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Ip Connections Canadian Intellectual Property & Technology Law Newsletter IP CONNECTIONS CANADIAN INTELLECTUAL PROPERTY & TECHNOLOGY LAW NEWSLETTER. On the lookout for patent trolls May/June 2008 The patent troll phenomenon endangers Canadian companies that 1 On the lookout for do business in the United States. patent trolls We’ve all heard of trolls – hideous creatures colourful moniker “patent troll” has stuck and who hide under bridges, waylaying unwary has since been widely adopted in the travellers with extortionate demands for a intellectual property field to refer to 5 Parody and the law: when bridge-crossing toll. Surely trolls are mythical stereotypical patent holders having one or is it OK to poke fun? beasts, existing only in scary children’s stories. more of the following characteristics: But it seems that a species of this creature • No products or services of its own, does exist in the real world – the so-called making it easier to focus on litigation. patent troll. And while this creature is said to The troll’s only real assets may be the 6 Helping the environment live primarily in the United States, armed with patents used to demand licensing royalties through patent pledging patents possibly of questionable quality, it may from alleged infringers. Unlike an ordinary nevertheless waylay unwary Canadian company, the troll does not find litigation technology companies doing business in the to be disruptive to its primary business – United States, with extortionate demands for 7 Recent developments litigation is its primary business. However, royalties, even on technologies that the in brief because it does not produce products or Canadian companies believe they are free to services, the patent troll is immune to use, buy, or sell to others. counterclaims of patent infringement or What is a patent troll? This term was first unfair trade practices, allowing it to be coined by an Intel attorney in 2001 to describe more aggressive in asserting its patents patent holders whose entire business model than a competitor in the same industry. was based on bringing dubious patent The patent troll has no need or desire to infringement claims against other companies to cross-license a defendant’s technology. extract exorbitant settlements. Of course, the This reduces the defendant’s leverage in legitimacy of a patent enforcement strategy is negotiations. Yet the patent troll may gain often in the eye of the beholder, and thus tremendous leverage if it can plausibly some commentators have advocated using a threaten a court injunction to prevent the more neutral term to describe such plaintiffs, defendant from providing its technology for example, “non-practicing entity” (NPE), in the marketplace. When Canadian “patent licensing company”, “patent company Research in Motion faced a U.S. enforcement company”, “patent dealer”, or patent infringement lawsuit with the “patent aggregator”. Nevertheless, the more possibility of its U.S. Blackberry services may be lost on a judge or jury who are not technically trained. • Filing patent infringement suits in certain judicial jurisdictions that are believed to be biased in favor of patent holders. Trolls are known to sue defendants in plaintiff-friendly jurisdictions to obtain a tactical advantage, even though the defendants (and even the trolls themselves) have no real connection to IP CONNECTIONS that jurisdiction. To take one example, the Eastern District of Texas is a jurisdiction much beloved by trolls due to the unrelenting pace of its docket in patent cases, its reluctance to grant summary judgments to dismiss dubious lawsuits, and its sympathetic and generous juries that have a track record of awarding tens and even hundreds of millions of dollars in damages to plaintiffs. Jury awards, especially in plaintiff-friendly jurisdictions, can be way out of proportion to the economic contribution that the patented invention makes to the infringing product being shut down by an injunction, it was as a whole. If the defendant is found to reportedly forced to settle the lawsuit for have willfully infringed the patent, up to over $600 million. treble damages may be awarded under U.S. law. The risks for defendants are • Buying up and asserting patents of broad considerable, and thus so is the pressure scope but dubious validity. It is widely to settle out of court. acknowledged that the Patent Office sometimes conducts an examination of • Suing large numbers of defendants poor quality or overlooks the best prior simultaneously to more easily collect art, and consequently issues patents with multiple settlements. An internet blogger excessively broad claims. Under U.S. law, called Patent Troll Tracker an issued patent is presumed to be valid, (http://trolltracker.blogspot.com) has although this presumption is rebuttable by pointed out a remarkable case in the evidence. The rationale underlying the Northern District of Georgia in which an presumption is the supposed special alleged patent troll has sued 108 expertise of the Patent Office to examine defendants simultaneously. Troll Tracker and approve patent claims. While the U.S. also reports that another alleged troll has Supreme Court questioned the strength sued around 400 defendants over the last of this rationale in its recent decision in few years, but has only ever taken one KSR International Co. v. Teleflex Inc., as a case to trial. Why? Patent litigation is practical matter, once a patent has issued extremely expensive, and many it can be difficult to convince a judge or defendants – even those whose cases jury that the Patent Office was mistaken appear to be strong from a legal in its finding of patentability. Therefore, standpoint – may prefer instead to settle trolls may have a sympathetic audience, a suit out of court for far less than the even when they assert patents with cost of defending themselves in court, a excessively broad claims. Sometimes the settlement that the troll is only too eager asserted patents are vague or ambiguous to offer. While the above two cases may as to their scope of protection, allowing arguably be extreme examples of the troll the patent troll to make outlandish claims phenomenon, these kinds of news reports about what kind of technologies are have given rise to the perception that covered by the patent. While defendants certain patent holders are suing large have the opportunity to make technical numbers of defendants for infringement arguments about the asserted patent’s simply as a strategy for forcing multiple inapplicability or invalidity in Court, there out-of-court settlements, even though is a risk that the force of these arguments many of the cases arguably lack merit. 2 MAY/JUNE 2008 • Engaging in other questionable tactics. specific contribution over the prior art, and Certain trolls have spread out their permit third parties to submit prior art prior to portfolio of patents among dozens of issuance and also to initiate post-grant review different patent holding companies or proceedings within certain time limits, to shell corporations which then become the cancel the claims of a newly issued patent as plaintiffs in legal actions, thereby unpatentable. Due to opposition to some disguising their affiliation with the parent provisions in the Patent Reform Act, the troll and so avoiding scrutiny of their progress of the legislation in the Senate is tactics. Patent trolls have also been currently stalled. accused of suing defendants without How to fight back against the big, bad trolls. having given them proper notice that they Canadian companies that do business in the are considered to be infringing. Various United States can take some practical steps to other complaints have also been made avoid being waylaid by a patent troll. against trolls, including bullying and harassment tactics. • Beware of the friendly “Would you like to take a license?” letter. Patent trolls The backlash against Patent Trolls (“patent sometimes start by sending a company an reform”, etc.). This phenomenon has given rise innocuous letter offering to license their to vigorous debate and calls for patent reform, patents for a particular technology that especially in the United States where most of the company is involved in. The letter the troll activity appears to take place. identifies one or more specific patents In eBay Inc v. MercExchange, L.L.C., 547 U.S. owned by the troll. However, because the 388 (2006), the U.S. Supreme Court weakened letter contains no overt threats, it is often one of the most powerful weapons in the ignored – perhaps even thrown away. This patent troll’s arsenal: the injunction. Prior to is a mistake. The next letter may well be this case, a patent holder could almost always notice of a lawsuit, launched in the troll’s obtain a permanent injunction enjoining the favorite jurisdiction. The purpose of the defendant from practicing the invention if original letter was to put the defendant infringement was proved, regardless of whether on notice that they are infringing without the patent holder was itself practicing the alarming anyone. (Otherwise, the invention. This gave the patent holder defendant could initiate a preemptive tremendous negotiating leverage. However, in strike, for example, by seeking a the eBay case, apparently influenced by the declaratory judgment – in a jurisdiction fact that MercExchange did not actually favorable to the defendant – that the produce or practice its invention, the Supreme patent in question was invalid or not Court held that an injunction should not infringed.) Moreover, having given notice automatically issue based on a finding of to the defendant, the troll is now in a patent infringement. Instead, the court should better position to argue later that its weigh the four equitable factors that are patents are being willfully infringed by the traditionally used to determine whether an defendant – a claim which, if successful, injunction should issue. While an injunction is could lead up to treble damages being not precluded for a non-practicing entity awarded.
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