How Trolls Use Patent Law to Make an Easy Buck

October 6, 2017
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Via The Daily Bell

Patents seem like a good idea on paper. If you come up with something innovative, you should reap the rewards. That safeguards the hard work and money someone puts into an invention or technology.

But patents really amount to a legal monopoly, granted by government. And as is typical with government, this intervention into the economy creates some interesting side effects.

Patent trolls are businesses which own patents for the sole purpose of litigation. They don’t make their money from producing whatever the patent secures. They make their money suing companies for patent infringement.

This works best when the patent is something that probably should have never been patented in the first place.

For instance, a company called Personal Audio managed to successfully sue Apple in 2011 for $8 million. The patent they say Apple infringed on: downloadable playlists.

Personal Audio would be considered a patent troll because the patents they hold are pretty obvious and broad technologies. Luckily, courts recently struck down their attempts to sue based on their patent on podcasts.

You can get a patent for a complicated medical device which costs millions of dollars to invent. And you can get a patent for recording audio, and creating playlists.

Another part of the problem is that patent trolls don’t have to successfully defend their patents at trial in order to make money. Many depend on settlements reached out of the courtroom. For the troll, they just have to draw things out in court long enough so that the costs of defense would rival the cost of the settlement.

If you are being sued for $1 million, and defense will cost you $750,000 then from a business standpoint it makes sense to settle. After spending the $750,000 defending yourself, you may lose another million! Better to cut your losses, and just settle for $750,000 in the first place.

And one particular federal court is a favorite for patent trolls. In the Eastern District of Texas, they aren’t quick to issue a summary judgment. That means that patent cases are basically guaranteed to go to trial, which makes the cost of defense skyrocket.

And that means companies are even more likely to settle rather than spend time and money defending themselves against a patent troll.

But last May, the TC Heartland Supreme Court decision made it harder for patent trolls to use the East District Texas court to file their patent litigation. It ruled defendants must be established in a district in order to be sued there.

Previously, patent trolls would set up their business headquarters in the district so that anyone they sued would be dragged down to a court more favorable to the trolls.

But the trolls could not be so easily vanquished. The defense contractor Raytheon sued a company called Clay inc. for patent infringement. They filed in the Eastern District of Texas. According to the Supreme Court decision, Clay inc. would have to be established within the district in order to be sued there.

A judge ruled that because Clay inc. had just one lone sales representative who lived in the district, that the lawsuit could take place there.

Luckily, again the trolls were struck down. A court reversed that judgment, saying that one salesman who works from home and covers multiple states does not constitute a presence of the company in the district.

They are splitting legal hairs. All too often, it seems like courts come down to silly arguments. The lack of an Oxford comma in their contract once cost a company millions of dollars.

It’s great this loophole is being closed, but this highlights the issues with government statute. Too many cases are a flip of the coin. They depend on the costs of litigation rather than right or wrong. And that makes the government enforced monopoly of patent law questionable, to say the least.

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