“comparing Patent Trolls’ Use Of Broad And Narrow Claims: Implications For Innovation” – Brian Patrick Eha Close Text About null twitter brianeha November 04, 2016, 3:30 p.m. EDT read 10 min.
In an old fairy tale, there is a troll who lives under a bridge and eats anyone who tries to cross. In today’s real world, there are trolls who lurk beneath the innovation economy and take a pound of flesh from legitimate companies.
“comparing Patent Trolls’ Use Of Broad And Narrow Claims: Implications For Innovation”
Because their weapon of choice is intellectual property, in the form of patents, they have hunted the world’s technology giants, Google and Apple, for years, costing them billions of dollars.
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But now top banks, like leading firms in many industries, are becoming technology companies in their own right. This leaves them vulnerable to corporate goons, known as patent trolls.
One organization that has made itself a bulwark against patent trolls is the LOT Network, a non-profit consortium of companies that have mutually agreed to license any of their patents to their fellow members for free. If those patents fall into the hands of a troll.
In other words, LOT members—a club that includes top technology firms and financial institutions—avoid the risk of suing each other. Between them, they hold more than 585,000 patents. Joining the network, then, is like getting vaccinated against more than half a million diseases at once.
The consortium was founded in 2014 by Google, Canon and multinational software companies Red Hat and SAP. Among the top US banks, JPMorgan Chase and Wells Fargo are members, and last week, TD Bank Group became the latest financial institution to join.
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The move stemmed from the Toronto company’s realization that patent trolls were a growing threat to its future. According to Josh Death, its associate vice-president of legal, the $900-billion-asset TD has made such a commitment to digital banking that it now has the largest finance-focused patent portfolio in all of Canada.
“While our core product is not changing — a mortgage is a mortgage is a mortgage — we’re leveraging more and more technology,” Death said. “The new customer is moving into a very digital environment, and we want to be in a position to serve them.”
The LOT network has about 100 members, and more than 10% of them are financial institutions or fintech startups, said Ken Seiden, the consortium’s chief executive.
“Just as the automobile industry is effectively turning a car into a smartphone on wheels,” he said, “banks are incorporating a lot of technology from outside their industry. And when you do that, So you’re basically treading water for a patent troll.”
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The official term for patent trolls is “non-practicing entities,” so called because they don’t make anything, provide any products or services, but make their money entirely by suing productive businesses.
Another term is “patent claiming entities,” which reflects the fact that they do not use their patent portfolios for commercial purposes, as banks and software firms do. They simply file claims against other companies, even when their claim of infringement is the most tenuous.
While the goal of such lawsuits is always the same—to get paid—patent trolls use different tactics in their shakedowns.
One is what Death calls “smash and grab,” in which a claim of infringement is dubious but the cost of defending a lawsuit is far greater than the cost of a small settlement. Another is “winning the lottery.” In this strategy, the non-compliant entity does due diligence to build a strong case, Death says, and is willing to go to any lengths to get “massive dollars.”
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Beginning in 2006, “there was a huge explosion in patent suits,” and things never really came back to the status quo, said Eric Shulman, who drafted the original LOT agreement as legal director at Google and now the consortium. Serving on the advisory board of Today, 70% of all patent litigation is brought by patent trolls.
Google, Shulman’s former employer, has long been one of the biggest targets. At one point, he said, the Silicon Valley giant found itself fighting 100 active patent suits simultaneously.
Big banks are also in the crosshairs. According to Seddon, over the past eight years, JPMorgan has faced 104 different patent lawsuits.
This is a new trend for most banks. Years ago, before mobile apps and remote account opening, banks were mostly brick-and-mortar operations—as unappealing to patent trolls as lambs to the wagon.
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This is no longer the case. The more innovation labs banks open, the more fintech partnerships they establish, the bigger and juicier they become in the eyes of trolls.
And the appetite of trolls is not to be taken lightly. The average lawsuit brought by one, if it goes to trial, costs the defending company about $3 million in legal fees alone.
This problem appears to be even more serious at the national level. A study by Boston University School of Law’s James Beeson and Michael Meurer found that in 2011, patent troll litigation cost US companies $29 billion in litigation and settlement costs.
“We believe that every nickel a bank spends defending itself against patent trolls is a nickel not spent on R&D,” Seddon said. “That’s a nickel that wasn’t spent on making a better product or returning profits to its shareholders. So these patent trolls are doing real damage.”
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Last year, 3,608 patent troll lawsuits were filed in the United States. When LOT Network studied these cases to determine what types of patents were being asserted, it found that more than 80% of them were actually owned by the operating companies in some way. Patents were before trolls rolled into portfolios.
Because of the costs involved in litigating patent suits, operating companies do not readily sue each other. But once a troll gets their hands on a piece of intellectual property, all bets are off. This is because the company has much more to gain and less to lose than being sued.
Companies in financial trouble may sell their patents as a quick way to make some cash. Bankruptcy proceedings can result in patents being dumped on the open market, where trolls are more than happy to snatch them up.
As crazy as it sounds, some companies sell them on their own. Shulman calls this practice the “tragedy of the public”: it doesn’t hurt Company X to sell its patents to an unviable entity. It only hurts Company X when its neighbor, Company Y, does the same.
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More than three-quarters of patents used against banks come from outside the world of finance. But while the flow of IP cannot be stopped, the IP itself can be neutralized.
LOT stands for “License on Transfer” — meaning that if a network member’s patent ends up in the hands of another entity, that entity cannot use it to sue another member. .
The 10-page agreement signed by each LOT member has only one goal: to protect companies from frivolous lawsuits and thereby preserve their ability to invest in new technologies and services.
Daryl Wooldridge, JPMorgan’s global head of IP management, said in an emailed statement that his bank has already benefited greatly from its LOT membership, noting that it “provides real risk mitigation that allows us to provide companies with gives a competitive advantage over those who are not in LOT.”
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What the agreement does not do is prevent the members from suing each other or anyone else for patent infringement. Nor does it prevent them from licensing their IP generally. As long as a member company keeps its patents, it can use them and assert itself to its heart’s content. The contract only kicks in when one of those patents changes hands.
The original contract, drawn up by Shulman, was 27 pages long and somewhat cumbersome. It was difficult for beginners to understand.
When Seiden came on board as CEO in March 2015, his first mission was to simplify the document. A slimmed-down version was released the following November. In the 12 months since, LOT network membership has grown from 13 companies to 95. Amazon, Netflix, Fidelity, JCPenney and Slack have all joined the ranks in recent weeks.
Two-thirds of the members are startups. Banks and other large companies each pay a $20,000-a-year fee so membership is free for smaller firms. Patent trolls have recently shifted from targeting big tech firms to rogue startups, which lack the resources to fight back. About half of the companies sued by patent trolls in 2015 had annual revenue of less than $10 million.
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“It’s devastating for some of these smaller companies to even have a patent suit brought against them,” said Sean Reilly, a senior vice president and associate general counsel at the Clearinghouse, which is the world’s 24 largest banks. Owned by .
But their protection is not altruistic. In an era when megabanks are relying on smaller fintech companies for everything from cybersecurity to consumer lending to blockchain experiments, patent suits brought by trolls can cause enormous collateral damage. can.
This has not stopped companies from selling to the LOT network.