Trolling patent trolls: A proposal

Having an LLC license the IP to a C Corp will not protect the C Corp from a patent infringement suit. The patent holder could go after either entity.

The definition of infringement is broad and does not distinguish between licensor and licensee: "Except as otherwise provided in this title, whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent." [1]

This is why patent trolls like Lodsys go after individual app developers, even though the developers are licensing the allegedly infringing tech from Apple.

Standard Legal Advice Disclaimer: I am a lawyer, but I am not necessarily your lawyer.

[1] http://www.law.cornell.edu/uscode/text/35/271

Zach put a lot of good thinking into the article but ultimately the approach with the shell technology licensing company isn't suitable for many small and medium sized businesses that are stuck with their existing legal structures for a variety of legacy reasons that relate to accounting practices, relationships with business partners and so on. Also, until the approach is proven to work in court there is a significant risk for a company to organize based on the proposed shell technology licensing company structure.

Trolls exploit a number of asymmetries in the system. First, at scale, a patent demand letter is cheap while the cost of the response to the letter is high. Second, cost of patent litigation is several orders higher than cost of patent licensing. Third, the return from winning a patent litigation case is effectively negative for defendants (because trolls are usually shell companies without funds to pay defendant's court expenses) while trolls, on average, receive a positive return from patent litigation cases because they can target a large pool of companies.

To put small and medium sized companies on an even ground with trolls we need to bring together targets of trolls to organize and defend themselves. As a group, companies can balance out the asymmetry in the system. There is some good work in this space from EFF and fightthetroll.com

I agree with others that stated the structural flaw with this idea is that the Patent Troll will sue all entities involved. Even if that wasn't a problem, here's another issue:

If the judge awards damages too unreasonable to pay simply let the LLC become insolvent

In this case, the LLC is the entity that owns all of your technology. I would think that would be a pretty big asset that could be sold off to pay the damage award. And then you wouldn't own your technology anymore.

If this approach actually worked, then it would work for any patented technology, no? This seems less a method to protect against patent trolls, and more a method to protect against all patent infringement suits, no matter how substantial.

Perhaps the author is opposed to all patents, but this isn't clear from the text.

"Don’t retain counsel, show up to court or don’t and let them rule however the judge chooses to do so. If the judge awards damages too unreasonable to pay simply let the LLC become insolvent."

seems fraudulent if it can be shown that you are doing this to escape paying fees that the court says you have to pay.

Also it seems to me more likely that you would be found guilty of willful infringement if doing this, given that you have obviously set up a structure to get out of paying fees for infringing.

for patent troll might be smart way to increase fees - go after just your llc, you close it down open another one, go after both llc and your company show connections, show that you were infringing before and are now infringing again with another cover llc = bigger fees for infringement, TADA!

I have mixed feelings about patent trolls.

If I buy a home and rent it out, I am profiting from the work of others. Similarly, if I buy the film rights to a novel and create a film then I stand to profit from the work of others. So, in that regard, purchasing a patent isn't any different.

However, it's basically impossible to live in a house and not realize it. And it's impossible to watch a film and not pay for it without realizing it. But, it's very easy to infringe on a patent, especially one that's as vague as most tech patents-"A method and system that operates on days ending in 'y.'"-without realizing it.

I'd like to know if there are any legitimate non-practicing entities? In other words, a company that buys a patent or patent portfolio and that then notifies licensees of the change in ownership, opening the door for normal, two-way negotiations on fees. Because it seems that most of these companies just bring out the litigation hammer and try to make as much money as possible.

Personally, I would be disgusted with myself if I profited in that way. I enjoy working and creating and if I happen to be suitably rewarded then that's all the better. But I can't see patent trolling as much more than robbery and thievery. Even though it's somewhat legal, it still is a business that's built on deception and, in most cases it seems, intimidation.

Maybe that's why I'm not rich :-)

It seems a more powerful approach would be along defensive pooling IP across a board range of organizations and solving the discovery costs issues.

Something like:

1. Have a IP company that indemnifies your company from all IP suits up to a certain cost. 2. They review all your tech before launch / ongoing for a small fee to minimize exposure. 3. Make your IP subject to assignment by this company (i.e. -- you can't sell your IP without their consent).

This is a another insurance proposal but the assignment clause makes it interesting. You now have a 3rd party that is emotionally committed to fighting trolls that has a say in who you sell to.

It would complicate acquisitions a bit but it could gradually pull in larger companies if the few startups with real leverage sign up and ask larger corps to bring their portfolios to the party.

My proposal is to change the law such that only the first inventor (applicant of patent) has the right not to make an application of said patented invention.

As soon as this patent is sold to other parties and even back to the original applicant then the holder MUST make the thing that is patented for real.

And if the holder is not able to make said product from the patent within a certain time, then the patent should be nullified so that others are able to reinvent.

If this worked, then there wouldn't be any patents. Period. Some lawyer would have figured this out years ago and everyone would be doing it now.

I heard that Kaspersky got trolled recently, and it f\a*cked up. Are some p_trolls deliberately trying to shoot themselves in the foot?