Obama Administration Takes Aim At Patent Trolls

June 5, 2013 by Dave Haynes

Every so often an exec at a software company sends me a note saying he or she just got a letter from a law firm saying they were in the legal crosshairs for alleged patent violations having to do with digital signage software design.

DailyDOOH has documented this at length, and identified these companies as what are not all that affectionately known as patent trolls. Simply put, they are companies in the business of acquiring patents and then targeting companies who they think MIGHT contravene those patents.

In a perfect world. the targeted companies decide rather that investing all the time and energy to fight (and probably win), the path of far less resistance is to just settle and make the trolls go away. Plan B is winning a big claim in a juried court case.

I had an email on the weekend about one of these trolls going after another two companies, using that approach. Trolls have gone after a pile of companies, some who’ve rolled over, others who evidently have not. If you read the financials of companies that are involved in actions, you will see they are not shy about saying they invest directly and indirectly in a portfolio of corporate claims in litigation and arbitration.

Now we have word that the Obama Administration in the United States has issued executive actions and legislative recommendations that target companies that don’t do anything but sue other companies.

Reports Forbes:

The substance of these moves probably won’t immediately change the current battlefield too much, but the initiative, which includes getting the Patent and Trademark Office to begin a rule-making process requiring patent applicants and owners to designate the ultimate parent owner in control of a patent, will bring uncertainty to the game and make the patent troll business less attractive for investors.

For years companies with no operations that were backed financially by investors have acquired patents and hired contingency lawyers to extract rich licenses and the occasional jury verdict from big technology companies. These outfits claim to protect innovation, but big technology companies claim they are simply practicing extortion and have tried for a long time to lobby Washington for patent reform. But not even the titans of Silicon Valley have been able to put a stop to the flood of institutional and rich family office money flowing into patent investing funds.

Five executive orders and seven recommendations to lawmakers coming out of the White House, however, might make the S&P 500 index seem like a more reliable investment than a family of patents. “The message that is being sent will actually discourage investment in this, it creates enough uncertainty for investors,” says Daniel McCurdy, chief executive of Allied Security Trust, a patent consortium that includes IBM. “Investors hate uncertainty and this creates a significant greater uncertainty, particularly in the minds of investors who are not experts in intellectual property.”

Shares of Acacia Research, a patent-litigation firm that is publicly-traded, fell by nearly 6% on Tuesday on the news, and stocks of other patent specialists like Virnetx Holding and RPX also fell.

The most powerful patent troll killer proposed by the Obama Administration to Congress on Tuesday is legislation that would allow federal judges to force abusive patent trolls that lose in court to pay the expensive attorneys fees of the corporations they sue. Such a change is highly unlikely given the massive fees being enjoyed both by corporate patent defense lawyers and politically powerful plaintiff lawyers who often take patent cases on contingency.

Patent trolls will not be deterred from filing lawsuits at all following Obama’s patent play, but investors might consider putting their money elsewhere going forward—maybe even an American company that employs people and sells real products.

How much of this can be done without the US Congress and Senate, and how much has to somehow make it through those can’t-agree-on-anything bodies, is for someone to sort out. But it would indeed be a good day if this was one less hassle and cost for a lot of companies to deal with. There must be hundreds of patents in this sector – possibly thousands. How they all exist and how they could ever be enforced escapes me.