Patent Risk Digest

September 2015

A monthly update on market activity, legal developments, and policy related to patent litigation
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New Defendants in Troll Campaigns Nearly Double

Current data shows that patent trolls are thriving—having added nearly twice as many new defendants to infringement lawsuit campaigns in the first half of 2015 than during the second half of last year—despite court decisions and reforms thought to be deterrents. The pace of added defendants in the first half of 2015 was greater than in any half-year period dating at least back through 2012 (see Figure 1).

This study of troll campaigns—defined as a group of cases that a troll files accusing multiple defendants of infringing the same patents—highlights the ability of patent trolls to adapt to changing market conditions.

Figure 1: Defendants Added to Litigation Campaigns

Lit-Blog-Campaign-Chart_article-1_-09.2.15

Out with the old

Before mid-2014, patent trolls focused more on adding new defendants to old (or “existing”) litigation campaigns, rather than launching new campaigns. Beginning with the second half of 2014 and continuing into 2015, trolls instead began adding more defendants by launching new campaigns. What does this mean?

Adapting and adjusting strategies

What does this mean? The explanation begins with the fact that many of the weakest patents at the heart of older litigation campaigns have been—or likely will be—invalidated. This is thanks to legal reforms in 2011 that gave defendants more leverage to challenge those patents, as well as US Supreme Court decisions in 2014 such as Alice v. CLS Bank.

Those changes—in addition to other recently proposed reforms—are presumably impacting troll behavior on two fronts. For one, trolls are likely seeking different, stronger patents to start new campaigns, rather than relying on weaker patents already in suit. Further illustrating their resilience, trolls also are looking for new, more vulnerable targets (often companies with revenues less than $100 million) that lack the experience or legal budget to take advantage of Alice or other reforms in defending against the lawsuits.

Alice: No Cure-all for Frivolous Patent Infringement Suits

There’s no doubt that a 2014 Supreme Court case known as Alice has had an impact on patent litigation. But confusion remains about what this decision did—or, more to the point, did not do—to curb frivolous infringement suits.

Alice v. CLS Bank clarified that well-known business processes and other abstract ideas cannot be patented just by implementing them in software. To be valid, such a patent would have to introduce a truly inventive concept. Over the past year, defendants have used Alice to invalidate a number of low-quality software patents and defeat troll suits. However, Alice has not proven to be a total panacea.

Troll resilience

Alice has not deterred troll litigation volume. So far in 2015, trolls were more active than they have been in the last few years, with smaller companies (revenues less than $100 million) bearing the brunt of this surge. In the first half of 2015, more than 65% of companies sued by patent trolls were smaller companies.

Fuel for the fire

Data indicate that, in response to Alice, as well as other reforms aimed at weeding out low-quality patents, trolls are adapting by focusing on launching new litigation campaigns, likely anchored to better-quality patents. More than 2.5 million technology patents are active and in circulation, providing plenty of grist for the patent troll mill.

A costly fight

When Alice can be used against a troll suit, it is still prohibitively costly to litigate—at least in the six figures, even when a case is defeated in its earlier stages.

Rising Use of Technology Makes Banks Prime Targets for Trolls

Patent troll lawsuits once only worried technology companies. But now, any company that makes, sells, or uses technology can be sued by trolls. And as banks continue to embrace new technologies, their risk of being hit with this kind of patent suit has been increasing.

Between 2002 and 2014, patent troll DataTreasury Corp. sued a legion of global, national, and community banks over patents covering digital imaging and sending of checks. The litigation dragged into 2015, when the Patent Trial and Appeals Board (PTAB) finally invalidated the patents, stating they covered an already-known business method that had been merely applied computers. The PTAB essentially ruled that the patents should never have been granted in the first place. However, by the time the ruling came, 12 years of litigation and resolution costs were already on the books.

More recently:

  • During the past six months, a troll known as Finnavations, LLC has filed complaints against 17 banks. The infringement suits take issue with the banks’ use of technology allowing customers to modify and download transaction data to financial management programs. Finnavations is a new troll, incorporated in Texas just this year. Four of the cases have already been dismissed, likely with negotiated settlements.
  • In July 2015, two dozen banks were hit with lawsuits in a campaign that troll Turn IP has initiated, over a patent covering technology that allows customers online to choose a preferred method of contact. All of these cases remain active.

 

Where new technologies revolutionize old industries, patent trolls are sure to follow. This axiom applies to the financial services industry overall—which has seen a 20% increase in troll suits so far this year, compared to 2014. With the advent of mobile banking just a few years ago, patent trolls have been stockpiling mobile technology software patents, using them to bring infringement suits against virtually any bank that has been incorporating the technology into its customer-facing operations.

Your Patent Litigation Risk

Patent trolls—also known as NPEs or non-practicing entities—have a simple business model. They acquire patents directly from inventors, through patent brokers, or from companies selling off assets, then target operating companies that may be infringing those patents and bring legal action to generate a payment.

The legal costs alone of a single infringement litigation can range from six figures to several million dollars. For large companies it is a frustrating problem that can reduce investment and profitability. For smaller companies, a patent troll attack can be fatal. Patent trolls have increasingly targeted companies—both suppliers and users of patented technologies—in a broadening range of business sectors. That means companies can be vulnerable just by running their websites, managing their E-commerce, providing WiFi access, using mobile devices, or deploying enterprise software solutions—all operations that utilize patented technologies.

RPX provides a suite of business solutions to reduce the expense and likelihood of such litigation. One is Patent Litigation Insurance, which combines a traditional claims-paying policy with select, proactive intervention in the patent market. RPX has a uniquely broad and deep store of litigation cost data, and with it has built a highly accurate actuarial model for patent troll risk and cost. Policies are customized to reflect a company’s size and risk profile.

Contact Us

For further information on news and data presented in the Patent Risk Digest, or to subscribe now, please contact patentriskdigest@rpxcorp.com.