After Drew Curtis saw his website Fark.com gather a large, international following he found himself embroiled in a curious lawsuit alongside other Internet giants like Yahoo.
A growing number of companies nationwide, particularly Internet and other tech companies, have found themselves fending off questionable claims of patent infringement – and it’s costing companies billions of dollars annually, patent attorneys and lawmakers say.
Kentucky lawmaker Sen. Chris McDaniel, R-Taylor Mill, has filed a bill that he hopes will curb the practice known as “patent trolling.’
(For an OpEd that ran previously on BizLex.com about this legislation, click here.)
The practice has raised concerns across the country. Other states are considering legislation and President Barack Obama mentioned the need for patent reform in his State of the Union address in January.
For Curtis, ‘patent trolling’ forced him to spend a year defending his company from a claim. In 1999 the Lexington man founded Fark.com, which gathers news from around the world, puts a humorous spin on it and allows readers to comment. News websites that gather content and allow for comments have become a common on the Internet
But a company in an office park in Plano, Texas with the vague name of Gooseberry Natural Resources claimed it owned the rights to a “system and method for structured news release generation and distribution,” and as a result, the suit claimed Yahoo and Fark owed Gooseberry money.
Curtis likened the infringement claim to patenting phone calls over the Internet.
After about a year of legal wrangling, Curtis said he asked Gooseberry to show where he infringed the patent, and Gooseberry dropped the suit against Fark. Calls to Gooseberry’s attorney and to the inventors listed on the patent, Eileen Shapiro, of Cambridge, Mass., and Steven J. Mintz, Saddle River, N.J., were not returned.
“It is disbelief. Someone accuses you of something you didn’t do,” Curtis said. “In patent law, you have to prove you didn’t infringe. That’s hard. How do you prove something you didn’t infringe on? To get to the stage of the lawsuit, that amount of work to prove you didn’t infringe is a lot. The other side knows this and essentially is legally extorting you.”
Many other companies, when faced with fighting patent lawsuits that can cost $2 million or more, decide to settle rather than fight.
Kentucky at the forefront
If the General Assembly passes McDaniel’s bill, Kentucky will be the third state to pass a law to combat patent trolling, behind Vermont and Oregon.
“We’d be at the forefront nationwide,” McDaniel said. “The problem is bad enough that the president called for reform in his State of the Union. It is a huge issue inside of the high-tech industry.”
McDaniel’s bill would penalize anyone who makes a vague and false claim of patent infringement. The bill passed the Republican-controlled Senate but awaits a hearing in the Democratic-controlled House. Gov. Steve Beshear has not announced a position.
The bill wouldn’t change federal patent law or lawsuits but would seek to stop patent trolls before it ends up in a courtroom, McDaniel said. Some attorneys question whether states have the right to legislate anything governing patents.
McDaniel said his bill doesn’t touch patent law or the validity of patents, just bad-faith claims made in the state of Kentucky.
It puts more risk on those making bad-faith assertions of patent infringement, he said. Many patent trolls send thousands of threatening letters in the hopes some companies will settle rather than face a lawsuit, he said. McDaniel said his bill would make those who send false letters of patent infringement liable for court costs and penalties.
“The judge can deem it a bad-faith letter if there’s no patent number, no name or address of owner or a lack of factual allegations by the entity making the claim,” McDaniel said.
Sidney VanNess, of Lexington, founder of On Call Central, an answering call service for doctors, has received threatening messages from a California firm.
VanNess didn’t want to discuss the specifics of the threatening voice mails and letters from the California firm. He said they claimed he’s infringed an e-mail patent for an online invoice service his company had stopped providing long before he received the infringement claims. The claims haven’t gone further, he said.
“They have a typical strategy, which is a ‘shots on goal’ approach,” VanNess said. “Send out a lot of letters to people, see who gets scared the most and try to extort a quick settlement out of people.”
Internet’s rise has led to more trolling
The rise of the Internet and computer technology over the past decade has given rise to more patent trolls, patent attorneys say. That’s because computer technology, including Internet technology, can often be intangible. And that can allow for vague patents, said Steve Elleman, a patent attorney from Dayton, Ohio. Elleman said the number of cases involving patent trolls that he’s seen has tripled in the past three years.
Nationwide, patent trolls have become a majority of patent lawsuits, comprising 62 percent of all patent lawsuits in 2012, according to patent risk management company RPX Corporation out of San Francisco.
“With software and computer systems, this is not a mechanical device with sprockets, widgets and gears and specific descriptions of how they function,” Elleman said. “It is more like, here’s an algorithm. You can describe it pretty generically. When the patent is issued, it can be construed in different ways.”
Companies have sprung up that call themselves patent assertion entities but that many call patent trolls. Many of these companies rent office space in Texas where case law has been seen as more friendly to this type of practice, Elleman said.
“It’s proven to be a successful business model,” Elleman said. “Some of these patent trolls are well known and in some ways transparent with their lawsuits. They are open to acquiring new patents.”
Many in the business community think McDaniel’s bill would effectively discourage patent trolls in Kentucky. Patent trolls don’t want a high risk and will go to other states, VanNess said.
“They are just going to look for easier targets, and they are not going to look at states where they perceive risk,” VanNess said. “Why send letters to businesses in Kentucky, or Vermont or Oregon when you have your pick of many other states where you don’t risk landing in state court?”
Many encouraged companies threatened by patent trolls to fight back. Curtis was able to overcome the patent infringement demands by asking specifics of where he infringed.
“There is definitely circumstantial evidence that fighting these guys makes you less of a target,” Curtis said. “They are scared and don’t evaluate risk properly. Move the dial back on them a bit, and they lose their appetite for this activity.”