Beyond the bottom line: The true cost of patent trolls

If there’s a bigger legal scourge in the tech world right now than patent trolling, it’s hard to say what it might be. Even worse, the costs of patent trolls — legal, social, and otherwise — aren’t always obvious to those who haven’t been directly sued.

It’s becoming clearer, though, that turning the other cheek doesn’t work for patent trolls; it simply empowers them to continue with business as usual. The costs of fighting them in the short term may be high, but the benefits in the long term are even higher and are getting all the plainer with time.

What are the costs? Let’s start with the most obvious one: cash.

Lost money

Being the victim of a patent troll is expensive in what turns out to be finely calibrated way. Patent trolls ask for widely varying amounts of money as “licensing fees,” but one rule of thumb is that it’s typically far less than the cost of going to court. Sometimes, though, for a particularly high-profile target, the trolls go all-out. According to comments to the Federal Trade Commission filed by book merchants Barnes & Noble in March 2013, that company has spent somewhere in the realm of nine figures — tens of millions of dollars — fighting various patent trolls in court.

But money’s lost in ways aside from court costs or licensing fees. In a report entitled “The Private and Social Costs of Patent Trolls,” by James Bessen, Jennifer Ford, and Michael J. Meurer of the Boston University School of law, the authors noted that public companies sued by patent trolls (as opposed to the costs of more conventional lawsuits) experience less of a loss in their stock price because of such a suit but experience larger mean losses overall because “the market capitalization of the [patent troll] defendants is that much larger.”

The losses are also greater across the economy generally, the authors further argue, because such suits often involve multiple defendants at once, including mutual competitors. If two competitors sue each other, there’s a transfer of wealth between them, and a likely increase of competition in the marketplace overall. If both are sued by a patent troll, it merely impoverishes everyone.

Worse, the legal costs of patent trolling fall disproportionately on the defendants since filing a lawsuit is relatively cheap (around $450). Some legislation is in the works to fix this — for example, losers in a patent litigation suit would be expected to cough up court costs — but such changes could take years to enact and take effect.

Lost opportunities

The prospect of being hassled by patent trolls doesn’t thrill developers, who wonder if they’re simply going to be rewarded for their work with a lawsuit they won’t have the resources to fight. Some close shop entirely and never bring a product to market when faced with such suits. Many developers prefer to settle, which simply emboldens other trolls to step in and do the same.

This sort of chilling effect is more difficult to document, since it’s hard to tabulate the costs of things not done, but a report by the New America Foundation described the hardships faced by startups when dealing with patent trolls. Slightly more than half of the companies being sued have less than $10 million in revenue, but nearly 90 percent of all startups with venture capital backing have been patent-trolled at one point.

Lost time

Few people want to deal with the hassle of being sued, and patent-troll suits are a distraction, even for companies that already have sizable legal teams. That makes it all the more tempting to simply pay the asked-for patent licensing fee and be done with it — especially if you’re a tiny company. Time spent filling out paperwork or arguing in court is time lost not actually creating things.

With all of the above, there seem to be few incentives to fighting back. But a few signs here and there show that not rolling over, costly and difficult as it is, has more of an effect in the long run.

Going to trial: Costly, but potentially powerful

Few can afford a full-blown patent trial, which is lengthy and costly. But challenges made against a troll in court can have a cumulative effect, and the trolls know it. A a successful legal challenge against a patent troll would deprive them of a revenue stream they could levy against other, future defendants.

Case in point: When notorious patent troll Lodsys recently tried to demand money from antivirus makers Kaspersky, Lodsys found Kaspersky quite willing to go to court. Lodsys settled — for a total payment of $0 — rather than face a trial.

Also, thanks to the America Invents Act, programs now exist to provide pro bono legal aid for victims of patent trolling. The Public Patent Foundation (PUBPAT) may also be able to provide aid. One software developer sued by Lodsys and looking at possible six-figure legal bills to mount a defense was given aid through PUBPAT and got his case dismissed.

Challenging existing patents

Countersuits against patent trolls often feature challenges to the patents in question, and they ought to whenever possible. Martha Stewart’s countersuit against — who else? — Lodsys is in this vein; she contends that not only do Lodsys’s patents not apply to her iPad magazine apps that are the target of the suit, but the patents themselves are invalid. If the court finds in her favor, those patents are dead, as is Lodsys’s business model for them. But, again, getting there may take years.

Victims, set aside your differences (if any)

Multiple targets of the same patent troll, no matter what their industries or rivalries, should put aside their differences and pool their legal resources against trolls. Oracle and Google, never particularly friendly to each other by default, went all-in together to take on Lodsys in 2012. The results of that effort are still pending, but two can clearly turn up far more prior art research than one.

Crowdsourced patent research should also be done as broadly and publicly as possible. Article One Partners, for instance, has offered four-figure bounties for those who can provide prior art to help invalidate Lodsys’s key patents: ‘908, ‘078, and ‘565. All still remain unclaimed, possibly because of the weight of evidence needed to prove prior art conclusively enough in this case.

Because the costs of patent trolling are not always obvious and can run deep, the ultimate solution is sensible reform of the patent system to keep it from being abused by trolls. But until that day comes, the best near-term solutions shouldn’t involve simply caving in.

This story, “Beyond the bottom line: The true cost of patent trolls,” was originally published at InfoWorld.com. Get the first word on what the important tech news really means with the InfoWorld Tech Watch blog. For the latest developments in business technology news, follow InfoWorld.com on Twitter.