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Comment by bsder | Hacker News Reader

And the troll companies are always shell companies with nothing but the patents. So, even if you win, the shell company will declare bankruptcy. This is what changed the game. Before, two big companies generally had enough patents that they would simply agree to cross license because they both infringed one another's patents.

So, for the company being sued, it's a no win situation.

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IMHO, this should not be dealt with at a company level, since the shell company is arguably not engaged in any economic activity: their juridical entity is, essentially, worthless.

Instead, given the toxic economic climate the people behind it create, this should be transported into criminal charges brought against the make-believe CEOs behind the shell companies that specifically engage in patent trolling. They're arguably pulling a con against a system designed by the state for something completely different, and their con should be treated no differently than, say, tax evasion.

I think the only reason why companies like these continue to flourish is that the people behind them are entirely safe. No legal system will be able to close down as many companies as they can open. So jail the motherfuckers, or otherwise forbid them to take part in the economic system, and it's bound to stop.

If everyone agrees that it's a "con", as you put it, wouldn't it be easier to just change the rules to prevent it happening, instead of letting it still happen but criminalizing people who do it?

There's a system, there are rules. Some people have found ways to utilize those rules which many of us think are bad. The solution should be to change the system and the rules, not criminalize more people for doing something that is currently entirely legal.

I'm not sure if that could be worked out in a fair manner. Holding patents as a nearly-bankrupt company that's essentially out of business is not necessarily to be forbidden -- it can still be used constructively, e.g. by licensing them free of charge to non-profit organizations in order to relieve some of the uncertainty of potential donors. Just like with extortion, the fact that it can be punished is pretty much the best deterrent we have.

Of course, the real solution would be to stop all this software patent nonsense, but that's so last year.

How about a licensing requirement for non-earning, non implementing companies? If they don't have revenues that haven't been awarded by a judge, require them to license according to a schedule determined by a regulatory board.

Hm, good point. My difficulty was this: if a company holds patents that it is not exploiting, all they're doing is adding unneeded pressure on competitors who have to think twice about implementing something similar because you never know when the other guys might sue. On the other hand, it also seems unfair to force patents away from companies that, while having financial difficulties, would also actually like to exploit those patents and simply need some time to find additional income sources.

This would actually be a good idea: such companies should be required to either present a good schedule for how they intend to actively use the patents they hold, with the implementation of that schedule supervised by a third-party (maybe state?) representative. Companies that fail to implement their patents should be subject to limitations that discourage them from using the patents in an anti-competitive fashion, or simply for financial gains that do not result in any implementation.

There could be a ton of variations on this theme. For instance, companies could be required to pay a certain fee for each patent they hold, that decreases if the patent is actually implemented and increases (possibly to impractical amounts) for every year that it is not implemented. This way, companies would be discouraged from hoarding patents, while actively offering an incentive for implementing technology they claim to be patentable.

> this should be transported into criminal charges brought against the make-believe CEOs behind the shell companies

Ah, but the original proposal was for individuals to file lawsuits. Individuals cannot press criminal charges -- only the state (in the form of the prosecutor's office) can do that. And the state can not (and SHOULD NOT) use that power to go after individuals because we don't like those people, or because we don't like who they work for, or because we don't like what the companies they work for do.

THAT would be abuse of power.

It is fairly common, even necessary, for justice to go after the key figures of businesses that engage in criminal behavior (e.g. Maffia, money laundering companies). Otherwise it would be a type of behavior for which no-one can be held (individually) accountable.

Working as a lawyer for an extortionist company of this sort does makes you an extortionist. And this is how it works many times, otherwise hitmen could just claim that they were only doing their work for a company.

I agree with your interpretation. I've seen some legal experts try to argue in favor of the RICO laws being used to prosecute the owners of patent troll companies for engaging in what amounts to racketeering and extortion.

Moreover, patent lawsuits have a high probability of engaging a single programmer's responsibility, since all contracts engage the programmer not to use derivative works of anything else and not to use patented work. So I would think it's only fair if the counter penalty were directed at the CEO in person instead of the patent troll.

If troll files bankruptcy, can't the winner claim their assets, i.e., junk patents as payment? Isn't this even better because troll now loses the weapon itself to cause more damage?

Lot of tech companies are sitting on mountain of cash. There is absolutely no reason for them not to go after trolls with 1000% vengeance and eik out every possible cent from them even it cost 10X more to them. I'm dumb founded that no one other than Newegg had this attitude even though these companies keep playing victims.

Often the the shell companies don't actually own the patents, they just license them from the parent company. This way when the shell company loses and goes bankrupt the licenses is automatically revoked and there is nothing left to claim.

Patent trolls might be evil, but unfortunately most of them aren't stupid.

If a shell company does not own the patent how can they (as a licensee) sue for infringement?

The parent company simply writes that into the license. Companies like Intellectual Ventures set up a shell company and give that company a time limited exclusive right to some patents, including the right to sue other companies for infringement, during that time period. In exchange for this exclusive license the shell company agrees to pay, let's say, 95% of any revenue generated by sub-licensing or court settlements to the parent company.

Incredible that such a transparent strategy would not be punctured in court. Just requiring that the principal holder of a patent is the only one with standing to sue for infringement would get rid of this particular trick immediately.

Presumably what would happen in that case is that the parent company would sell the patent to the shell company, who would then just sell it back as soon as there was any threat that a victim was going to fight it in court.

It's still an improvement, but I'm sure that there are plenty of even cleverer ways to get around this than my off-the-cuff guess.

If the shell company sues ten companies over a patent, and one of them threatens to sue, and they sell the patent back to the parent company, wouldn't that mean they no longer have standing to sue the other nine either, and they'd have to file a motion to dismiss all the rest?

Yeah, that's why one of the major target reforms is being able to track the ownership chain up to the actual patent owner. This would allow courts to reward damages directly from the actual perpetrator to the victims of patent trolling, rather than this shell game nonsense.

Could the company being sued start playing the same game? As soon one is sued by a troll, reconfigure the 'offending' bit into an asset-less shell company that you purchase/license/etc. things from.

No, you would have to do that before being sued, for obvious reasons...

Then just take a vengeance legal actions against a parent company, not against an empty shell.

Its so trivial to set up a shell company that we can assume the trolls are running one per patent. If a shell goes bankrupt they only lose that one patent, which has been shown to be worthless anyway

I think the idea is to increase the marginal cost of doing business, so it isn't economic any more. That is, assuming it takes enough some time and effort to declare bankruptcy, set up a new corporation etc.

But you're right, it wouldn't be a win for a specific defendant, it's more a long-term strategy to change the ecosystem by the community - crowdsourced, as the GP suggests. Another option is a consortium of well-heeled companies to methodically troll trolls.

Unfortunately, funding trolling of competitors is probably something some hidden department of those very companies do, while other departments sincerely complain about it.

Excluding billed time for the process, it is amazingly easy to set up a corporation and transfer patents to it. Fixed costs for creating a shell corp are around ~$100.

Newegg's approach (Never settle. If you sue us expect to pay our legal fees.) is maybe the best way to eliminate the economic incentives, given the uncertainty of the US legal system.

There's a comment downthread by jacquesm detailing one way he exploited shell companies _against_ the trolls and they backed off...

In one British case I was involved in, the troll's strategy was so obvious they were required to put up a bond to cover at least part of our side's legal fees if they lost. That's a pretty good way to reduce completely frivolous cases.

They did eventually lose (we invalidated their patent). We were still out of pocket, but if their patent had been even weaker, I think they'd have backed out when they had to post the bond.

> the troll's strategy was so obvious they were required to put up a bond to cover at least part of our side's legal fees if they lost.

Yeah, how much money did you spend getting to that point?

That part, only the client knows. But I'd guess at least £1m (out of £3m or so total legal costs on our side). These cases are not cheap if they get as far as going to court.

The difference is that under the English rule there's a presumption that the loser pays the winner's legal costs, while under the American rule the presumption is that each side bears their own costs. In a few areas of law, Congress has by statute adopted the English rule, and in those areas it is common for courts to insist on posting a bond, but in places where the American rule is in place it is very uncommon to do so.

If they can't pay due to bankruptcy, isn’t there a chance as someone they owe money you will get some of their patents (assets)?

If you win then their patents aren't very valuable.

But you've also taken away (at least some of) their tools to troll people with.

So has the precedent of the court case you just won.

Typically troll maintains pool of patents. If they file bankruptcy, its an opportunity to shave them off clean and flush out their pool. Even if they had just one patent, it is still worth pursuing this because it puts strain on their legal resources to continue trolling. This is advantage to large company who practically have far more legal resources to spend then individual trolls.

The bottom line is that if all tech companies pubically takes oath like Newegg that they would never let patent troll walk away like that I suspect trolling would continue at the current level if at all.

The fact that these shell companies don't actually do anything besides sue people is also a problem. It's difficult to find grounds to sue a business that doesn't have any business activities. (Except countersuits as in Newegg's case, so good on them.)

be a bit more creative. It's known who the parent company is, so sue them. Since you're basically just suing for whatever you can get away with you should of course go for the mother ship.

But there isn't always (or even usually) a "mothership" from what we've seen lately. Look at the Prenda Law saga (Ars Technica has some great write-ups). They can't even figure out who officially owns the company, it is almost entirely opaque. I think the problem is that corporate personhood has run completely amok. It is far too easy to invent a new corporate person with little or no visible or even provable connection to any natural person.

It's worth pointing out that corporate personhood in the commercial sense is not the same as corporate personhood in the Citizens United sense. Governments are free to regulate how a 'corporate person' can come into existence and do business. They are just bad at it.

Agreed, that is an important distinction to make.

Oh Prenda Law. My favorite angle on their scam was when they started embedding malware into gay porn downloads to extort money out of them.

I hope someone eventually gets to the bottom of who is behind that enterprise and they can be very publicly shamed and exposed.

If the patent portfolio of these companies that go bankrupt sold at auction to satisfy creditors? Who buys these, other patent-trolls?

That might be a problem right there.

>> And the troll companies are always shell companies with nothing but the patents. So, even if you win, the shell company will declare bankruptcy.

I think you've hit on it. Anyone who proclaims patents are bad overall are not considering that the real problem is the shell companies, "patent trolls", who are taking advantage of a system that was intended to encourage good faith between businesses; these shell companies are the real problem. The law needs to go after them with the "pierce the corporate veil" mantra.

Patent trolls are definitely a distinct problem, although the problem is exacerbated by, if not created by, the profusion of bad software patents.

So if you reduced the number of bad patents you might fix that particular problem but, for me, software patents are a problem in and of themselves.

OK I'm with you, abolish patents! Legalize pot too while we're at it! Free love and sex any time anywhere!

Abolish software patents, not all patents. The costs are substantial and the benefits do not seem to be.

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