How to Become a Patent Troll

An article at The Age chronicles Forgent's JPEG patent lawsuits, (unintentionally) laying out a simple 4-step plan to convert your company into a patent troll:

Step 1: After failing in the marketplace, rummage around and see if you can find or obtain a dodgy patent:

Forgent's previous incarnation, a videoconferencing company called VTEL, fell on hard times in the late 1990s... The company lost $US6.1 million in fiscal 2002.

Cash-crunched, [Forgent] began rummaging through the company closets - and found a treasure.

Inventors working for Compression Labs, a company that VTEL bought, had registered for patents on a process that Forgent now claims is used in JPEG compression.

Step 2: Bomb Japan:

Mr Snyder first aimed his guns at Japan, a less litigious place than the United States, in hopes of setting a precedent. Forgent sent letters demanding a one-time licence fee to cover alleged past and future infringement. The strategy worked. Staying out of court, Sanyo paid $US15 million and Sony more than $16 million in fiscal 2002.

Step 3: Use Japanese companies' willingness to capitulate as leverage against US companies:

Emboldened, Mr Snyder moved on to the US market, going after more than 1000 companies that have used the JPEG in their products.

Step 4: Reinvest proceeds of settlements into more litigation, against bigger and bigger fish:

Forgent was left with two businesses: the $3 million NetSimplicity, which offers meeting-planning software, and the lawsuit business. That means that for Forgent, licensing is the name of the game. Patent law allows a company to force a violator to stop producing the item in question and pay compensatory damages, which can be tripled in the case of willful infringement.

In Step 2 & 3, you may subsitute other vulnerable and litigation-adverse groups in place of Japan. For example, Acacia has created a very profitable patent trolling venture by targetting first pornographers, who are also very likely to agree to terms keeping them out of court.

In Step 1, I used the term 'dodgy' to describe the Forgent patent. Perhaps that is too kind a term:

"I believe that the patent is invalid," says Dan Ravicher, the [Public Patent] Foundation's executive director, and it is "causing substantial public harm" by adding extra costs to an already taxed system for inventions and by threatening the JPEG standard that is now part of the public domain.

Some critics even question whether software patents like Forgent's ought to exist. "Software is a thought process," says Tom DeMarco, a fellow at the Cutter Business Technology Council, an IT consultancy. "To patent it is comparable to patenting induction or deduction." The European Union, for example, does not grant software patents.

Even more damning is the fact that US Patent Law is beginning to force innovative companies to flee our borders, moving off-shore to protect themselves from silly patent thickets such as those laid by Forgent. We are experiencing an exodus of jobs and revenue, thanks to our patent system:

The number of patents granted has exploded to 187,170 in 2004, up from 66,176 in 1980. There has been a similar explosion in lawsuits, which usually cost at least $2 million to defend if they go to trial. "Now you can make the case that it's driving innovation offshore," says Mr DeMarco. "If you want to start a new software company that does something imaginative and wonderful, you have every incentive to start that company in Slovenia or China or a place that doesn't have these rules."