Tag Archives: patent troll

USPTO Posts Questionable Advice for People Who Receive Demand Letters

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C. ()

Last week, the US Patent and Trademark Office expanded its website to include a section to help individuals and companies to respond when receiving demand letters from patent holders. As one of our colleagues, Gene Quinn, over at IPWatchdog.com notes, this resource (albeit in “Beta” form) is fairly one-sided and offers some problematic advice to those who receive demand letters.USPTO

Much of the advice on the USPTO’s website is fairly generic, but the overall tenor of the advice seems to ignore that legitimate patent owners with legitimate and valid patents often send these demand letters to stop individuals and companies from infringing their patents. Indeed, that is one of the fundamental rights that comes with owning a patent—the ability to stop others from using your invention.

Instead, the fundamental assumption on the USPTO’s website seems to be that only patent trolls send demand letters. For instance, the USPTO suggests that one response is to simply ignore a demand letter because some patent owners send these demand letters to mislead or intimidate the recipients into paying for licenses that they do not need. While the USPTO notes that this approach carries some risk, that advice is buried at the end. Oddly, the USPTO never suggests that one option after receiving a demand letter is to simply stop infringing the patent.

The USPTO also downplays the importance of consulting with an attorney to help understand the risks and to respond to the patent owner in an appropriate manner. Patent law is not a simple subject, and most individuals simply do not have the expertise or knowledge to determine whether they are infringing, whether the patent is valid and enforceable, and what the risks may actually be.

In my years of practice, I have noticed that many individuals do not understand what the scope of a patent is unless they have significant prior experience with patents. They tend to look at the description of the invention in the specification or the drawings, rather than the claims, when trying to assess their exposure. As patent practitioners know, it is the claims that truly matter (although the specification is important to understanding those claims), and those claims are often far broader then the particular embodiments disclosed in the specification. In addition, claims are not written in a format that is simple to understand, or there are statements made during the prosecution of the patent that are important to understanding their scope, which compounds the problem. Thus, there is a very real risk that individuals will drastically underestimate the risk that they infringe unless they receive competent legal advice.

While hiring an attorney may be an expensive proposition, the consequences of not doing so may be far greater. A typical patent infringement lawsuit can easily cost more than $500,000 to defend, even where the amount at issue is small (and can cost tens of millions of dollars when significant amounts are at issue). And, once a lawsuit begins, it can be very hard for a defendant to unilaterally stop it. If an individual is truly infringing, an attorney can help the client understand the risks and suggest ways of resolving the matter before litigation begins, which potentially can save an individual hundreds of thousands of dollars. Simply ignoring a demand letter can be the last thing an accused infringer should do unless there is a very good reason for doing so because ignoring the demand letter starts to lay the groundwork for a finding of willful infringement, which potentially entitles the patent owner to triple damages and an award of its attorneys’ fees and costs.

The problem of extortionate patent trolls is very real, and I have represented numerous companies that have been the targets of these kinds of trolls. It is extremely frustrating to explain to a client the financial costs and distractions that come with defending a meritless lawsuit brought by patent troll and the fact that there often is no simple way to make the lawsuit disappear without paying some amount of money to the troll. That being said, I’ve also represented legitimate companies with patents on innovations they developed that help give them a competitive edge in the marketplace. They have spent significant time and resources in developing these innovations and bringing them to market and understandably want to protect those investments. The USPTO’s blanket advice to individuals and companies that might receive a demand letter is not particularly helpful and understates the real risks and costs that are at issue. It is somewhat disturbing that an office that is charged with issuing valid patents and supporting innovation would put out such incomplete and unbalanced advice. Hopefully, the USPTO will present more balanced and useful advice when this website moves out of its “beta” stage.

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Pennsylvania Senate to Consider Patent Troll Bill

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C. ()

In the continuing quest to limit or prevent patent “trolls” from filing frivolous lawsuits against alleged infringers, state legislatures are jumping into the mix and proposing state laws to discourage or prohibit this kind of conduct. Pennsylvania is among the latest to join this bandwagon. PA Senate Bill No. 1222, introduced on February 4, 2014 is an effort to limit and discourage frivolous patent infringement lawsuits. However, given the scope of the bill, and the potential conflicts with federal law, there are serious questions as to both the wisdom of the approach it takes and whether this bill will ever become law.

The Language of the Bill

Bill No. 1222 purports to prohibit bad faith assertions of patent infringement. (Section 3(a)). It allows a target of a demand letter, someone threatened with patent infringement, or a defendant in a patent infringement lawsuit to bring an action in state court (the court of common pleas) for bad faith. (Section 5(b)). If the court determines that there is a reasonable likelihood that the patentee has threatened or is litigating a patent infringement claim in bad faith, the court can require the patentee to post a bond to cover the target’s legal costs and damages, but not to exceed $250,000. (Section 4). In addition, among the possible remedies are equitable relief, damages, costs and fees, and exemplary damages of $50,000 or three times the total damages, costs, and fees, whichever is greater. (Section 5(b)).

Under the bill, the following factors may be considered as evidence that a patentee is bringing a bad faith claim of patent infringement (Section 3(b)):

  • When a demand letter fails to contain the patent number, the identity of the patent owner, or factual allegations of why the target infringes.
  • When the patentee conducted adequate due diligence before sending the demand letter.
  • When the patentee refuses to provide certain information to the target when requested to do so.
  • When the demand letter demands a response or payment within an unreasonably short period of time.
  • When the license demand is not reasonably related to what the license should be worth.
  • When the patentee knew the claim was meritless or deceptive.
  • When the patentee previously filed or threatened similar actions that were meritless or failed to disclose the kinds of information identified above.

In contrast, the following factors may be considered as evidence that the patentee is not bringing a bad faith claim of patent infringement (Section 3(c)):

  • When a demand letter includes the patent number, the identity of the patent owner, and factual allegations of why the target infringes, or the patentee provides this information on request.
  • When the patentee engages in a good faith effort to establish infringement and negotiate an appropriate remedy.
  • When the patentee has made a substantial investment in using the patent or selling products that use the patent.
  • When the patentee is the inventor, joint inventor, original assignee, or an institution of higher education (or its tech transfer office).
  • When the patentee has demonstrated successfully enforced the patent in litigation or has in good faith previously tried to enforce the patent.

Thoughts About the Merit of This Bill

Determinations of whether a patent infringement claim has been brought in good or bad faith will necessarily require a significant analysis of the underlying merits of the claim, including claim construction and the intricacies of infringement and invalidity issues. State courts have never had to deal with these issues before because federal courts have exclusive jurisdiction under 28 U.S.C. § 1338(a) to hear all patent cases. Thus, this bill would place state courts in uncharted and complex waters that they have never had to deal with.

In addition, this bill purports to extend not just to demand letters sent by patentees, but also filed patent infringement lawsuits (which must be in federal court). It is unclear how state courts are to be addressing issues being litigated in federal court and what power a state court has to interfere with those parallel proceedings. One would think that a federal court that is handling the lawsuit is in a far better position to assess the good or bad faith of a patentee’s claims.

While it is a laudable goal to create disincentives to filing frivolous lawsuits, this bill seems particularly ill suited to this goal. We will be following this bill as it progresses, and will report on its progress.

Defendant Files RICO Complaint Against Patent Troll

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C. ()

A colleague brought to my attention an interesting development in a patent “troll” case in the Southern District of New York that may foreshadow a new approach for companies to defend themselves in these kinds of lawsuits. It is a rather extreme approach, and it will be interesting to see how this case progresses.

MoneyLumen View Technology LLC filed a patent infringement lawsuit against FindTheBest.com, Inc. (Case No. 1:13-cv-03599-DLC). While this case was still pending, FindTheBest filed a separate lawsuit against Lumen View, its principals, and other related entities (Case No. 1:13-cv-06521-DLC), bringing claims under RICO and for extortion, abuse of process, civil conspiracy, and unfair business practices.

Background

According to the two complaints, FindTheBest operates a web site that provides consumers with data-driven comparisons of a wide variety of products and subjects, such as phones, cars, and ski resorts. Lumen View contends that FindTheBest infringes U.S. Patent No. 8,069,073, which relates to a “System and Method for Facilitating Bilateral and Multilateral Decision-Making.”

Lumen View was formed on February 23, 2012 and obtained the patent in suit seven days later. It allegedly conducts no other business aside from filing patent lawsuits and licensing in patents, and has filed more than 20 patent infringement lawsuits relating to the’073 patent in the last 18 months.

On May 30, 2013 (the day after the complaint was filed), FindTheBest claims that it received a letter from Lumen View enclosing the complaint and demanding that FindTheBest pay to settle the lawsuit. Lumen View apparently initially demanded that FindTheBest pay $85,000 for a licensing fee, but dropped that demand to $55,000 the day before FindTheBest’s answer to the complaint was due. FindTheBest rejected Lumen View’s settlement demands and continued with the lawsuit. The parties have submitted a list of claim terms to be construed, and FindTheBest has moved for judgment on the pleadings, arguing that the patent is invalid under 35 U.S.C. § 101.

On September 16, 2013, FindTheBest filed an entirely separate lawsuit in the same court against Lumen View, its principals, and other related entities, bringing claims for violating RICO, extortion, abuse of process, civil conspiracy, and unfair business practices. FindTheBest contends that Lumen View engaged in a criminal enterprise by failing to conduct proper due diligence before filing its lawsuits and knowingly pursuing frivolous cases in order to extort settlement money from its targets. Defendants in this second case have not yet answered the complaint.

What This Case Means

This is an interesting and aggressive approach to fighting back against what FindTheBest apparently believes is a frivolous and improper lawsuit. It is curious that it is bringing this second lawsuit at this time—before the first case is even close to being resolved. One wonders how the Court will respond to this second action. Will it allow it to proceed? Will it stay or dismiss the case pending the resolution of the first lawsuit?

Civil RICO cases are generally disfavored by the courts and notoriously hard to prosecute. In general, such a claim would be extremely difficult for a defendant to bring in a standard patent infringement lawsuit because RICO requires a pattern of racketeering activity and multiple victims. In this case, however, because Lumen View allegedly filed multiple extortionate lawsuits against multiple “victims,” FindTheBest may be able to overcome these pleading hurdles.

Regardless, as long as the second lawsuit exists, it creates immense pressure on the patent holder and the persons and companies associated with it and likely completely changes the settlement dynamic. For one thing, Lumen View likely cannot take the approach that Loadsys did against Kapersky Labs and unilaterally drop the lawsuit if it thinks it will not prevail. Such an action would feed right into FindTheBest’s theory that the lawsuit was a sham and increase the chances that FindTheBest could prevail in its lawsuit.

It will be interesting to follow this case and see how it progresses. If nothing else, it gives all parties something more to think about in lawsuits of this type.