It is no secret that Connecticut’s small businesses continue to be victimized by patent trolls, or entities that purchase broad or vaguely worded patents and use them to target companies through frivolous claims of patent infringement with the sole objective of financial settlement. Now, foreign governments are even creating patent trolls, signaling a powerful endorsement of this profitable practice.
Without Congressional action, a long-standing problem in Connecticut is bound to get a lot worse. Unfortunately, Congress failed to act against trolls again this summer, pulling patent reform legislation off the table in the final hours of the session. When Congress begins its work in January, remedying the patent troll problem must be a top priority. Anything less will create further harm for our economy.
Patent trolls exist for the sole purpose of buying patents and profiting by threatening to file patent infringement lawsuits against companies they think may settle in order to avoid hefty legal fees and lengthy trial processes. Trolls target settlements because they don’t want to go to court, where they lose 92 percent of the time.
The costs associated with patent trolls as well as the effects on traditional Main Street businesses such as supermarkets, retailers, banks, credit unions, realtors and hotels are well documented. A recent study conducted by the Boston University School of Law placed direct annual costs of patent trolling in America at $29 billion. Some estimates place the cost at more than $320 billion over the past five years. All of the money spent on patent trolls is money that Connecticut businesses cannot use for job creation, innovation and investment.
The recent surge of Government-Sponsored Patent Trolls (GSPTs) is a clear sign that reform is needed. France Brevets, a GSPT backed by the French government, has 100 million euros at its disposal. Taiwan-backed Industrial Technology Research Institute (ITRI) holds more than 18,000 patents and has filed suit against tech giant LG, alleging infringements involving TV monitors in U.S. court. The case was dismissed. It’s hard to imagine that GSPTs, with virtually unlimited resources at their disposal, would do anything differently than traditional trolls. In fact, small businesses have little recourse other than settling with GSPTs, given the financial risks of going to court against the deep pockets of a foreign nation.
Would a foreign government target Connecticut businesses? It’s hard to say, but recent local news reported how a troll targeted more than 30 community banks in the state. The troll claimed that the bank ATMs violated a series of patents simply because the machines used Internet connections to process transactions. The troll demanded upwards of $30,000 from the banks — including one that doesn’t have any ATMs.
Typically, patent trolls seek opportunities to file claims with minimal resistance. GSPTs are slightly different in that they also are motivated to protect their national corporations from competition, including some of the U.S.’s best innovators. Under current law, trolls can even sue end-users of technology that allegedly violated patents. For example, in 2011 a troll called Innovatio IP Ventures targeted more than 13,000 coffee houses across the country, claiming the shops owed up to $2,500 per location for Wi-Fi router access fees. The claim alleged that the businesses violated a patent on a component while using routers. Cisco, the equipment manufacturer, spared small businesses any costs by settling the suit. Yet the majority of small businesses that face patent troll claims like these are rarely so fortunate. With the growth of GSPTs, the threat to small businesses has never been higher.
The time has come for strong action by Washington. That is the only way to protect our state’s small businesses. Connecticut has worked too hard to improve our economy in the years since the recession. Congress can no longer sit idly given the rising number of government created trolls poised to make a quick buck suing Main Street businesses.
Bill Gerber is the co-founder of the AccountingDepartment.com in South Windsor.
