Legal Insights
 -------------------------------------
External Publications
Star Trolls: The Patent Menace

 

Grace Teoh discusses the advent of patent trolls

While trolling through the Internet for news about patent trolls, it is apparent that patent trolls may have been bestowed with the most acronyms. A patent troll is known as, amongst others, a Patent Monetisation Entity (PME), a Patent Holding Company (PHC), a Patent Assertion Entity (PAE), or a Non-Practising Entity (NPE).

The use of these monikers is preferable as they are less pejorative than calling a troll, a troll. In fact, it was reported that Judge Lucy Koh of the United States District Court for the Northern District of California recently ordered Apple, Inc.'s lawyers to cease referring to the claimant in a patent infringement suit, GPNE Corporation, as a patent troll.1

Then again, a troll is not a troll until proven a troll. So, what is a patent troll?

IT SMELLS LIKE A TROLL

Patent trolls have one objective: to make money off patents which they have rights to, in the shortest time and simplest manner possible. These patents are usually broad in nature, and are acquired specifically for the purpose of enforcement. These people or entities hold patents which they do not use other than to enforce them against other parties, i.e. they do not manufacture goods or supply services which utilises the patents they hold. The patents are used by the trolls to threaten a claim for patent infringement.

Trolls, as a rule of thumb, target small or medium enterprises with threats of patent infringement suits. The modus operandi of this lucrative business model is as follows: a broadly-worded cease-and-desist letter is issued, together with a demand for payment of a "nominal" sum of money as damages, and a threat that if the payment is not made within a specified period, the troll would commence a claim for patent infringement. In certain circumstances, the trolls also "generously" offer to license the patent to the receiving party. The trolls are hoping that the receiving party will choose to settle, instead of defend, the claim.

The receiving party is usually cornered into settling the claim, even one with remote prospects of success - as the cost of paying the patent troll a few thousand dollars is considerably less than the cataclysmic cost of defending a patent suit which could amount to a few million dollars. The patent trolls are aware of the significant patent litigation costs and as such, would generally cap their demands for "nominal" damages at a sum which appear more bearable in comparison.

IT LOOKS LIKE A TROLL

At the moment, patent trolls are predominantly an American legal issue. That isn't to say that there have not been attempts in other jurisdictions2. The main reason appears to be the difficulty for victorious defendants in the United States to claim for the costs of defending the claim, as compared to certain other jurisdictions, for example, England. Patent trolls take advantage of the fact that the defendant would have more to lose defending the claim, than to settle it.

One of the most publicised patent troll suits of all time was recently settled for possibly that reason.

In February 2013, Personal Audio LLC threatened to take legal action against comedian podcaster Adam Carolla for infringing their US Patent No. 8,112,504, for "episodic content" vide Carolla's actions of recording and publishing podcasts. Carolla decided to challenge Personal Audio's claim, and collected some USD450,000 from his fans to do so. In August 2014, after a gruelling challenge by Carolla for 18 months, Personal Audio offered to drop the claim against Carolla. It was reported that at first, Carolla had intended to ensure that Personal Audio would no longer make threats against other podcasters by having the patent invalidated. However, by the end of August 2014, Carolla had agreed to settle with Personal Audio. One can only surmise that it is due to the extensive costs to continue the battle.3

Sadly, Carolla is one of the few defendants who can afford to at least attempt to put up a fight, in large due to his fans' collective purses. There have been, still are, and always will be, numerous victims for patent trolls to choose from, many of which do not have the luxury of defending themselves against such threats.

Rightly or wrongly, Personal Audio's claims have been widely vilified across the Internet as an example of patent trolling. This notwithstanding, a jury in Texas recently awarded Personal Audio USD1.3 million in damages against American television network CBS for infringement of the same patent that Personal Audio had used against Carolla.4

The saga of Personal Audio is by no means over. Its patent is being attacked from at least four fronts: two other television networks, Fox and NBC, are fighting Personal Audio's infringement claims while proceedings have been initiated by CBS in the US courts and by Electronic Frontier Foundation at the US Patent and Trademark Office, to invalidate Personal Audio's patent.

BUT IT ISN'T A TROLL?

What if the strengths of the relative parties' positions were reversed? What if it was David going after Goliath instead? Or a battle of Goliaths? Would the claimant still be known as a patent troll?

Earlier in the year, it was reported that tech giant Google had lost in its defence against SimpleAir's suit for patent infringement.5 SimpleAir had sued, among others, Google, Microsoft, Apple, Samsung, Research in Motion, Nokia, and Huawei for infringing its US Patent No. 6,021,433 and US Patent No. 7,035,914 for "methods of processing and transmitting internet-based content and real time modifications" outlined in the patents.6 Colloquially, users know this as "push notifications", the automatic alert of new messages or events on mobile phones or tablets.

Fortune has reported that the 10 biggest patent troll targets in the business are all giants in the industry: AT&T, Google, Verizon, Apple, Samsung, Amazon, Dell, Sony, Huawei, and Blackbery.7 At one point, Google was defending 72 active cases. These companies are so beleaguered by patent trolls that they must take preventive steps by paying a subscription fee to defensive patent aggregators such as RPX Corporation to "buy up potentially problematic patents on the open market, before NPEs can get their hands on them."

In schismatic reaction, these giants themselves are beginning to see the benefits of "monetising and protecting" their IP assets. These companies either aim to pressure other companies to license the technology with the threat of litigation, or sell the patents off to patent enforcement entities.

In 2011, Apple Inc., Microsoft Corp., Research in Motion, Ltd., Ericsson Inc., and Sony Corp. jointly spent a total of USD4.5 billion to outbid Google Inc. to buy more than 6,000 patents from the bankrupt Canadian telecommunications giant, Nortel Networks Corp. Two-thirds of these patents were then transferred to a venture between these same companies, known as Rockstar Consortium. Rockstar's modus operandi is to examine successful products and check if these products infringe any of the 4,000 patents it owns.8 Armed with this portfolio, Rockstar proceeded to wage war against eight Android-smartphone manufacturers including Google, Samsung, and Huawei, in 2013.

TROLL BUSTERS

Patent trolls have become so disruptive for local businesses in the United States that state authorities have begun to intervene.

In May 2013, in an unprecedented move, Vermont Attorney-General William H. Sorrell filed a suit against MPHJ, Inc., for breach of consumer protection laws. MPHJ had sent standard letters to small businesses claiming patent infringement and demanding USD1,000 per employee as damages. In Nebraska, Attorney-General Jon Bruning took up the baton and issued a civil investigative demand to the law firm which worked hand-in-hand with MPHJ to issue the cease-and-desist letters.9

Some have also taken the view that the decision of the United States' Supreme Court in Alice Corporation Pty Ltd. v CLS Bank International, et al. (Docket No. 13-298) has thrown a spanner in the trolls' works. In Alice, the Supreme Court held that an idea alone cannot be patented, and mere generic computer implementation fails to transform that abstract idea into a patent-eligible invention. In other words, specific implementation may be patentable in the United States, but broadly-worded software patents which trolls generally use to enforce their rights are unlikely to fly.

RAKSASA DI BAWAH JAMBATAN10

To date, there have not been any publicised cases which show that patent trolls have invaded our shores. This does not necessarily mean that Malaysian businesses are safe from the troll should he emerge from under the bridge.

The Trade Marks Act 1976 allows trade marks to be expunged for non-use. Bereft of a similar right under the Patents Act 1983 ("PA"), the main defence against an infringement claim would be to initiate proceedings to invalidate the patent or to obtain a declaration of non-infringement, both of which, to the delight of a patent troll, are time consuming and costly exercises which small businesses can ill-afford.

Other defences may be available under sections 38 and 35A of the PA. Under section 38, if a person has, in good faith, been using the process or product or making serious preparations to use the same as at the priority date of the patent application, he is conferred the right to exploit the patented invention, notwithstanding the grant of the patent. There are two conditions to this defence: The utilisation must be in Malaysian territory, and the person must be able to prove that his knowledge of the invention was not a result of the disclosure expounded in section 14(3).

Section 35A(6) does not allow infringement proceedings to be taken in respect of a patent after it is notified in the Gazette that the patent has lapsed and before it is notified in the Gazette that the patent has been reinstated.

Admittedly, the situations in which a defence can be raised under sections 38 and 35A are extremely limited.

In appropriate circumstances, a beleaguered defendant may consider the feasibility of deploying section 50 of the PA to compel a patent troll to licence the patent to him under section 49 or 49A of the PA for a royalty fee to be determined by the Intellectual Property Corporation of Malaysia. Section 49 applies to situations in Malaysia where the patent is not utilised, or the product for which the patent is being used is unreasonably priced or unable to meet market demands. Section 49A, on the other hand, enables the user of a later patent to obtain a compulsory licence to use an earlier patent if the later patent is inoperable without infringing the earlier patent.

Further, as Malaysian law allows the winning party to recover a part of his litigation costs from the losing party, patent trolls may be emboldened to pursue infringement proceedings against small and hapless businesses in Malaysia.

Given that 98.5% of Malaysian business establishments comprise small and medium enterprises, Malaysia could prove to be a fertile hunting ground for patent trolls.11

CONCLUSION

Unfortunately, patent law and civil litigation procedure is a long way from hindering the unethical and unscrupulous business models of patent trolls. Unless legislation changes to, say, include penalties for patent trolls or impose a mandatory utilisation of the patent before being allowed to enforce it, or the authorities are willing to take action on complaints by the businesses receiving such threats, such as the United States' Attorneys General, there is little that small businesses can do except settle a suit they can ill-afford to fight. In the meantime, much time and resources may be wasted in the patent wars, much of which should be spent on research to improve the technology instead.

Writer's e-mail: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Endnotes

1 "No Name Calling In My Court: Judge Bans Use Of Term "Patent Troll" In Jury Trial". Glenn G. Lammi, Forbes. 30 June 2014 Web 22 August 2014

2 It is reported that NPEs prefer Germany as the venue to instigate proceedings; and that the Republic of Korea has had to take preventive steps to prevent NPEs from harassing local technology companies. "Patent Trolls: Friend or Foe?". Robert L. Stoll, WIPO Magazine. May 2014 Web 22 August 2014

3 "The Good, the Bad, and the Ugly of Adam Carolla's Settlement with the Podcasting Troll". Daniel Nazer, Electronic Frontier Foundation. 18 August 2014 Web 22 August 2014

4 "Hated podcast troll wins $1.3M patent verdict from CBS, but may soon be dead all the same". Jeff John Roberts, Gigaom. 16 September 2014 Web 30 September 2014

5 "Google loses case to patent troll seeking $125 million in damages". Jacob Kastrenakes, The Verge. 22 January 2014 Web 22 August 2014

6 Simpleair, Inc. v Microsoft, Corp., et al. (Case No. 2:11-CV-0416-JRG) Justia. 20 May 2013 Web 22 August 2014

7 "10 biggest patent troll targets in business". Roger Parloff, Fortune. 27 February 2014 Web 22 August 2014

8 "How Apple and Microsoft Armed 4,000 Patent Warheads". Robert McMillan, Wired. 21 May 2012 Web 22 August 2014

9 "Vermont and Nebraska Attorneys General Take Patent Trolls Head On". National Association of Attorneys General, NAAGazette. Web 22 August 2014

10 This roughly means "The Monster (Troll) Under the Bridge" in Bahasa Malaysia.

11 Media Release. Secretariat of the National SME Development Council. 11 July 2013

 

 

WRITER'S NAME : GRACE TEOH WEI SHAN

WRITER'S PROFILE:

Grace is an Associate in the Intellectual Property Division of SKRINE. She graduated from the University of Nottingham in 2010.

SUBJECT : INTELLECTUAL PROPERTY

 
ACCOLADES & AWARDS

Skrine Retains Who’s Who Legal Accolade for Malaysia

On 15th May 2017, the Who’s Who Global Awards was held in London, United Kingdom and Skrine was conferred the Award:

Malaysia Law Firm of the Year 2017

Skrine previously received this Award in 2013, 2014, 2015 and 2016.

>> READ MORE

SKRINE Clinches Top Honours at ALB Malaysia Law Awards 2017

On 6th April 2017, the Asian Legal Business Malaysia Law Awards was held and SKRINE was named

Malaysia Law Firm of the Year 2017

SKRINE also bagged 5 other awards

>> READ MORE

Asialaw Profiles 2017

The Asialaw Profiles has ranked Skrine as Outstanding Firm and particularly highlighting the following practice areas:

Outstanding Firm

  • Competition & Antitrust
  • Corporate/M&A
  • Dispute Resolution
  • Energy & Natural Resources
  • Intellectual Property
  • IT, Telco & Media
  • Project & Infrastructure

>> READ MORE

PDPA NOTICE

English | Bahasa Malaysia