Can You Beat Patent Trolls By Using The Same Techniques That Make Them So Successful?

from the interim-solution dept

Thu, Aug 11th 2011 1:21am — Mike Masnick

Law professor Colleen Chien has been doing some good work lately in trying to address the problem of patent trolling. She's now written up an interesting article for Forbes, in which she notes that the system clearly needs to be fixed, but in the meantime, wonders if there's a way to use the very aspects of what makes patent trolling profitable to defeat patent trolls. The full article is worth reading, in that it lays out the basic structure and economics of why patent trolling is such a profitable business. But the real question is if the same factors that work for patent trolls can be made to work in the other way:

Trolls succeed because their lawyers only get paid when the patent holder wins. Under the traditional billing model, defense lawyers get paid no matter what. What about tying defense payments to the successful and low-cost resolution of cases? Success payments, outcome-based billing and other forms of �contingency defense� give the main source of transaction costs � lawyers � incentives to reduce them.

Trolls also succeed by capturing economies of scale. Purchase, assert, repeat. In contrast, few lawyers specialize exclusively in defensive tactics like invalidation, reexamination and joint defense. Expertise that is developed within a firm is guarded as proprietary. But defensive tasks like prior art searching could become cheaper and more reliable if done on a larger scale. Firms with expertise dealing with certain patent assertion entities or certain venues better understand what is needed to efficiently dispose of a suit.

When trolls show up now, companies fold individually because its easier to do than fight collectively. But the gains from collaboration can be substantial, and would be even more so if approaches were standardized and made more efficient.

The greatest advantage trolls have is their ability to focus exclusively on assertion. A lack of customers, partners and operations endow trolls with a freedom to litigate not enjoyed by practicing companies. The makers and users of technology should consider doing the same and investing in their own non-practicing entity � a nonprofit. While on a day-to-day level, companies need to resolve disputes and move on, a more long-term and sustained focus could yield longer-term payoffs. Trolling is a big enough issue that diverse stakeholders including small and large companies, across sectors, should be able to find common ground.

As a starting point for something to do now while the system is still very, very broken, that seems like it might help. I do wonder how effective it can really be however. That first point -- contingency defense lawyers -- could definitely help, since trolls rely heavily on the cost of defending against their bogus assertions to get paid. But... it requires lawyers willing to buy into such a contingency defense, and that seems like a tough sell.

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Filed Under: defense, patent trolls, patents

21 Comments

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AG Wright (profile), 11 Aug 2011 @ 2:06am

Success
Nothing breeds success like success but it will take some large companies getting together and sponsoring a few lawyers to concentrate on this type of practice and the selflessness of those lawyers to share their methods and results to get it going.
Unfortunately those large companies are stakeholders in the present method of defense against this type of suit and the odds are against it happening.
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Paul, 11 Aug 2011 @ 4:34am

Lawyers keeping fellow lawyers in business.
The ENTIRE problem is the lawyers!

They're just generating more work for themselves and their fellow lawyers. Obviously it would help if all the firms getting sued had the appropriated patent licensing in place when they go about designing the product (it's hard to believe they don't KNOW these patents exist), but because lawyers are so inefficient, accept no liability and are such extortionist, it's probably cheaper for the firms targeted by trolls to get shaken down once in a while rather than to pay a law firm to do an exhaustive patent search and deal with licensing negotiations with potential competitors.

It's not trolls or the patent system that is the barrier to business innovation, it's the ridiculous cost of lawyers that are a barrier to efficient use of the patent system!
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M.ce, 11 Aug 2011 @ 4:58am

This is a very interesting article: open-source legal code. Hell, tech is a logic-based business just like law. Why not start an
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M.ce, 11 Aug 2011 @ 5:06am

Sorry. Continued: Criminal law and business law are quite different in that criminal law seeks to establish or obscure facts under an agreed-upon interpretation of the law (did X kill/steal from Y); whereas business law is often about establishing an interpretation given agreed-upon facts (X used material Y as documented on youtube; the question is did they have a legal right to do so).

Therefore, if some enthusiasts (of which there are none here, surely...) were to work up a lexicon of logic-based cases and support it with the appropriate case-precedents, victims would have a library of pre-built defenses and would then only have to pay much-reduced costs of presenting a pre-built case, or it would be even easier to get some lawyers to operate under a fee-for-actual defense.
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out_of_the_blue, 11 Aug 2011 @ 5:07am

Short answer: No, EVIL has all the advantages.
That's why civilization is so fragile. A few bombs here and there, and all civil liberties will disappear. -- Even though the US is proving that daily bombings from aircraft bring democracy.

Anyway, I'm only going to pick at one point here: "defensive tasks like prior art searching" -- reason that never happens is (as almost stated above) that lawyers don't like to share their "work", or use that of others, because means less income for them.

@M.ce: be careful not to hit "submit" before fin
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M.ce, 11 Aug 2011 @ 5:08am

This would, of course, be a huge project. But, hell, look at wikipedia; and since our society is theoretically based on the idea that ordinary citizens should have the means to use instead of fear law, it isn't like open-source law isn't an important idea.
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Nicedoggy, 11 Aug 2011 @ 5:21am

http://www.zdnet.com/blog/mobile-news/apple-injunctions-against-similar-looking-tablets-just-beginni ng/3703

Maybe the first company to see another group of people gang up on them may be Apple.

They got their injunction against Samsung and now are going after others like Motorola.

And they problably will need to sue the press to since they are talking to Samsung to produce tablets so they can give those away.

Quote:
Tribune aims to offer the tablet for free, or at a highly subsidized price, to people who agree to sign up for extended subscriptions to one of its papers and possibly a wireless-data plan with a partner cellular carrier, said five people briefed on the project.

The initiative, a major one for the national media company hoping to emerge soon from bankruptcy, spans several cities and includes various consultants and partner organizations, the people said. Tribune has been in discussions with Samsung Electronics and others to build the hardware, three people said.

Source: http://edition.cnn.com/2011/TECH/gaming.gadgets/08/09/tribune.tablet/index.html

Not to mention Apple also pissed Amazon.
http://arstechnica.com/tech-policy/news/2011/08/class-action-suit-targets-apple-and-five-pu blishers-for-price-fixing.ars

So you got HTC, Samsung, Motorola, Google, News services and Amazon, they all could come together and hit Apple hard.

Motorola is trying to invalidate patents that are being used against HTC, then you got others withe very big patent portfolios that could may well do the same thing.

Will that happen?

I don't think so and the why is simple, like Quark's brother Rom said in Deep Space Nine on the episode he was trying to make a "U-U-U-ni-on" the Ferengi don't want to stop the exploitation they want to become the exploiters.

Firms don't want to change the patents they want to be the ones holding those patents, they don't want to make the sword shorter, they want it to be bigger, they just don't like when the other one is the one that holds it.

Creating a system that could melt away their swords is not something they probably want to do so.
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Anonymous Coward, 11 Aug 2011 @ 5:36am

Judgment Proof
Another very significant factor is that trolls are judgment proof. Nobody has the least idea who they really are. They are shell companies with offices in Marshall, Texas. The offices have permanently locked doors and the lights out. The troll could in turn be owned by another company in some foreign tax-haven country. There is no practical chance of ever getting them to pay any judgment against them. If they lose a case and are sanctioned, the troll just vanishes. Then the unknown persons behind the troll start another one, under a different name, then continue on as before.

Because the trolls are judgment proof, they can engage in the most outrageous behavior with no risk to themselves. They have the perfect structure to engage in legalized extortion. The only true fix is to change the law.
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iptrolltracker, 11 Aug 2011 @ 6:35am

Part of this is already being done
"Expertise that is developed within a firm is guarded as proprietary. But defensive tasks like prior art searching could become cheaper and more reliable if done on a larger scale."

See: http://www.trolltracker.org/2011/08/10/fark-farks-a-troll/

Rather than contingency defense, because no self-respecting Managing Partner is going to allow his firm to do that, talk collaborative defense. Multi-defendant cases are rampant and increasing...they may make strange bedfellows, but getting opposing companies to enter into a joint defense agreement and use economies will help. Find best-of-breed attorneys and get them to find the best strategy for each troll.

Someone may already be dong this, as well...

Just sayin'
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dev, 11 Aug 2011 @ 7:02am

loser pays
if the trolls had to pay the defendants legal fees if they lose, then more company's would fight in court. Currently, for defendants, even if you win the case, you still lose because of the high cost to defend.
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Anonymous Coward, 11 Aug 2011 @ 7:15am

Completely off topic, but...
Even though the US is pretending that daily bombings from aircraft bring democracy.

Had to fix that.
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Anonymous Coward, 11 Aug 2011 @ 7:57am

I got a better solution!!!

Now where is my 44 magnum?
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Mike, 11 Aug 2011 @ 7:59am

Way off
This professor knows nothing about patent litigation -- at least based on these bullet points.

* Success payments
In fact, many defense teams earn kickers for many milestones: dismissal, summary judgment, invalidity, etc. It's true that most defense teams still bill hourly but the reason is simple: it's usually cheaper than the contingency fee system since valuing the successful defense of a suit is tougher than claiming 30-45% of a damages award or settlement.

Simple question: what's the contingency fee for defending a suit like a Lodsys case?

* Economies of scale
This is absurd. Sure you can staff a specialty firm. You could staff hundreds of prior art searchers with relevant technical expertise, etc. But that's cost and overhead not necessary for every patent infringement case.

Trolls have the "economies of scale" advantage because they have 1 patent and dozens of targets. The type of information they need to gather is limited.

Moreover, many IP firms have lots of internal expertise already from patent attorneys to patent agents and engineers. In those firms, there are people with lots of experience with reexamination.

The truth is, it is cheaper, more efficient and more effective to OUTSOURCE tasks like prior art searching. This is already the tactic.

In addition, savvy defendants know to hire IP firms with relevant experience in venues like TXED and CAND and DED.

*When trolls show up now, companies fold individually because its easier to do than fight collectively.

Joint defense groups are common. They are common in many patent infringement cases. The benefits are obvious, including, sharing the cost of invalidity searches and claim construction.

They're also problematic. Apart from a couple of the core legal issues (invalidity and claim construction), the parties often share no other common information and are reticent to share things about their non-infringement positions with other defendants since they are often competitors.

Moreover, joint defense groups are prone to free rider problems and, inversely, drafting by committee.

* The last point
I'm not sure I understand the last point.

But, I'd argue that the greatest advantage "trolls" have is not focus, but information asymmetry. Trolls have no "history", they have no "records", they have no "business interest", etc. This makes discovery cheap and easy. Compare this to the large corporations that they're suing that will expend huge amounts of money on responding to discovery issues: document production, etc.

I think this professor needs to go back to the drawing board.
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Sean T Henry (profile), 11 Aug 2011 @ 8:20am

Re: Judgment Proof
If they lose and avoid payment next time the same patent comes up try to have the discovery process go further back to the holders. Use the evidence that went against the patent previously to get the money due. An alternative if that is not allowed after the first non-payment when a second judgment against it ask for damages and have a court ordered lean placed against the patent or for the patent be transferred over to the winning party as the initial payment.
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Jeffrey Nonken (profile), 11 Aug 2011 @ 9:30am

Re: Completely off topic, but...
Sarcasm detectors need fine-tuning?
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Matt (profile), 11 Aug 2011 @ 11:22am

Re: Re: Judgment Proof
Fully half of the patents asserted later turn out to be invalid. Assignment of the patent is worthless. The only way to assure collection of sanctions or attorney fee judgments against trolls (or any judgment proof plaintiff) is to require the posting of a bond for that purpose prior to filing suit.

An alternative is to shift the cost to society, rather than to innocent defendants. Have the Court perform a review for frivolousness, a prior art search, and other tests before the case is accepted for filing. Only cases that looked like they were likely to succeed on the merits would get in the door.
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Matt (profile), 11 Aug 2011 @ 11:28am

Re: loser pays
Loser pays, the so-called "English Rule," does not work. We have it in Alaska. It does not discourage frivolous filings, and strongly encourages settlement of spurious claims. The trouble is that many plaintiffs (including many trolls) cannot pay. So you can get a piece of paper giving you the right to bleed a stone, but it will have no practical benefit. And wealthy plaintiffs with the cash to push a case to its conclusion view the attorney fee judgment against them as a cost of doing business. It does little to modify their conduct.

* NOTE - This does not mean the English Rule is bad, or that it should be abolished. In the small group of cases where the plaintiff is somewhere between impecunious and wealthy, it may have some effect. And in any event, it decreases the pain for some litigants some of the time, and that is worth something.
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Justin Levine (profile), 11 Aug 2011 @ 11:32am

Patent MAD
Given the fact that the Supreme Court's Bilski decision has not issued a bright-line rule which would close the book entirely on business method patents, and given the fact that the Patent Office is still in the habit of granting ridiculously broad patents (or at least not tossing them immediately when faced with them), perhaps the solution is to fight fire with fire.

A modest proposal: Have somebody "patent" a business method for the "efficient collection of patent fees" (based upon the business model that trolls currently use). Describe it all in the patent application (i.e., bundling broad patents together from diverse sources, creating shell corporations, writing demand letters for settlement, collecting money from the company which allegedly "infringed", etc.). Then license non-exlcusive rights to this patent to any legitimate (non-patent troll) business who wants to use it for a nominal sum of one-cent.

Once you have done that and have a patent monopoly granted on this business method, any time a patent troll tries to sue a legitimate company for infringement, the legitimate company would not only have its traditional set of defenses, but could then counter-sue the troll for infringing its patent on the trolling business method (and demand a settlement sum equal to or greater than the sum the troll is demanding).

In other words, the very act of patent trolling would then become an act of patent infringement.

In the absence of Congressional action to fix this problem, setting up an automatic system of Mutually Assured Destruction seems like an alternative that must be considered.

Anyone want to help get this started? Perhaps we could use a Kickstarter.com campaign to raise money for the attorney and filing fees.
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Concerned Citizen, 11 Aug 2011 @ 5:09pm

Pantent that!
If you want to stop patent trolls in their tracks, patent the very process they use for trolling honest companies, and hit the trolls with a patent suit for using your patented trolling method. QED.
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Anonymous Coward, 12 Aug 2011 @ 7:18am

Re: Pantent that!
Won't work. The trolls are judgment proof.
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patent litigation, 15 Aug 2011 @ 10:58am

realistic?
Not sure how realistic it is to expect patent litigation defense attorneys to willingly, and collectively, take an undoubtedly massive pay cut. It seems to me that the likely result would be a lack of defense attorneys, thereby giving NPEs even more leverage.
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