Pushing Back on NPE Assertions

Recent case examples have yielded favorable results

Marketers that feature online, mobile and web elements in their marketing arsenal should develop a balanced and comprehensive approach to anticipate and respond to patent infringement allegations by “patent trolls,” a/k/a non-practicing entities (NPEs). A marketer’s comprehensive NPE defense plan should often include the strategy of pushing back on frivolous troll cases.

Background

There has been a great deal of discussion among marketers and advertising agencies about the patent troll business model of acquiring inactive patents and attempting to position them as foundational innovations required for modern commerce. NPEs monetize their patents by broadly asserting the patents against a wide range of web and mobile marketers and e-commerce enterprises. Patent law generally permits a patent owner who proves infringement to obtain an injunction against future infringement and money damages, and an NPE will commonly demand that a marketer defendant cease one of its mission critical marketing activities and pay a license fee to the troll. The cost of the license fee is often designed by the NPE to be less than the cost of litigating the patent infringement case. Thus, the troll business model is, in large measure, predicated on the complexities of the legal system, particularly as it relates to patent litigation. Trolls recognize that for many marketers it may be more expedient to pay a licensing fee than to push back and challenge the NPE’s assertion.

The 4As and other industry groups have evolved discussions with legislators, regulators and judicial thought leaders related to systemic shortcomings of the legal system as it relates to these types of patent assertions. The industry’s out-reach has described the adverse impact that patent troll activity has on innovation, competition and economic vitality. The industry’s initiatives include urging patent authorities to consider systemic modifications that might serve to minimize frivolous NPE assertions and limit the tactics that underpin patent trolls’ economic model. Systemic modifications to software, process and design patent rules are needed, and 4As believes it is likely that systemic refinements will be implemented over time. However, there are steps that marketers can take before systemic modifications to patent rules are implemented.

What Is a Marketer to Do?

There have been several recent examples of companies challenging NPE activities and pushing back rather than capitulating and paying troll shake down license fees.

Shopping Cart Patent Successfully Appealed

Online retailer Newegg has declared that it has a strategy not to settle with patent trolls. So when

Soverain Software sued Newegg and other retailers for patent infringement related to the use of online “shopping carts,” Newegg fought back. It litigated the case all the way through trial, and when it lost at trial, Newegg appealed. Last month, Newegg won its appeal, and the Court of Appeals for the Federal Circuit invalidated Soverain’s three patents, finding the claimed inventions obvious. A story regarding the case is available here:

http://arstechnica.com/tech-policy/2013/01/how-newegg-crushed-the-shopping-cart-patent-and- saved-online-retail/

Entrepreneurs Fight Back

Blue Wave Computing received a demand letter from a troll called Project Paperless seeking a license fee of $1,000 per employee. (Blue Wave had more than 100 employees.) Project Paperless owned a patent related to "scanning paper documents directly into an email attachment." Blue Wave initially ignored the demand, and Project Paperless filed suit. Blue Wave had a prior art search conducted and found art that it believed should invalidate the patent. Blue Wave then threatened the troll, telling Project Paperless that it planned to ask the U.S. Patent & Trademark Office (PTO) to re-examine and revoke the patent. Project Paperless dropped the suit.

A recent article from Inc. magazine entitled "The Real Toll of Patent Trolls" discusses the issue of NPEs and Blue Wave’s response to the Project Paperless case:

http://www.inc.com/magazine/201202/kris-frieswick/patent-troll-toll-on-businesses.html

Defending Against Trolls Takes Commitment

Newegg, Blue Wave, Fark.com and other businesses that have successfully defended themselves against troll assertions could have adopted a pragmatic short term approach and simply paid off the NPEs so that they would go away—but they didn’t. They pushed back.

The problems presented by patent trolls will not simply go away. Business leaders need to develop the discipline and commitment to push back against frivolous troll assertions. The decision to push back can be an individual corporate decision or it can entail a collaborative aggregation of resources among related organizations that face common NPE activities. Companies and organizations have a number of tools available to push back against trolls. These range from pressing government regulators to implement systemic changes in the legal and patent systems, petitioning the PTO to re-examine problematic patents, battling NPEs in court rather than paying to settle.

Pushing back against NPEs erodes the troll business model and reduces trolls’ economic incentives by elevating the costs NPEs must incur.

A marketer’s comprehensive NPE defense plan should include the strategy of pushing back on frivolous troll assertions. Does your company have a strategy and management commitment to preempt troll activities?