What Can Small Tech Companies Do About Patent Trolls? | Hacker News Reader

What Can Small Tech Companies Do About Patent Trolls?

blogs.findlaw.com

156 pointsraleighm56 comments

I am a patent lawyer, and the sentiment from the article is on point. Recent case decisions have flipped the script for small companies targeted by patent trolls. The term “Troll” captures many different kinds of patent lawsuits, but most often now the only trolls willing to sue small companies are looking for a quick small payday and will not tolerate any suggestion that they have to put up a real defense of their case on the merits. It can vary, but I have convinced several trolls to drop their case for small clients for just an hour’s worth of work. They know when I make an appearance for a client that they have to put up a fight and will walk away, and if they don’t I have been successful in several cases getting them to pay the lawyer fees incurred by my clients. Happy to answer any questions about the range of responses that may be necessary to defend against this scourge. But I’m happy to report that the trend is favoring the defendant in these scenarios.

>Recent case decisions have flipped the script for small companies targeted by patent trolls.

It would be interesting to see examples of this. What were the outcomes of these cases and how did judges reach those decisions? Many thanks for your time.

In 2014 the Supreme Court ruled in Alice v CLS that computer inventions that claim “abstract ideas” are invalid. What happened in the years following is that the lower courts took this as an opportunity to weed out the crappy patents that were previously good extortion assets. Around the same time, the Supreme Court in Octane Fitness granted lower courts more discretion to shift fees and force losing plaintiffs to pay the defense costs for an unreasonable patent infringement claim. Also, in 2012 Congress passed the American Invents Act that created an Inter Partes Review proceeding at the patent office that lets accused infringers (or others) challenge the invalidity of patents more cheaply than a full trial and often to stop a trial pending its resolution. All these combined have resulted in substantially lower troll demands, and more reluctance by trolls to follow through with an extortionate case.

Good precedent is in Inventor Holdings v. Bed Bath Beyond at the Federal Circuit Court of Appeals. The holding is that a lower court can decide that if a plaintiff turns a blind eye to how bad it’s sotware patent is in light of _Alice_ and doesn’t drop its case, it can award the defendant its attorney fees. This particular case went on far, far too long and the court awarded almost $1M in defendant’s fees to be paid.

Are they ever able to collect those defendants fees? I thought it was common to transfer the IP and file with the new shell company, who would then file bankruptcy in case of an award.

Also thank you for that detail.

It depends. I have obtained three orders to pay my client’s fees and all were paid in full. There is precedent (from an EDTX judge, no less) finding the plaintiff’s lawyer and the individual behind the troll liable when they were ordered to pay fees but tried to play that shell game. [0]

[0] https://insight.rpxcorp.com/news/7795

Yep. When the lawyers/firms were personally on the hook for the fees, it scared them a lot.

https://arstechnica.com/tech-policy/2017/01/original-patent-...

Another lawyer here. I think Octane Fitness was what really did in most parent trolls. Before the trolls were extorting small companies and playing the lottery with big companies (might win and get a huge settlement/judgement). With the risk of fees being assessed the price of entry is getting higher.

We’re seeing the same thing now with disability accessibility suits. There’s a push to allow fee shifting in an effort to mitigate those exploitive cases.

The trolls are in it for money. Unsurprisingly then, when there’s the risk that THEY might lose money they’re quicker to back down.

Link to the referenced cases:

Alice v CLS: https://casetext.com/case/alice-corp-v-cls-bank-intl

Inventor Holdings v Bed Bath Beyond (multiple): https://casetext.com/search?q=Inventor%20holdings%20v.%20Bed...

Is this a problem primarily in certain parts of the world or is it wide-spread?

It seems to emanate a lot from the US. My bro has a patent not tech sector but makes him world leader in his field, and the biggest player in his industry who happened to be based in the US, tried it on with patent infringements. They ended up killing the company in the country affected to avoid paying legal fees. Seems the most extreme forms of Capitalism and perhaps undesirable aspects of capitalism come from the US. However when looking at how the US was formed over the generations, one could argue the country is one built on extremism.

Can patent trolling be decreed as an offense, or it is too much gray area to define and detect it reliably? Is the action punishable under another offense category, e.g. fraud?

If not, what are your thoughts on what can be done to dissuade bad actors from engaging patent trolling, and seek the end of the "scourge"?

Some states have enacted bad faith litigation statutes. If the patent owner is not careful in avoiding the appearance of extortion, they can be liable for the defendant’s fees and other damages.

Could someone (or a group of companies) that have paid in the past sue to get their money back (or have the case reversed if it went to trial) if a troll has a bad faith ruling against them?

Is it still a thing for patent trolls to have a 80 sq ft "business office" with no staff somewhere in east texas, and to file suits there?

https://www.google.com/search?client=ubuntu&channel=fs&q=eas...

Yes, just like any company with a virtual office. But the Supreme Court in TC Heartland last year limited where patent suits can be filed. Now, a _defendant_ needs a physical presence in east Texas to be sued there. Only big box retailers with stores in east Texas towns, or companies with headquarters / offices / storefronts in Dallas suburbs like Frisco or Plano, can be sued there. The virtual office for the patent owner no longer had any effect on the suit being proper in east Texas.

Do you know how it works if a US troll sues a company outside the US?

Assuming you mean filing a lawsuit for infringement of a US patent, a foreign company can be sued in any federal district court in the US. It is a special case.

IANAL, but they can only sue for infringement that takes place within the US. A German company selling to Indian customers can’t be sued in the US.

But German company selling to US customers can, right? Does that mean the company needs to defend itself on US court?

Generally yes.

Would you mind providing a way to contact you in your profile? I'm not sure my questions regarding average cost per case, duration, etc. are appropriate for this thread. Thanks.

For what it's worth, I suspect that many of us would be interested in information about average cost per case and average duration for cases where the defendant is a small company (or small tech company).

I'd also be interested in contact info... Just in case...

New idea for a service: I patent troll your startup with an obvious bad patent. You pay me a very small fee and I lose the case on purpose. On paper you look like you fight back hard, so no other trolls bother you. Company name: troll armor.

Cool idea; a kind of Batesian mimicry[1] to avoid legal predators.

[1] https://en.wikipedia.org/wiki/Batesian_mimicry

Go right ahead, give it a try. I patented this in ‘98.

patent expires this year, yay!

Good one haha

Is losing a case on purpose illegal?

funny. Sadly, probably won't work because courts require an actual case or controversy.

A fun read about what Cloudflare did to a patent troll: https://www.google.com/amp/amp.timeinc.net/fortune/2017/09/2...

The above article describes the case, but not the resolution, which was that the judge invalidated the patent [1]. Blackbird said it would appeal, but Google doesn't bring up anything after the initial decision.

Personally I thought the best was Newegg sueing the patent troll that dropped their case. "They started the litigation, it would be irresponsible not to finish it." Unfortunately, the case seems to have been terminated several months later, so I'm guessing it didn't work. [2]

[1] https://blog.cloudflare.com/bye-bye-blackbird/

[2] https://www.pacermonitor.com/public/case/10583332/Rosewill_I... (see upper right)

Is there any protection to be had by a corporate shell game? Suppose I put my technology assets in one corporation, my revenue and monetary assets in a 2nd corporation, and my customer facing presence in a 3rd corporation. The patent trolls descend on the customer facing presence, which has no substantial technology or monetary assets. If it goes into bankruptcy, I lose brand, but can restart elsewhere and preserve my tech and monetary assets ?

Interesting. So you would have one person with 3 business entities; one for the “mode of production” (technology assets), one for the “means of production” (revenue and monetary assets), and one for the “relations of production” (customer facing presence). Having studied a little bit of Karl Marx in school, I just can’t help but recognize the congruencies between your solution and his theory of Modes, Means, and Relations of Production. It’s quite profound in the context of high-tech modes and patents as an override for securing them. The “modes” are one of the hardest to grasp. He asserted they are the exterior elements like lifestyles, infrastructure, and processes that capitalism would depend on but not account for, and conveniently replace at will, at an accelerating rate. Orthogonality certainly sounds like the way to go if you can manage it.

Anyhow, sorry I don’t have the legal info you’re after. I wishe you luck.

What work are you referring to?

Yeah fair question; hopefully my answer suffices. These three concepts are kind of a constant in his later economic work. I don’t know if he ever presented them in such a succinct way himself; I think listing them like I did was done by somebody else later on. I could be wrong.

I am most familiar with Das Kapital. The ‘means’ are a big part of Volume I, more so as it progresses if I remember right, and his main focus in that volume is the capitalist mode, which prioritizes the means. Volume III (written by Engels) goes deeper into the wider system of modes; elaborating on how modes function in general, and this is where the acceleration concept is asserted more formally.

I am no economist and maybe that’s why but I find the modes discussion in Volume III the most interesting, whether his economic stuff is correct or not, his breakdown of modes seems almost more like anthropology. I mean, I don’t know how people would ever understand us in the future without understanding this in some form or another.

That is genius and exactly what real estate developers do in Philadelphia. They have one shell company for their brand and a separate shell company for each development. If they have 100 separate houses to develop, they may have 100 separate shell companies. This way they close the shell company as soon as they finish a project so that any lingering issues in the community have no recourse.

Say they build a house next to yours and tear up your roof in the process causing it to leak. You need to sue them ASAP or their company will no longer exist in a month or two so you have nothing to sue.

I’d love to hear why LLC’s are a good idea; for the most part they seem like a scheme to avoid responsibility and evade taxes for rich people.

I can’t comment on the balance of LLC use, but the good idea is that someone who cannot afford large personal losses can start a business that won’t ruin them if it fails. Additionally, the personal tax and business paperwork is simpler than with a corporation.

A bunch of the small businesses that sell at local city markets are LLCs, for example.

Not sure about LLCs but to my understanding its common to have an umbrella LLP encompassing all the LLCs

The patent laws contemplate indirect or joint infringement, that could hold multiple entities liable if there is sufficient coordination. What you propose is an interesting investigation, but would quickly run into these issues of multi-party infringement.

Also possible alter ego issues.

Answer is that it depends. Investors will want protections that would render some of that separation moot.

Often those separations are more productive for tax purposes. For example, you can avoid up to 90% of many taxes with a presence in the US Virgin Islands.

For the love of God someone sell patent troll insurance yo startups - trust me there is a lot of money to be made here by diversifying the risk.

I read that these insurance companies are sometimes patent trolls themselves, basically collecting ‘protection’ money

That sounds like a business idea that, if successful, quickly renders itself irrelevant unfortunately

No. Insurance can't solve extortion.

It would be the wrong message to send (unless you like being bullied)

It can also be the other way around: Startup files a patent to potentially take down competing companies (big or small) or open-source projects:

Ref: https://news.ycombinator.com/item?id=15090927

In my experience, settle early, settle often keeps your small business on track. While settling seemed wrong to me on principle (the patent was absurd), the cost of fighting far exceeded what my company could afford. I got on the phone with our corporate outside council and the plaintiff to explore our options. Their first question was "Are you a $100 or $200 million dollar per year company?" Uh, yeah, we think you have the wrong idea... In the end we settled for $50K, the equivalent of about two months legal fees to fight the suit. In the end it was the right decision as we bought certainty. Even ten years later this settlement bugs me, but it was the right thing to do.

What about defending itself against patent issues in general ? Patent trolls are only a degeneration of an already-bad system

The article links to an entrepreneur.com article that talks about anti-troll alliances. I had my business join one of the mentioned organizations UnifiedPatents a while ago. It was free for me (smaller companies and startups) and the on-boarding process was pretty straightforward.

4. Not be based in the US.

Unless you also do not sell in the US this won't help.

Well it could help but not make you immune.

1. You have diversified your risk, so even if you cannot sell into the US market anymore, you may still have a company that can sell into different parts of the world.

2. Even if you lose and a face a large fee, you may be able to just retreat from the US, leaving the US statutory entities to insolvency, whilst protecting your IP.

A guy that taught me a lot about designing hardware said his company refused to sell to U.S. buyers specifically to avoid patent suits. He said it's also why they did so much obfuscation and NDA's. He said it also works so long as they don't pay a company like ChipWorks to reverse engineer your stuff looking for infringements. Then, it still works given that's expensive enough that most parties that could sue won't do it. So, obfuscation and staying away from U.S. were effective strategies.

I thought it had negative implications for competitiveness or financial sustainability of open-source hardware. On top of regular challenges, they might get sued more since the infringement is visible in the source.