Patent Trolls Threaten to Bankrupt Companies and Stifle Innovation

By LAURA LOREK
Founder of Silicon Hills News

BLh_g4vCQAAFsU5Without patent reform, Living Direct might have to file for bankruptcy, said Mark Baker, its general counsel.
The online retailer, founded in 2000 now has 60 employees, and faces multiple “patent troll” lawsuits which threaten to drain it of all of its cash, Baker told a seven-person panel Thursday morning meeting on patent reform at HomeAway’s headquarters in downtown Austin.
“As soon as we were listed as one of the fastest growing retailers in the country, we became the target of eight trolls,” he said.
And it’s not just Living Direct, the problem is endemic to online retailers, software companies and others in the technology industry.
Julie Huls, president of the Austin Technology Council, moderated the panel with Sen. John Cornyn (R-Texas), Johnathan Greenberg, general counsel of Freescale, Ross Buhrdorf, chief technology officer of HomeAway, Josh Baer, chief innovation officer of Return Path and co-founder of Capital Factory, Alan Schoenbaum, general counsel of Rackspace Hosting and Derek Willis, general counsel of Volusion.
Sen. Cornyn listened to stories of Texas technology companies struggling to deal with patent trolls, which are businesses that largely exist simply to extort payments from companies for meaningless patents.
“This is a threat not only to the innovation these businesses create but also to our prosperity and our economy,” Cornyn said.
One of the sectors of the economy that offers the most opportunities for growth is the technology industry and patent trolls threaten those companies ability to innovate, he said.
Patent trolls don’t create businesses, they destroy them by extorting money from companies that are creating innovative products and services and employing people.
Nothing is easy to pass in Congress these days, but if there’s something that would garner bi-partisan support, Cornyn said, he hopes it’s patent reform. He requested that the technology companies send their stories to his office to help with illustrating the need for patent reform.
Right now, the Patent Abuse Reduction Act of 2013 is currently pending. It seeks to reduce abuse in patent litigation while still protecting legitimate businesses that have patents on innovations they seek to protect.
“I’m very optimistic it’s going to pass,” said Schoenbaum, general counsel with Rackspace Hosting in San Antonio.
Patent trolls can go after just about anyone with a frivolous lawsuit, Schoenbaum said.
“Everyone in this room is probably infringing on a patent right now and they don’t know it,” he said.
Recently, Rackspace got hit with a patent infringement lawsuit from a patent troll seeking to enforce a patent on the ability to flip a smartphone, such as an iPhone or Android device, from horizontal to vertical. The company was called “Rotatable” and had just one asset, the patent.
“Ninety percent of our litigation costs is spent on patent trolls,” Schoenbaum said.
When he called the company to inquire about the lawsuit, they offered to settle the patent infringement case for $75,000, Schoenbaum said. The whole goal of patent trolls is to extract a little bit of money from a lot of people, he said.
Abusive patent litigation results, in part, from the threat of the cost of discovery in a lawsuit. That’s why companies often settle the frivolous claims to avoid the cost of litigation. But the Patent Abuse Reduction Act would make those bringing the lawsuit bear more of the cost of litigation.
The reform legislation would also adopt a “loser-pays” scheme in which parties that bring unjustified and unreasonable claims face the possibility, if they lose, of having to pay for the other side’s litigation costs.
Willis, general counsel of Volusion, said the company has 400 employees in Austin and 40,000 customers.
“With that growth, we’ve become a bigger target,” he said.
Patent trolls have sued Volusion three times in the last year, he said.
“It’s an incredible drain on our cash,” he said. “It’s an incredible distraction for our management team.”
Baer, chief innovation officer for Return Path and co-founder of Capital Factory, said that in dealing with small startup companies, they tend not to think about politics and lawsuits.
With a technology startup, Capital Factory gives them $20,000 in startup funding and they’ve got to decide whether to spend $10,000 on filing a patent.
“None of it makes any sense,” Baer said. “Really it’s just shutting everything down.”
Patents were started to spur innovation but with software stuff, it just doesn’t make any sense, Baer said.
In his role at Return Path, with 400 employees, Baer said the company has been hit with three patent troll lawsuits.
“We spend millions of dollars a year defending them,” he said.
During the panel discussion, Greenberg, senior vice president and general counsel of Freescale, recommended that startups and small businesses be exempt from patent lawsuits.
In remarks following the panel meeting, Sen. Cornyn said that’s currently not part of the patent reform legislation, but it’s something that should be considered.
Patent trolls are a threat because they “hurt consumers ultimately by denying them access to products and services that will make their lives easier,” Sen. Cornyn said.
The patent trolls don’t have a business other than going after litigation with businesses, said Buhrdorf, chief technology officer with HomeAway.
Patent trolls stifle innovation, he said.
“It’s stifling jobs,” he said.
HomeAway spends millions of dollars every year paying ransom to trolls or on defending baseless lawsuits, Buhrdorf said.
Freescale does derive a lot of revenue from licensing its patents and innovations to others, said Greenberg. So he cautioned Sen. Cornyn not to make true innovators pay for the sins of the patent trolls.
“The voice of the true innovators need to be heard,” he said.
“Just making it harder for anyone to enforce a patent, makes it harder for true innovators like Freescale and IBM,” Greenberg said.

In response to Mark Baker’s comments, this note was sent from Living Direct: “During a recent panel discussing the significant problem of patent trolling, our general counsel made comments that were not accurate and were overstated to make a point about the severity of this issue. Our business is strong and our finances are healthy. We strongly support Senator Cornyn’s efforts and look forward to working with him and Congress on this critical issue for American innovation.”

Comments

  1. Monica Smith says:

    Three cheers for the invention thieves.

    Let’s get a law that requires companies to verify they are not stealing inventions before they introduce new products. Not one of these companies cares whether or not they are stealing inventions. They are not victims, they are thieves.

  2. Monica,

    I’d guess you are either a patent lawyer or some1 who is or works for a troll.

  3. The truth is far more often the opposite. Without patents small firms cannot get funded and are easy prey to large firms who can easily swoop in and wrest away promising new markets. Large firms can protect their markets by their size alone. This is mere dissembling by thieves and their paid puppets. It is not innovation that patents hinder, but the theft of. Cornyn is either severeliy duped, or severely bought.

    “patent troll”

    infringers and their paid puppets’ definition of ‘patent troll’:

    anyone who has the nerve to sue us for stealing their invention

    The patent system now teeters on the brink of lawlessness. Call it what you will…patent hoarder, patent troll, non-practicing entity, shell company, etc. It all means one thing: “we’re using your invention and we’re not going to stop or pay”. This is just dissembling by large invention thieves and their paid puppets to kill any inventor support system. It is purely about legalizing theft. The fact is, many of the large multinationals and their puppets who defame inventors in this way themselves make no products in the US or create any American jobs and it is their continued blatant theft which makes it impossible for the true creators to do so. To them the only patents that are legitimate are their own -if they have any.

    It’s about property rights. They should not only be for the rich and powerful. Our founders: Jefferson, Franklin, Madison and others felt so strongly about the rights of inventors that they included inventors rights to their creations and discoveries in the Constitution. They understood the trade off. Inventors are given a limited monopoly and in turn society gets the benefits of their inventions (telephone, computer, airplane, automobile, lighting, etc) into perpetuity and the jobs the commercialization of those inventions bring. For 200 years the patent system has not only fueled the US economy, but the world’s. If we weaken the patent system we force inventors underground like Stradivarius (anyone know how to make a Stradivarius violin?) and in turn weaken our economy and job creation. Worse yet, we destroy the American dream -the ability to prosper from our ingenuity for the benefit of our children and communities. Who knows who the next Alexander Graham Bell will be. It could be your son or daughter. It could be you. To kill or weaken the patent system is to kill their futures. Show me a country with weak or ineffective property rights and I’ll show you a weak economy with high unemployment. If we cannot own the product of our minds or labors, what can we be said to truly own. Life and liberty are fundamentally tied to and in fact based on property rights. Our very lives are inseparably tied to our property. Large multinational corporations are on the brink of destroying the American dream -our ability to pull ourselves up by our bootstraps from the working classes by building our own companies while making better futures for our children and our communities.

    Prior to eBay v Mercexchange, small entities had a viable chance at commercializing their inventions. If the defendant was found guilty, an injunction was most always issued. Then the inventor small entity could enjoy the exclusive use of his invention in commercializing it. Unfortunately, injunctions are often no longer available to small entity inventors because of the Supreme Court decision so we have no fair chance to compete with much larger entities who are now free to use our inventions. Essentially, large infringers now have your gun and all the bullets. Worse yet, inability to commercialize means those same small entities will not be hiring new employees to roll out their products and services. And now those same parties who killed injunctions for small entities and thus blocked their chance at commercializing now complain that small entity inventors are not commercializing. They created the problem and now they want to blame small entities for it. What dissembling! If you don’t like this state of affairs (your unemployment is running out), tell your Congress member. Then maybe we can get some sense back into the patent system with injunctions fully enforceable on all infringers by all patentees, large and small.

    Those wishing to help fight big business giveaways should contact us as below and join the fight as we are building a network of inventors and other stakeholders to lobby Congress to restore property rights for all patent owners -large and small.

    For the truth about trolls, please see http://truereform.piausa.org/default.html#pt.
    http://www.hoover.org/publications/defining-ideas/article/142741
    http://ssrn.com/abstract=1792442

  4. Sorry, if you’re encountering a patent it means someone else already thought of it. You aren’t innovating – you’re copying.

    I suggest Rackspace’s investors open their eyes because Schoenbaum is leading them down a dangerous path.

    • So the 1st person to think of the idea for a time machine now owns all rights to time machines?

      If 1 is ever built they can claim ownership even if they have no idea of how to build a time machine? Thats just a stupid policy.

      My guess is that u r a patent lawyer & r therefore pro patents as u earn lots of $$$ of them? am I correct?

Trackbacks

  1. [...] Hills News today reported on ATC’s welcome of United States Senator John Cornyn to discuss patent trolls and the Patent [...]

  2. May 31, 2013 says:

    [...] Patent Trolls Threaten to Bankrupt Companies and Stifle Innovation Silicon Hills News The online retailer, founded in 2000 now has 60 employees, and faces multiple “patent troll” lawsuits which threaten to drain it of all of its cash, Baker told a seven-person panel Thursday morning meeting on patent reform at HomeAway’s headquarters in … [...]

  3. [...] Yet, like all things other parasitic entities on the periphery feed off such cannibalistic forays. A new breed of lawyers have cropped up termed “patent assertion entities,” or more derogatorily by the corporations as “patent trolls” ( SCU report, “Best Practices in Patent Litigation Survey”). As reuters reports: “While PAEs have a bad reputation among technology firms, many patent litigants who do not make products or develop technology think of themselves in a better light. Many of them represent inventors, sometimes university researchers, who cannot afford to defend patents on their own.” Be careful Mr. Philosopher, your ideas may have already been patented by some corporation, so you too may be next for a million dollar suit. Oh we’re having fun now, aren’t we? (Patent Trolls) [...]

  4. [...] Patent Trolls Threaten to Bankrupt Companies and Stifle Innovation ( [...]

  5. [...] Senator John Cornyn (R-TX) Discusses Patent Trolls with Tech Leaders [...]

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