Patent trolls prompt business leaders to seek congressional action

Time may be running out for patent trolls. They buy patent rights and file what often seem to be frivolous infringement lawsuits, hoping to squeeze settlement money out of their targets.

For years, the companies have aroused anger in the offices of small business owners and corporate giants such as Medtronic and 3M. But the trolls' business model could soon come undone if Congress enacts an overhaul of patent law and the Supreme Court issues rulings that undermine the trolls' tactics

Last year, Medtronic and several of its peers were hit by lawsuits alleging they had violated a patent that protected a technology for remote monitoring of fluid delivery. Medtronic allegedly infringed on the patents with its wearable pumps that deliver small amounts of insulin into the body to manage diabetes.

• Related: Company's 'patent trolling' will end in Minnesota after attorney general investigation

Chad Hanson, Medtronic's senior legal counsel for intellectual property litigation, said there is no the way insulin pumps infringed on those patents.

"We didn't feel there was any legitimate basis for that to be asserted against frankly any medical device company," he said.

The firm that sued Medtronic, Rydex Technologies, said the company founder developed the technology in question 20 years ago to monitor how tractor trailer trucks are fueled.

Medtronic was accused of a patent violation concerning products that have the capability to wirelessly transmit information about a fluid delivery to a remote device. An example of the "accused instrumentalities" was the MiniMed Paradigm Revel Insulin Pump.

The patent holder asserted insulin pumps infringed on a patented process to wirelessly transmit information regarding fluid delivery to a remote device. A Rydex spokesman said the claim was valid because the patents cover the delivery of pharmaceuticals.

The spokesman for Rydex, which operates out of a Newark, Delaware, office park, would not discuss what other patents the company holds, the nature and scope of its business or the timing of its lawsuit.

The companies settled the dispute but did not disclose the terms. Neither side claimed victory.

Hanson said the medical technology firm is regularly threatened with frivolous patent infringement lawsuits from companies that hold patents just to use them to file lawsuits. "At times, it is something that is akin to extortion," he said. "We look at these cases and our assessment is that there's frankly no way to find infringement."

Trolls also go after small businesses. Last year, Minnesota Attorney General Lori Swanson stopped a Texas firm, MPHJ Technology Investments, LLC, from badgering small businesses to pay "license fees" for using office equipment that the company claimed violated patents.

Trolls trust that companies large or small will often pay serious money to settle infringement claims rather than bear the greater expense of a trial. That campaign costs U.S. businesses about $29 billion a year in legal fees and settlements, according to an estimate by Boston University law professor Michael Meurer.

About 15 years ago, Meurer said, there were hardly any patent lawsuits brought by firms that held patents but did not put them to use. Today, such cases account for about half of all patent infringement lawsuits, he said.

"There are some very bad actors out there that make some fairly outrageous assertions against sometimes dozens or hundreds of defendants," he said.

Trolls have claimed their patents were violated by companies setting up public Wi-Fi networks and online shopping carts or attaching scanned documents to e-mails.

With many regional and national business groups and big and small companies aligned against the trolls, Meurer said it's a good bet they will be curbed.

"Congress is likely to do something," he said. "The executive branch can do some things. And the Supreme Court is likely to change the law to reduce the profits that could be derived by patent trolls but also to fix basic problems in the patent system."

Meurer said it's often hard to figure out who owns a patent and hard to determine whether there is a patent out there that might be used against a new technology. "Patents today generally don't communicate boundary information very well," he said. "It's often hard to figure out who owns a patent and often hard to know that a patent even exists that might be asserted against you."

Under current law, Meurer said, there's little downside to filing frivolous patent claims. Trolls don't have to worry much about losing and getting dinged for the victor's legal fees. That could change, depending on how the Supreme Court rules on a pending case.

Acacia Research Corporation boasts that it is the industry leader in patent licensing, generating over $1 billion in fees. Critics brand the company as just a giant troll.

But CEO Marvin Key said his firm simply makes sure that patent holders receive the licensing fees they're due. Key said Acacia licenses and enforces patents for universities and firms such as Nokia and Boston Scientific.

However, he agreed that Congress needs to enact pending legislation intended to thwart trolls' misbehavior.

"The effort is being made to curtail abusive litigation practices and to that extent, we're in favor of this legislation if it has the intended consequences of eliminating some of the more unsavory characters in the business," Key said.

Some are concerned that a crackdown on trolls could go too far.

Among those worried about that is Kevin Rhodes, chief intellectual counsel for 3M, which has holds about 700 patents.

"It's a big issue for us both in terms of curbing the abuse but also in terms of not taking steps that impact legitimate patent enforcement," he said. "We need to make sure that as we look to improve the system we don't do more harm than good by overreaching legislation or other reforms."

Meanwhile, Rhodes said Congress would be smart to see that the U.S. Patent Office is fully funded.

"A lot of these problems go away if the Patent Office can issue better patents more quickly," he said. "And the single most important thing that the Patent Office needs to do that is to have access to the fees that we pay to have our patent applications examined in a fast and high quality way. Unfortunately, Patent Office fees have been diverted for years. Since 1990, about a $1 billion in user fees have been taken away from the Patent Office and put in the general Treasury fund."

Coalition plans advocacy session

The Main Street Patent Coalition will host a discussion in St. Paul Thursday about the need for Congress to pass comprehensive patent law reforms. Its members include: American Association of Advertising Agencies, American Bankers Association, American Hotel and Lodging Association, American Gaming Association, Application Developers Alliance, Credit Union National Association, Direct Marketing Association, The Emob, Food Marketing Institute, Independent Community Bankers of America, International Franchise Association, National Association of Realtors, National Council of Chain Restaurants, National Grocers Association, National Retail Federation, National Restaurant Association, Retail Industry Leaders Association, Small Business Majority, U.S. Travel Association, Latino Coalition and the Printing Industries of America. For more information, contact Katie Wilkerson katiew@ewald.com or Sarah Elliott sarah@mainstreetpatents.org.