The latest terror of corporate America is the "patent troll," a fearsome entity that can sue a company using its patents for millions, or threaten a shutdown.
There’s a new bogeyman haunting corporate America alongside the crusading white-collar prosecutor and the zealous class-action attorney.
The latest predator to terrorize boardrooms is a creature called the "patent troll." This is a patent-holding company that collects licensing fees from users of its technology and sues those who won’t pay.
BlackBerry maker Research in Motion learned the hard way how costly such a legal battle can be. RIM agreed earlier this month to pay $612.5 million to settle a patent-infringement lawsuit from NTP Inc., a holding company for the intellectual property of a deceased inventor.
Other tech giants, including Microsoft, Intel and eBay, are battling similar big-dollar patent-infringement cases. There also have been a few cases in Colorado.
Companies known as trolls usually produce nothing and sometimes are little more than a few lawyers who purchased patents out of bankruptcies. On the other extreme, inventors, university researchers and companies that represent them also are often dubbed trolls, fairly or not.
The issue of patent trolls – around for decades but coined by Intel in 2001 – has grown with the explosion in patent awards and related
litigation in recent years. Increasingly complex technological innovations have fueled the trends.
Patents issued by the U.S. Patent and Trademark Office grew to 165,485 last year from 96,727 in 1990. Patent-infringement lawsuits, meanwhile, doubled to 2,400 from 1988 to 2001, according to the National Academy of Sciences.
Colorado is home, at least part time, to two of the country’s most successful patent-litigation attorneys – Gerald Hosier and Raymond Niro – both of whom are often labeled trolls.
Niro, a Chicago lawyer and part-time Aspen resident, has won dozens of patent-related jury verdicts worth more than $400 million.
Hosier, who lives in Aspen, helped the family of the late inventor Jerome Lemelson collect $1.5 billion in licensing fees from auto, computer, retail and electronics companies on patents for bar-code technology.
Niro won one of Colorado’s biggest patent-infringement cases in 1997.
A Denver jury awarded inventor Ron Chasteen $57 million from snowmobile maker Polaris Industries and its engine supplier, Fuji Heavy Industries. Chasteen alleged they stole his idea for a fuel-injection system.
An appeals court boosted the award to roughly $95 million. Chasteen said at the time he would use a portion of his money to set up a ranch for troubled children.
The case illustrates how the perception of patent-infringement cases has transformed from "David vs. Goliath" to "patent troll" vs. "victimized corporation," Niro said.
"The strategy of major companies now is to try to portray themselves as victims," he said. "Today they’d probably call (Chasteen) a patent troll."
Colorado has seen other infringement lawsuits filed by patent-holding companies that could be viewed as trolls.
Qwest battled and in 2002 settled with a holding company that owned the patents of deceased Japanese telecommunications inventor Kazuo Hashimoto.
In 2004, Colorado-based Voice Capture Inc. sued Intel over interactive voice-response technology. Voice Capture was created in the mid-1990s by Aspen resident and former Lee Enterprises Inc. chief executive Lloyd Schermer to hold patents that he obtained from Lee.
The companies settled their dispute last year for an undisclosed amount that Niro, who represented Voice Capture, called "significant."
Critics say much of the patent troll problem would go away if trolls weren’t able to threaten to shut down alleged infringing firms with a court-ordered injunction.
The threat of an injunction can force a company to settle with a patent holder for far more than its patents may actually be worth. BlackBerry faced an injunction before it settled with NTP.
"When a company has no competing product but merely a patent, awarding an injunction becomes a club the patent holder can use to extract maximum royalties," said University of Colorado law professor Philip Weiser, who specializes in antitrust, patent and constitutional law.
The U.S. Supreme Court is weighing a case this spring that could set an important precedent on the injunction issue. EBay, which lost a patent-infringement trial in 2003, wants the courts to overturn the judgment and make it more difficult for nonproducing patent holders to win injunctions.
Intel spokesman Chuck Mulloy said consumers would benefit from such a ruling because they ultimately bear the costs of patent litigation.
"That would make it only about what is a fair and equitable recourse for the plaintiff. Then the consumer isn’t punished," he said.
Intel’s lawyers coined the term "patent troll" in 2001 after being sued for defamation for calling their foes "patent extortionists." The term came from the idea of companies trolling for patents but evolved to symbolize the creatures of Scandinavian folklore who live under bridges and in caves.
Intel remains the biggest critic of trolls.
"There’s nothing productive in what they do," Mulloy said. Intel has spent "hundreds of millions of dollars" on license agreements and settlements with patent-holding companies, he said.
Niro and his clients have collected a considerable portion of that money, but he bristles at the troll label.
"To demean inventors who don’t have the resources to produce products as ‘trolls’ is outrageous," he said. Innovation would lose its value if inventors could not license or sell their technology and litigate if necessary, he said.
Niro often works on a contingency basis, receiving nothing if his client loses but getting up to 45 percent of proceeds from a license, jury verdict or settlement.
In the case of NTP, a partnership between the inventor and a patent attorney, the family will receive about a third of the money. Lawyers will take the rest. Niro was not involved.
Niro noted that RIM could have settled the case for much less early on but instead chose to fight.
"Sometimes when you fight to the death," he said, "you lose."