‘Patent trolls’ have become the scourge of businesses

What comes to mind when you hear the word “troll”? Perhaps an ugly, lumbering beast from The Lord of the Rings film series?

“Patent trolls” have become the scourge of businesses, large and small. More properly known as Patent Assertion Entities, they employ a business model that the FTC says is “based primarily on purchasing patents and then attempting to generate revenue by asserting the intellectual property against persons who are already practicing the patented technologies.”

The Electronic Frontier Foundation says that patent trolls often buy patents cheaply from companies that are down on their luck and looking to monetize any assets they have left. The trolls then send out letters to businesses they claim are infringing the patents threatening legal action unless the alleged infringer pays a licensing fee that can run into the thousands and even hundreds of thousands of dollars.

The patents themselves may be of little value or relevance to the products that supposedly infringe upon them. The patent trolls may have done little or no investigation into whether the businesses they target are actually infringing the patents.

Many innocent companies, particularly smaller ones, pay the fee because they can’t afford to litigate the matter. In announcing a plan to deal with the problem, President Obama said patent trolls just want to “hijack somebody else’s idea and see if they can extort some money.”

There are legitimate patent claims, but lawsuits brought by patent trolls increased from 29 percent to 62 percent of all patent infringement suits in the past two years. An FTC commissioner said, “Some evidence suggests that PAEs may have threatened over one hundred thousand companies with patent infringement in 2012 alone.”

Companies of all sizes are targeted by patent trolls. One researcher found that over 60 percent of surveyed companies with revenues at or below $100,000 reported that a patent troll caused them trouble. A White House study found that victims of patent trolls – mostly small and medium-sized companies – paid $29 billion in 2011, a 400 percent increase from 2005.

Non-profit organizations and even regular consumers are also targeted by patent trolls.

Following are examples of claims made by patent trolls:

One company threatened to sue 8,000 coffee shops, hotels and retailers claiming that their Wi-Fi networks infringed on a patent.

Another said small businesses that attached a document scanner to an office computer system were violating a patent.

A company sued podcasters for a licensing fee based on a patent that was originally filed long before podcasts were even conceived.

Some companies, particularly ones with deeper pockets, are fighting back. Rackspace, a cloud storage company, has chosen to spend several million dollars defending a suit that it could likely settle for far less. The company suing them has brought over 1,600 patent infringement suits. Its owner earns about $25 million a year.

Mark Cuban, the owner of the Dallas Mavericks, has a number of beefs with the patent system, including a dislike of patent trolls. He contributed $250,000 to the Electronic Frontier Foundation to create a position called “The Mark Cuban Chair to Eliminate Stupid Patents.”

There’s even a company selling T-shirts that say “Don’t Settle…Settling Feeds Trolls.” It says the proceeds will be used to challenge bad patents targeting small businesses.

Randy Hutchinson is president and chief executive officer of the Better Business Bureau of the Mid-South.