How Tech Giants Are Fighting Patent Trolls
Tech giants, including Apple and Microsoft, have struggled in having to deal with long and costly legal battles they are dragged into by non-practicing entities (NPEs), of the referred to as patent trolls, which are persons or companies that often do not manufacture products and try to enforce patents they own.
Tech giants have recently waged war and have begun taking a series of steps in response. Patent trolls are often able to successfully enforce patents that cause companies to pay huge sums for compensation or a license to use the patent. It is estimated that in combating trolls companies lose up to an estimated $ 80 billion a year from compensation, license fees and court costs. The average cost of a patent claim is $ 3 million and the damages that defendants sometimes have to pay can tally up to hundreds of millions of dollars.
While small-to-medium-sized companies often find themselves under attack by patents owned by patent trolls, in recent years patent trolls have shown a growing tendency to in opening up fronts against the world’s most powerful corporations.
In fact, a favorite target of trolls is Apple (alongside Amazon and HP). In 2018, following more than eight years of litigation, it was ruled that the company must pay $ 500 million in compensation to the patent troll VirnetX, which acquired rights to internet communication patents and claimed that popular products like FaceTime infringe their patents. The ruling was issued by a US court in Marshall, Texas, known for its sympathetic approach to patent trolls and which in 2015 alone drew about 2,500 lawsuits from patent holders, the vast majority of them trolls. The Supreme Court intervened as a result of this bias and ruled that patent holders could no longer file their infringement claims just anywhere, but only in the counties the company is incorporated or operating in.
Microsoft is another of a long list of examples. It is currently going through a relentless lawsuit in the US by SynKloud, whose sole business activity is holding patent licenses. The company claims that Microsoft’s successful OneDrive cloud is infringing patents that are broadly related to the ability to access external storage.
In January this year a number of multinational companies decided to unite and act on the issue. A group of 35 companies, including Apple, Microsoft and BMW, have petitioned the EU to take action to confront patent trolls. In a letter to EU institutions, this group of corporates calls for stricter legislation to prevent patent trolls from taking advantage of the European patent system. The companies also claim that patent troll activity impedes innovation and impairs companies’ ability to compete on new technological fronts. At the center of the issue is European court rulings which warrant confiscating products determined to infringe even a single patent.
A similar battle is underway in the US. Last November Apple and Intel jointly filed an antitrust lawsuit against Porter Investment Group, which is owned by SoftBank, recently in the news for the huge investment that resulted in the (inevitable) takeover of WeWork. The lawsuit claims that Porter acquired patents directly or through its subsidiaries and demanded that potential infringers pay $ 5 billion altogether. The lawsuit states that “Apple has suffered monetary damages in the form of litigation costs and resource allocation at the expense of innovation resources in order to respond to serial, frivolous claims.” One of the disputed patents concerns alleged infringement of a patent that protects step counts and is used in Apple’s health tracker app that is in most of its products.
IBM, known for its innovations and which for the 27th straight year leads the US in issued patents, is also struggling with patent trolls. In 2019 alone 9,262 US patents were issued to IBM in areas such as AI, blockchain and cloud computing. The company has decided to contend with patent trolls in a new way, this month announcing that it is contributing over 80,000 patents to the non-profit LOT (License on Transfer) network. The steadily growing network has over 600 companies, including newly founded companies, and rounds up over 2 million patents. If a patent troll gets its hand on one of these patents, the other members of the group automatically obtain a license for the same patent, which immediately prevents any future infringement claims against network members. Startups can become network members at no charge. The contribution of 80,000 patents to LOT coincides with IBM’s activity in the OIN (Open Invention Network) founded in 2015. The community offers group members (about 3,100 companies) free patent licensing in return for promising not to sue network members regarding Linux systems and applications, thereby keeping it an open source-based system and advancing freedom of action in the field.
These giants that are engaging patent trolls are, however, discontent with the working effort to influence legislation and form communities, and with the most important and effective arena – business. One of the companies at the helm is RPX (Rational Patent Exchange Corporation), a US company (one of its founders, Eran Tzur, is Israeli-born) that specializes in reducing risk and cost of litigation against patent trolls by protective patent pooling, which is the acquisition of attractive patents to get them out of the market and thus prevent trolls from obtaining them. The company grants group members, among them Google, Microsoft and Intel, a license in exchange for an annual membership fee and warrants not to enforce the patents it owns against its members.
It is to be hoped that these steps will and others will bear fruit and add some rationality back to the patent system and to strengthen its primary roleof encouraging innovation. Innovation and collaboration between different innovators in a multidisciplinary approach, and hence pulling together of IP assets of different owners, is very much needed to tackle the main challenges facing humanity. The recent coronavirus outbreak is an example illustrating this point.
This article is provided for general information only. It is not intended as legal advice or opinion and cannot be relied upon as such. Advice on specific matters may be provided by our group’s attorneys.