Thursday, April 06, 2006

How $19 in a Patent Troll's Hands Can Cost the Economy $9,000,000

A selected quote from RIM's Jim Balsillie's congressional testimony:
In the NTP case, NTP mass- mailed letters to 47 companies, including RIM in January 2000. RIM responded with a letter to NTP asking for additional information about its patents. NTP claims never to have received the letter, and made no further effort to contact RIM until NTP filed suit. Nonetheless, RIM was found liable for willful infringement based on what RIM did or did not do after receiving NTP’s letter. The fact that the patent owner took no interest and forwarded no claim charts or otherwise showed there was an infringement simply did not matter. A recent case in the Court of Appeals for the Federal Circuit further suggests that, even if NTP had acknowledged receipt of RIM’s letter, it would have no obligation to respond to inquiries or to provide support for its claims of infringement in order for it to obtain enhanced damages for willfulness.

Thus, even though a patent owner does not deem the potential infringement worthy of investing time and money to do a proper infringement analysis and may never even bring a claim of infringement, the targeted defendant must do so or risk treble damages and the brand of “willful infringer.”

To illustrate the economic costs inherent in this bias towards patentees, one need only consider the NTP case. With 1920 claims in the NTP patents, each of the 47 companies would likely have to spend at least $200,000 for a legal opinion of invalidity and/or non- infringement. Thus, for about $19 in postage, a single patentee like NTP can require 47 companies to divert over $9 million from other industry endeavors to obtain legal opinions regarding NTP’s patents. Although it is currently rare for that many claims to be asserted, it is common for companies to receive dozens of such letters each year and to spend several hundreds of thousands or more each year on external legal opinions alone (not including the salaries and overhead for those that deal with these issues).
And, keep in mind, that's $9 million before any legal action even happens -- this is simply the cost of reacting to a cease-and-desist letter sent from a patent holder.

And, if you are a small company instead of a large one, it is doubtful you could ever justify spending $200,000 to respond to a single cease-and-desist.

The mafia never had a deal so sweet as that given to holders of shady patents.

5 Comments:

Anonymous Anonymous said...

I'm almost enraged enough by this to write my congressmen and senators.

7:57 PM  
Anonymous Anonymous said...

Can you explain your figures more? How did you get 200,000 exactly. Also, doesn't the person who claims infringment have to invest anything to find where it exists. Not to put down you point but I think you could make a better point if you explained it in detail more.

8:24 PM  
Blogger Jackson Lenford said...

The $200,000 dollar figure is not mine (it is Jim Balsillie's, head of BlackBerry maker RIM), but I assume it is based on a typical legal fee.

If lawyers charge $100 per claim in a patent to give counsel regarding infringement (which seems like a reasonable fee), that would add up to nearly $200,000 for NTP's 1902 claims in its 5 patents.

And no, the person who claims infringement doesn't have to invest anything to find where it exists. They don't even have to really believe that you are infringing. Most blanket cease-and-desist campaigns send as many letters as possible, to any entity that might have the remotest possibility of infringing. I have readers who have received C&D letters because google listed them under the right keywords.

They cast a wide net, and it costs almost nothing to throw it. Unfortunately, it costs a lot of money to get free of it once tangled, even if you are a dolphin in a tuna net.

8:45 PM  
Anonymous Anonymous said...

Jackson,

you should really study the subject more closely before you express your opinion.

Sending cease-and-desist letter to a company like RIM almost automatically triggers a Declaratory Judgment Lawsuit:
they ask the court to get rid of you and pronounce your patent dead.
You can read about a small comapny called Eatoni and Howard Gutowits, who just proposed that RIM could license his patents and got a DJ lawsuit from them.
And they (big corps) always try to bring a lawsuit in a foreign jurisdictionm to try to bankrupt you.

Read this:
http://www.eatoni.com/wiki/index.php/Litigation

So, NO, sending blanket cease-and-desist letters to big companies without being sure about actual patent infringement is NOT a good idea for a small guy.
I can tell it from personal experience...

10:01 AM  
Blogger kenny said...

Anonymous, I think you are confused.

Jackson's assessment is accurate. Patent holding companies, as well as medium and large enterprises, send out blanket C&Ds regularly. I know because I've personally received one, and I know a few others who have as well. Go to ChillingEffects.com to see some others.

As for a small-time shop sending a bunch of C&Ds to large companies, threatening lawsuits (which is slightly different from what we're talking about), if the small-timer has a strong and valid patent, what should they fear? Yes, defending against a declaratory judgement can cost some money, but if the patent is valid, those costs will be more than recouped, and you can find lawyers who will take those cases for a small fee plus percentage of winnings.

The opposite end of the stick is not as lucky; defending against alleged infringement results in no awarded damages, so the alleged infringer HAS to foot THE ENTIRE BILL.

Maybe we should legalize damages against frivilous patent suits, and institute a 'loser pays' system for attorney fees?

1:19 PM  

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