Entrepreneurs, from startups to established entities, can add one more item to their worry list: patent trolls. One attorney calls the practice 'almost extortion.'
Technology entrepreneur Bob DePree has been doing high-level pattern recognition and computational linguistics since 1977, going back to when he was on the research faculty at University of Florida.
So not much in the field scares him.
That is, not until he learned about patent trolls.
That's the pejorative for what are technically called non-practicing entities or patent monetization entities. These are companies nationwide that look to profit off patents without doing any business connected to the technology or invention covered under the patent. A non-practicing entity, instead, will try to wring licensing fees out of companies that do use the technology. Some so-called trolls will take companies to court under costly patent infringement cases.
DePree, whose latest company, Sarasota-based ClearChase Corp., develops processing software that connects human languages to computers, hasn't been tagged by any non-practicing entities — yet. But he and his wife, ClearChase CEO Pat DePree, are worried enough about the threat that they recently hired a patent attorney, just in case. ClearChase, the fourth business DePree has founded, includes at least $100,000 of his own money in startup capital.
“It's a big concern,” DePree says of the troll threat. “We are putting out a huge investment in this company.”
Several Gulf Coast patent and intellectual property attorneys say the amount of troll-like cases lurking in the region is on the upswing. President Barack Obama mentioned the topic, briefly, during his State of the Union address in February. The Justice Department and the Federal Trade Commission launched separate task forces last year to study the issue, moreover, and federal legislation was introduced in late February to combat the problem.
The issue has even gotten so bad, if not bizarre, that a federal official says in one case a patent troll went after companies that use standard document scanners. The troll, in this case, claims to have a patent on scanning something and attaching it to an email. So if another company does that it must “license” the technology through the troll or possibly face a patent infringement claim.
Several studies document the trend, too. For example, according to Daniel Law Offices, with clients in Tampa and Orlando, non-practicing entities filed 4,000 lawsuits against companies nationwide through 2011. Another study cited by the firm reports that businesses spent $29 billion in defense of those cases.
“It's only getting worse,” says Doug Cherry, an intellectual property lawyer with Shumaker, Loop & Kendrick in Sarasota. “You have to settle or take the license. It's almost extortion.”
Of course, on the flip side, many entities that do the alleged trolling consider the actions a legitimate business model. The defense, basically, is a property rights argument: A patent holder can do whatever it wants, legally, with a patent. “A patent is a piece of property like any other piece of property,” says Tampa attorney Brent Britton with GrayRobinson. “You can protect from infringement on it, whether you are using it or not.”
Patent laws that are sometimes complicated and can be difficult for entrepreneurs to interpret further exacerbate the issue. So a company could have several reasons to sit on a patent and not use it, but also protect it from being used by others.
“Depending on whom you speak to,” says Steven Teppler, an attorney with Kirk Pinkerton in Sarasota, “anyone can be a troll.”
With an opening like that, it makes sense patent trolls cast a wide net.
An alleged non-practicing entity, for instance, recently ensnared Sarasota Memorial Hospital, an 800-bed public community medical center with more than $500 million in annual revenues. The case, filed in federal court in Tampa last October, pitted Houston-based Qxzab LLC against the Sarasota County Public Hospital Board.
Qxzab, in court documents, alleged that the hospital, when it used a smart card-based system for patient records and histories, infringed on its patents. Qxzab claimed the patent that covered the technology was granted Nov. 3, 1998, under “Computer Systems and Method for Storing Medical Records Using a Smart Card to Store Data.”
But there was a major hiccup in Qxzab's troll-like lawsuit against the hospital: Turns out, according to SMH's legal counsel, that the hospital never used the technology or anything related to it. The hospital did issue a press release several years ago that touted the technology, says its attorney, Carol Ann Kalish, but it never made sense to actually use the products. “This was obviously a patent troll,” says Kalish, a shareholder with Williams Parker in Sarasota.
An IT executive with SMH said in an affidavit that the hospital never used the technology, says Kalish. That led to the case being dismissed, a move Kalish says Qxzab's attorneys agreed to with little protest. Qxzab's Orlando-based attorney, Robert Wolter, didn't return several calls seeking comment.
Kalish says the entire episode wasn't too difficult to defend, though she recognizes that's not always true in patent infringement cases. One sidenote to the SMH case that further proves the troll trend has legs: Within days of the suit being filed Kalish fielded calls from four patent attorneys who read the filing and offered to help her defend the case, if necessary.
These are exactly the kinds of stories that scare people like Bob DePree and Austin Hurst, a tech entrepreneur who has started and funded several businesses. A patent troll hasn't yet bitten Hurst, whose most recent firm, Tampa-based Cloud VDI, focuses on work-based cloud computing for tablets and smart phones. But just like DePree, Hurst is aware of the trend and says non-practicing entities choke innovation.
“Trolls never intend to go to market with something they create,” says Hurst. “That's unfair because that's not how it's supposed to be with patents.”
Yet patents, say several attorneys, aren't approved because the entity that applies for it has a sound marketing strategy. Instead, the law revolves around the uniqueness and exclusivity of the potential creation. “To get a patent you don't have to invent anything,” says Britton, the Tampa attorney. “You just have to be able to describe how to do something.”
There are ways entrepreneurs can fend off trolls, however, despite the current trend. For starters, most patent attorneys say being careful about understanding the specific uses of a technology is a key step in troll defense.
So don't just Google something and then, if you don't find any others doing it, start a company, says Cherry, the Sarasota attorney. Says Cherry: “I'm a big believer in preventive measures.”
Federal lawmakers, meanwhile, will try to prevent an increase in trolls through the Saving High-Tech Innovators from Egregious Legal Disputes Act. Rep. Jason Chaffetz, R-Utah and Rep. Peter DeFazio, D-Ore., introduced the bill, also called SHIELD, Feb. 27. The bill would require plaintiffs that lose a patent troll case in court to pay the defendant's attorney and legal fees.
“Patent trolls add no economic benefit to our nation,” Chaffetz said during a press conference. “They have captured a part of the system. They are exploiting it for their own personal financial gain.”