evidence that they somehow advanced scanning technology. And when these patents end up in the hands of parties like MPHJ, they become tools for abuse.

Congress is close to passing good legislation that would help curb the patent troll disaster, but would largely fail to address the underlying problem of patent quality. The good news is that the Supreme Court has at least two cases on its calendar this term that will get at the heart of the patent quality issue. We'll be filing briefs in those cases asking the Court to set the patent system back to its original moorings—one that is supposed to promote innovation and progress instead of squelching it.

Organizations:

EFF

The Patent Troll with a Law Firm Behind It Attacking Postal Mail

adi — Wed, 18 Dec 2013 17:02:33 +0000

This is a guest post from Advanced Image Direct detailing their encounter with a patent troll.

My company, Advance Image Direct, is a direct mail company. We are required by the United States Post Office (USPS) to include "intelligent mail barcodes" (IMB) on the mail we produce. The IMB is the barcode below the recipient address on postal mail. It contains the mail recipient's address, zip code, and the mailer ID—information the post office needs for delivering mail efficiently and tracking purposes.

We received a Jury Demand document as a complaint for patent infringement relating to IMBs out of the blue: Secured Mail Solutions (SMS) vs. Advanced Image Direct.

On page three of the document it states that SMS is a "provider of mail and mail information services." When I researched SMS, I discovered that its website does not offer any services and the address and suite number listed are a virtual address in Las Vegas. The company apparently shares this suite number with several, less than reputable sounding, companies listed at the exact same suite number—Inmate Calling Services, Passion Products, Best Las Vegas Tours, to name a few. The owners of the virtual address listing even market it to those that wish to "look" impressive via a virtual office and as an address to receive postal mail.

I took it one step further and called the USPS to see if they had heard of SMS or if SMS even held a postal permit—their complaint states they are a "provider of mail services" and everyone that produces mail has a permit right? Well, they don't according to the USPS. Yet their document states they have been "damaged" by our alleged infringement.

I'm extremely confident at this point that no mail is being produced by SMS simply due to the obvious bogus footprint.

SMS's website domain owner is a man named Todd Fitzsimmons, who happens to be listed on the website of O'Melveney & Meyers as an associate—the very same O'Melveney & Meyers that is representing SMS in the complaint. I called the Las Vegas phone number listed for SMS and was forwarded to the Los Angeles O'Melveney & Meyers office of Todd Fitzsimmons. When I looked up O'Melveney & Meyers, I saw that they are listed as the third largest law firm in the United States, with several office across the country and evidently now, a virtual office in Las Vegas.

From where I'm sitting, it looks like SMS IS O'Melveney & Meyers. Of course, SMS is not a legitimate business that produces anything, let alone direct mail or intelligent mail barcodes or QR codes on direct mail. My deduction from early on was that SMS is a shell company making false claims.

The document further states on page three that the patents in suit disclose and claim various systems and methods for verifying and/or authenticating mail identification data—data that is "affixed" to a mail object. Information that can be used by a mail house, a mail carrier, a recipient, etc. Does that mean mail carriers and U.S. mail recipients are next in their scheme? This particular suit could possibly affect every American that receives mail whether directly or indirectly.

What's really peculiar is that attorneys for O'Melveney & Meyers cannot specifically state how we have "infringed" their patent. I guess that's what the exhaustive and expensive discovery process is for.

I looked up their patents. I have been in the mail business for quite some time and can honestly tell you that their patents ramble on and on for many, many pages but make no sense to anyone that produces mail daily. Interestingly, the questionable patents were filed by Todd Fitzsimmons, associate at O'Melveney & Meyers.

This suit is available on the Internet for anyone to see, even large financial clients that are doing due diligence on my company prior to awarding business. The discovery process has been costly and a waste of time. I have read that patent trolls and frivolous lawsuits like this one cost American business and consumers anywhere from $60—$100 billion per year, which quite frankly, is on a scale economically of the costs to fight terrorism.

From what I have learned and studied, patent trolls come in all sizes, will state anything to mislead and do anything for a buck. They can be in small offices, virtual offices, even the largest law firms in the country. I hope that someday soon, these organizations will be exposed for what they are and for what they are doing to American small businesses like mine!

Patent Troll Lodsys Settles for Nothing to Avoid Trial

daniel — Thu, 03 Oct 2013 00:36:38 +0000

Today we learned just how determined the patent troll Lodsys is to avoid a ruling on the merits of its claims. When software security company Kaspersky Lab refused to surrender, Lodsys settled for nothing (yes, you read that right—absolutely nothing) rather than take its claims to trial.

First, some background: Lodsys is the poster child for the worst kind of patent trolling. A shell company with no apparent business other than "monetizing" patents, it has sued or threatened thousands of application developers. While it has sued some big players, most of its targets have been tiny app developers who lack the resources to defend patent litigation. And these developers are being sued simply for using Apple or Google’s in-app purchase APIs. In this, Lodsys is part of growing trend of patent trolls targeting the end-users of technology.

We believe that Lodsys is unlikely to prevail on the merits of its claims. First, the principle of patent exhaustion should protect developers using Google and Apple’s APIs. Lodsys purchased its patents from Intellectual Ventures, who many believe is the biggest troll of all. (When "selling" its patents to supposedly "independent" companies like Lodsys, Intellectual Ventures has retained as much as 90 percent of ongoing profits.) Apple and Google both licensed the patents when they belonged to Intellectual Ventures. By suing individual app developers for using Apple and Google services, Lodsys is attempting to get to two bites of the apple, so to speak.

Second, Lodsys’ patents have nothing to do with the hardware or software of today’s smartphones and tablets. To the extent they are even comprehensible, the patents discuss a method for providing remote customer feedback for early 90s technology like fax machines. Using intentionally vague claim language like “trigger event” and “perception information,” Lodsys argues that the patents cover today’s technology. This is an abuse of the patent system.

Lodsys is doing everything it can to avoid a ruling on the merits of its claims. Earlier this week, it successfully dodged a decision on whether Apple’s license shields iOS developers. And as a number of cases in the Eastern District of Texas approached trial, Lodsys settled all of them. Except for one. Kaspersky Lab refused to pay a dime. Faced with the prospect of having to actually prove its case, Lodsys surrendered. Lodsys would rather get nothing than see a binding decision on the merits of its claims.

We congratulate Kaspersky Lab on its victory. It joins a select group of companies, like Twitter and Newegg, that have proven willing to stand up to patent trolls. As these cases show, when they are actually forced to litigate, patent trolls frequently lose or give up, particularly when software patents are at issue. One study found that, among the most frequently litigated patents (those asserted in eight or more lawsuits), non-practicing entities won only 9.2% of their cases.

Unfortunately, fighting back is expensive. Defending a patent case can cost well over $1 million and defendants rarely get that money back. So few companies have the resources or the appetite to take on the trolls. And Kaspersky Lab’s victory in this case will not stop Lodsys. Since it surrendered before a decision on the merits, Lodsys can continue to use its vague patents, and the cost of litigation, to leverage settlements. Ultimately, we need fundamental patent reform to stop the trolls.

Minnesota: Patent Trolls Are Not Welcome Here

julie — Thu, 22 Aug 2013 00:18:44 +0000

Minnesota is the latest state to join the fight against patent tolls. It announced yesterday that it reached a settlement with the "scanner troll," who claims to own the technology for scanning documents to email and has been demanding that companies large and small who use this widely available technology pay up. This settlement follows what appears to be an investigation by the state's attorney general.

Patent law is federal law, which means that state courts usually don't get to hear patent cases. But lately, patent trolls have hit a new low, targeting end users and consumers. This behavior has gotten the attention of state attorneys general, starting with Vermont, who filed a complaint in May against the same now infamous "scanner troll" (MPHJ Technology), alleging unfair and deceptive acts under Vermont's Consumer Protection Act (PDF of the complaint).

But Minnesota's settlement with the troll goes even further. Now, before it sends any letters to Minnesota businesses, MPHJ must give the attorney general's office 60 days' notice and obtain its consent.

The Minnesota attorney general's reasoning was pretty simple:

The Attorney General's Office began to investigate MPHJ Technology for violations of state consumer protection laws last spring, after receiving complaints from several Minnesota small businesses that were targeted by the company. MPHJ Technology, through its affiliates and law firm, sent a series of increasingly threatening letters to small businesses that alleged infringement of its patents for using basic office equipment to scan documents to e‑mail. The letters pressed businesses to pay a fee of $1,000 to $1,200 per employee for a license in order to avoid litigation. Many of the letters promised litigation -- and some even included a draft lawsuit to be filed in federal court -- if the business did not respond or purchase a license.

There are no two ways about it: this settlement makes Minnesota companies safer, not just from MPHJ, but by creating an environment hostile to patent trolls in general. In fact, MPHJ has publicly stated that it "welcomes" the review process that's part of the settlement agreement. We have a sneaky suspicion that MPHJ, who, as far as we know has never even filed a lawsuit, will not be using this review process; instead, it will likely take its "business" elsewhere.

Hats off to Minnesota.

Organizations:

EFF

Judge Sticks Up for End Users, Rules Against Text Message Troll

adi — Wed, 21 Aug 2013 23:19:17 +0000

A Federal Judge in Illinois recently ruled (PDF) that the infringement claims asserted by Helferich Patent Licensing, LLC—the notorious troll who owns patents on sending links to cell phones—did not hold up, all thanks to a doctrine known as "patent exhaustion."

This is important for two reasons: One, the case is a big victory for end users—customers who buy products or utilize services—who increasingly find themselves targeted by patent trolls; two, patent exhaustion is an important legal doctrine that can and should be used more to protect those facing troll threats. In fact, Apple is currently arguing that exhaustion bars the infamous troll Lodsys' claims against iOS app developers because Apple already has a license to Lodsys' patents.

The Background

Helferich's patents cover the delivery of content (alerts with a hyperlink) to a cell phone. The patents included some claims directed to the device (i.e. the cell phone) and some directed to the delivery of the alerts (i.e. the content). Asserting that its license to mobile phone manufacturers only covers the cell phone claims in the patent and not the content claims, the troll proceeded to demand payment from hundreds of companies who utilized the everyday practice of sending text messages containing hyperlinks.

After sending a litany of demand letters resulting in over a hundred companies taking out a dubious content license, Helferich has finally been stopped in its tracks. The defendants in this latest case—The New York Times, G4 Media, CBS, Bravo Media, and J.C. Penney—refused to comply and fought back hard in court, winning summary judgment.

How'd they win? Because of "patent exhaustion."

Patent Exhaustion

Helferich licensed their patents to every mobile phone manufacturer, who, in turn, sell their devices to customers. The doctrine of patent exhaustion states that the sale of a product that practices a patent (even one that partially practices a patent) exhausts that patent in its entirety. In other words, the patentee doesn’t get two bites of the apple; it can't sue a product's downstream user if that user acquired it legally from a supplier that already licensed the patent.

In this case, Helferich argued that it had separately licensed its patents' cell phone claims and content claims. The Court found that Helferich's attempts to separately license its patents' various claims and then sue downstream content providers effectively and impermissibly turned one patent into multiple. Not only did Helferich receive licensing fees from cell phone manufacturers, but it was attempting to double dip by demanding an additional license from content providers like the New York Times and J.C. Penney.

Luckily, the court rightly found this to be totally bogus:

The doctrine of patent exhaustion is designed to avoid double recovery by a patentee, promote the orderly administration of patent rights, provide an efficient method for determining the termination of the patent monopoly, and promote fair competition. To permit HPL to recover multiple times on the same patent by selling licenses to the patents piece by piece (or claim by claim) is contradictory to these policies supporting the doctrine of patent exhaustion. Therefore, HPL's patents are exhausted.

The Big Idea: Protect End Users

Patent trolls are everybody's problem now.

They're no longer simply going after high tech companies. Increasingly, they are targeting end users for patent infringement.

Scan documents in your office? This troll wants you to pay up. Offer Wi-Fi at your café? This other troll might come knockin'. Send text messages with hyperlinks? Well, with this recent decision, there's now a glimmer of hope.

Patent exhaustion won't apply to all cases—only circumstances with prior licenses or sales. But end users must be protected from bad actors in the patent space. We've said it; the White House has called for empowering end users; Congress has proposed bills to fix it. Entities like Helferich make it clear just how necessary reform is—this time, patent exhaustion saved the day, but that won't always be the case.

Organizations:

EFF

Trolls: Moochers Preying on Makers

adi — Fri, 16 Aug 2013 18:45:34 +0000

Hillary Foss is a marketing associate at FindTheBest, which recently received a demand letter.

When I first heard that the company I work at, FindTheBest, was being sued by a patent troll, I didn’t know what to think. FindTheBest is building the ultimate research hub that equips people with the best information and research tools to think like experts in just about any topic, from colleges to smartphones to dog breeds and hundreds more. The site starts by collecting the best information, whether that’s smartphone specs straight from the manufacturer, university statistics from the Department of Education, or third-party financials from the world’s leading business authorities. It then builds the tools people need to make sense of the information, from visual icons to smart filters to scatterplots. How were we going to be able to keep moving forward with a lawsuit from a patent troll on our desk?

I then talked to our CEO, Kevin O'Connor and found out that he has committed to spending $1 million of his personal funds to win the frivolous case in court and is going through the entire process as a vocal participant and being extremely public about the case, the parties involved, and his feelings on the issue. As a fresh college graduate, I was shocked to hear that it was going to take $1 million to fight this thing in court, but as time progressed, I realized that the monetary costs of defending yourself are just a small portion of the true costs involved in fighting a patent troll.

Don’t get me wrong: the cost of dealing with a patent troll can make or break a company, but FindTheBest is lucky enough to have a passionate (and successful) CEO who is able to take on the financial burden. It means our fight is different than most. The decision to fight back is not simply based on what is best for the company financially, but what is ethical and beneficial for entrepreneurs across the nation.

You might think that our CEO’s personal pledge would remove the burden of fighting the patent troll. I know I did. But it doesn’t end there. The real costs are the time, effort, stress, and opportunity cost of what you are not building, not to mention the biggest cost that society faces: the destruction of American innovation. When companies are forced to defend themselves against frivolous lawsuits, society is the one that loses. Instead of being able to focus on growing our business and developing innovative products and features that add value to society, we are forced to go on the defensive.

This happened at FindTheBest. Danny Seigle, our director of operations, has been the lead on dealing with our patent troll lawsuit and instead of being able to implement measures that expand our company he has been forced to spend countless hours communicating with lawyers, researching legal jargon, stressing about the lawsuit, and educating our employees on what is happening. Not every company will have to deal with these exact issues, but we have a very transparent culture at FindTheBest and everyone constantly wants to know who is winning the war. Let’s just say none of it is helping Danny’s already receding hairline.

The bigger issue is that patent trolls target the utopian image of American innovation. They go after the companies that are hiring people in a time where 7.4% of people in the United States are unemployed. FindTheBest has hired 50 people in the last 6 months, and we had plans to hire more, but those have been put on hold while we defend ourselves and function in an arena of uncertainty. We want to continue to add value to society, but this lawsuit does nothing but take away our ability to effectively do that.

Patent trolls are getting plump eating away at the American dream. The next Google or Apple may never materialize because patent trolls could eat them up before they are able to scale and defend themselves. Future generations will be forced to cope with stifled innovation and reduced economic output as a result of these patent trolls. It’s a broken system that assumes you are guilty until proven innocent, giving trolls the upper hand and allowing them to easily extort money from young startups.

Something has to change and everyone can help. You’ve taken the first step by educating yourself, now you have to write your senators, your congressmen and your congresswomen, to take a stance and win the war against patent trolls.

Patent Troll Dismisses Frivolous Lawsuit and then Donates to Charity

adi — Mon, 12 Aug 2013 21:44:07 +0000

Todd Moore is a mobile developer and founder of TMSOFT. This is crossposted from his own blog.

Lodsys has dismissed the patent infringement lawsuit it filed against my company TMSOFT. The dismissal is with prejudice which means they can never sue my company again for infringing its patents. I did not have to pay any money to Lodsys or sign a license agreement. I also did not sign a confidentially agreement so I’m free to talk about this matter.

So what did I have to agree to?

Never to sue Lodsys over its patents (I otherwise would have the right to ask a court to rule their patents invalid if I wanted)
Dismiss all motions with prejudice (we had filed a motion to dismiss that also sought to recover my attorneys fees, costs and expenses)
Make a donation to a mutually agreeable charity

I’m in the business of creating apps, so mutually agreeing not to sue each other was fine with me. Dismissing all our motions would terminate this lawsuit which is what I wanted as long as I didn't pay Lodsys a dime and I could still talk about it. The mutual donation to charity was also fine with me especially if it was to the EFF or PubPat.org. Of course they wouldn't agree to that, so Make-A-Wish Foundation was selected.

I was a little confused about why Lodsys wanted to make a donation to charity. I asked my lawyer if it was to make them appear more human. He said it is most likely because if we would have said no to this offer, the judge could have said we were not behaving reasonably. That seems a little ridiculous given they were the ones that filed this frivolous lawsuit. But, I get the point that Lodsys could say to the judge they were willing to dismiss it if only I'd make a small donation to a charity. This would be their way of making me look like I was the one wasting the court's time by continuing to fight the case despite Lodsys being willing to dismiss it without me having to pay them anything.

Although this was a win for my company, it was only a win because I had Dan Ravicher and his associate from the Public Patent Foundation (pubpat.org) representing me pro bono. It is extremely rare to get this kind of assistance (I know of no one else out there offering to defend small businesses like mine pro bono from patent infringement allegations) and I am very fortunate that someone as talented as Dan agreed to fight these bullies for free. I asked Dan how much this would have cost me:

“I've spent about 200 hours on the matter and Sabrina about another 80. My comparable market hourly rate (partner at a top NYC patent firm) would be $750 and a comparable rate for Sabrina (senior associate at a top patent firm) would be about $500.”

The total costs to my company would have been $190,000. And that’s just for the initial response to this lawsuit. We hadn't even gotten to court which would have increased that amount into millions. Remember that it only cost Lodsys about $450 to file the lawsuit. This is why small businesses will usually always settle. It’s just not worth it to fight. And even if you could win and get awarded your attorneys fees and costs, which are very rare, you probably won’t see a dime of that money.

This is because patent trolls are set up as shell companies without much in assets. Any money that the patent troll receives from all the licensing agreements is immediately distributed to other companies—this includes the law firm representing the patent troll on contingency and the company that originally held the patent. Any money you might be awarded will be long gone by the time it comes to collect.

Payments are also sent to the troll using overseas bank accounts. This is mainly to avoid paying US taxes, but it could also make it more difficult to follow the money if an investigation was ever brought on. The patent trolls have created an extortion business model that is virtually risk-free—nothing to lose and everything to gain.

There is a lot of talk going on about patent reform, but most of the ideas being discussed would not help small companies. In my next article, I'll discuss solutions to the problem and my visit to Capitol Hill where I was able to share my story to those that might be able to fix our broken system. Hopefully one day tech startups can stop worrying about patent trolls and get back to building cool stuff.