Fifty years ago, a patent was for a physical product produced by a company. Today, the business world trends toward innovation and technology, and patents have morphed to also protect ideas and intangible products in our 21st-century world. These intellectual property patents are meant to safeguard original ideas at innovating companies, who will eventually develop those concepts into an actual good or service for consumers.
It all sounds lovely—protecting concepts for future products—however, there is a darker side to intellectual property in the form of patent trolls, which are companies that obtain patents with no intention of ever bringing the technology to life. Then when a company brings an actual product or service to market that infringes on the existing patent, the patent holder, or patent troll in this case, can sue the company.
“When most people talk about patent trolls they’re referring to entities whose sole purpose is to acquire patents, usually on the open market or from smaller investors, then enforce those patents against larger companies,” says Marcus Delgado, assistant general counsel for Atlanta-based Cox Communications, a voice, video, and data provider to six million residences and businesses nationwide. “We don’t have any issues with companies who do that per se; the problem is the tactics of a certain subset of patent trolls that seek to extort money from large companies in the form of licensing fees.”
Patent trolls, also called non-practicing entities (NPEs), are particularly prevalent in software and communications, industries whose services can be defined broadly. “It’s easier to enforce a patent against an activity we engage in than against a product you can see and feel,” Delgado says, and the problem has increased in the past 15 years to the point that he now sees around six cases a year and spends 70 percent of his time fighting them. “It’s fairly inexpensive for companies to acquire patents, at least in proportion to the potential windfall that results, because some courts around the country have become very friendly toward patent plaintiffs.”
If Cox Communications hears from a patent holder prior to filing a lawsuit, Delgado and his team may negotiate if the claim has validity. However, about 75 percent of the time, Cox doesn’t hear anything about the alleged infringement until the company is sued, in which case he has no choice but to engage in litigation.
NPEs have the upper hand because the costs for them are fairly low compared to the larger company it is suing. “They only have to file the complaint and can then hire an attorney who takes a fee on a contingency basis,” Delgado says. “We have to engage in significant discovery and take the case close to trial. The costs can be significant to the point that companies are hiring more patent attorneys just to deal with the problem.”
Delgado says that companies facing patent trolls need to be prepared to litigate, and litigate well. “You can’t take the approach that you’ll settle all cases as soon as they’re filed because if the trolls learn that’s your method of dealing with them, they’ll sue you more,” he says. “You also can’t allow yourself to get out-litigated. A lot of companies don’t take these claims seriously, but many of these patent trolls hire very skilled attorneys, and it’s litigator versus litigator.”
General counsel are typically blindsided by these cases, but there is change in the air surrounding patent regulations. Companies began seeking legislative relief, and the Patent Act of 1790 has been reviewed twice in the past six years. Some changes did occur with the passing of the America Invents Act, which had pieces designed to help protect companies from patent trolls and came into effect in March 2013, but Delgado says the efforts have not been effective overall yet. Lawyers and legislators are looking at other routes; in 2013 alone, 13 bills were introduced that address some aspect of the patent troll issue.
Delgado is confident that a solution will come—it just may take some time for patent law to catch up with how it’s currently being used.
