What’s All This Patent Troll Stuff, Anyhow?

I was recently interviewed for a major article “Patent Trolls Come in All Shapes and Sizes” published today in the New York Observer.  The article is definitely worth a read.

One important case that is not mentioned in the article is Eon-Net v. Flagstar Bancorp.  And you may want to know what happened in that case because it was a bad day for non-practicing entities, that is, for patent trolls.

Eon-Net is a patent holding company that, with its related entities, had filed over 100 lawsuits against many companies for patent infringement.  In most cases, the companies settled for between $25,000 and $75,000 rather than going through the expense of a lawsuit, something which could easily exceed $1,000,000.   Flagstar Bancorp, however, decided to fight and spent over $600,000 to litigate the case, an amount that would have been substantially more had the district court allowed full discovery.

To the surprise of many, the court found in favor of Flagstar,

… Eon-Net’s case against Flagstar had “indicia of extortion” because it was part of Eon-Net’s history of filing nearly identical patent infringement complaints against a plethora of diverse defendants, where Eon-Net followed each filing with a demand for a quick settlement at a price far lower than the cost to defend the litigation.

The court went on to state that Eon-Net “acted in bad faith by exploiting the high cost to defend complex litigation to extract a nuisance value settlement”, that cases like theirs are meritless, and that as a non-practicing entity (i.e. troll) Eon-Net faced little risk in filing lawsuits; they faced no business risk, were generally immune to counterclaims, antitrust, and unfair competition claims.

For their legally baseless infringement allegations, the Court of Appeals for the Federal Circuit affirmed the district court’s decision to impose Rule 11 sanctions against Eon-Net.

What does that mean?  It means the court may impose monetary penalties which may include awarding reasonable expenses, including attorney’s fees, to the prevailing party (in this case, Flagstar).

And it means a potentially very bad decision for trolls who now might want to reconsider their strategy of filing a barrage of lawsuits.

Now that you are up to speed on the latest case law, here are excerpts from “Patent Trolls Come in All Shapes and Sizes” which highlight some of what goes on in the patent system,

It doesn’t take a deep dive to understand the shaky ground for this patent. “That is an absolutely ridiculous claim. If this patent was filed today, it would almost certainly be rejected,” said Elliot Furman, a Manhattan-based patent prosecutor who has worked for firms like Gawker and BuzzFeed. Betabeat sent Mr. Furman a copy of the patent in question for evaluation. “It’s like they tried to patent a time machine, and they told you how big it was, and the color of the seats, but neglected to mention how it travels through time.”

The issue is a systemic one, says Mr. Furman, a former software engineer with a master’s degree from Stanford. “Many technical patents, and especially software patents, are just bad. The lawyers who wrote them don’t understand the history of computer science or the fundamentals of programming. They obscure that in legalese and it gets through the examination so the business thinks they have something great, like a patent on the entire avatar industry, when in fact what they have is a mess that probably wouldn’t hold up in court.”

Each time the patent was rejected, IQ’s lawyers went right back to work rephrasing the claims. “It’s a back and forth with the examiner,” explains Mr. Furman, “a feeling-out process to see what they can get approved.”

Eventually, in 2007, nearly a decade after Oddcast first went into business, the U.S.P.T.O. approved IQ Biometrix’s application. “By the time you get to that point, the claims are almost completely different from the original filing,” notes Mr. Furman. “My clients are looking for a patent that will hold up in court. I wouldn’t be comfortable taking money from them and then handing them this crap.”

Links:  “Patent Trolls Come in All Shapes and Sizes“, Eon-Net v. Flagstar BancorpRule 11, USPTO., Patently-O “Eon-Net v. Flagstar Bancorp: Exceptional Case after Remand“.  Finally, the title of this post is in honor of the great analog engineer Bob Pease who died on June 18.


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