Technological innovators in Vermont and other states are under attack from nefarious forces known as “patent trolls.” These entities don’t actually invent anything; instead, they’re often just bands of lawyers who buy up passels of patents — the broader the better — and then threaten to sue their prey for infringement.
“It’s legalized extortion,” declares Jerry Tarrant, chief financial officer of MyWebGrocer. “It’s a huge injustice that’s killing jobs and stifling innovation.”
Tarrant’s Winooski-based provider of digital services to retail grocers has been beset by four troll syndicates that claim the company has violated patents they hold. MyWebGrocer has had to lay out $40,000 in legal fees to beat back the pests.
“I got off cheaply,” Tarrant says. His investments in defense have apparently persuaded three sets of trolls to back off. Two of them have had to focus their full attention on counterattacks launched by tech titans Google and Microsoft, Tarrant notes. The fourth plaintiff “actually listened to reason” and became convinced that it had no grounds for charging MyWebGrocer with patent infringement, Tarrant says.
The trolls bank on finding a target’s “pain point,” explains Peter Kunin, a Burlington attorney with Downs Rachlin Martin who specializes in intellectual property law. That’s the dollar amount that a company is willing to pay as an out-of-court settlement in order to avoid the greater expense of lawyering up for a full-scale federal slugfest. Tarrant reckons that a patent troll might want a $250,000 payout to go away, which would be about half of what a mark might have to spend in court.
Trolls often aren’t bluffing about taking a company like MyWebGrocer to court. They know they can find a favorable venue for their lawsuits in the federal court system’s eastern district of Texas, where juries are “eager to grant huge damage awards” to parties claiming patent infringement, Kunin notes.
Jurors typically are not well versed in the intricacies of patent law and may conclude that a claim does have merit, even when it covers an everyday process, such as internet shopping. Plenty of patents have indeed been issued for inventions that are actually not unique and may have been devised by hundreds of different developers, notes Alan Coté, founder of Green Mountain Innovations, a patent advisory service. He offers the hypothetical example of “a guy who’s selling wood pellets out of his barn in Morrisville.” A troll who holds a patent on wood-pellet production might then threaten the Morrisville dealer with a lawsuit.
The U.S. Patent and Trademark Office did issue a large number of Internet-related and software patents in the late 1990s that were probably not justified, Coté says. To many outsiders, the federal agency appears overwhelmed and ill equipped to rigorously review the 500,000 patent applications it receives annually. It would cost many billions of dollars to ensure close examination of every claim. Plus, there’s no adversarial dimension in the patent-granting process. The only party represented in the proceedings is the legal team that’s filed an application on behalf of an inventor.
Many patents are, of course, essential forms of protection for intellectual property. Without them, small-scale innovators would be systematically ripped off by tech conglomerates — which is exactly what trolls often say they’re guarding against.
Sen. Patrick Leahy has led a long-running effort to improve the quality of patents issued by the federal agency and thus protect the rights of legitimate inventors. Leahy’s legislation finally became law last month, with President Obama signing the first comprehensive reform of the patent system in 60 years.
The America Invents Act “will make it more difficult for patent trolls to harass the software industry and others,” Leahy said in a statement. “This will improve every sector of our economy, in Vermont and across the country.”
But Vermont attorneys who defend trolls’ intended victims doubt that the Leahy law will be effective in halting the onslaught. Its only significant anti-troll provision prohibits infringement suits from being filed against more than one company at a time. Trolls have in the past routinely taken the money-saving route of simultaneously suing hundreds of businesses. That change alone won’t do enough to dissuade trolls from threatening innovators, says Larry Meier, chairman of the intellectual property group at Downs Rachlin Martin.
Vermont does account for a significant share of patents issued in the United States. In fact, it receives more on a per-capita basis than any other state.
“I wish I could tell you it’s because we’re such great entrepreneurs and innovators,” Coté says, “but it’s mostly because IBM gets patents for all sorts of things at its Essex plant.” Even so, Coté adds, Vermont’s countercultural groove does encourage the nonconformist thinking that leads to innovation. He cites Jake Burton Carpenter’s pioneering of the snowboard industry as a prime example.
Vermont Teddy Bear Company, in Shelburne, also received patents in 1999 for various stuffed-animal designs, while Revision Eyewear in Essex got a patent in 2007 for the protective goggles it developed for the U.S. military. And then there’s Samuel Hopkins, the Vermonter granted the first patent issued in the United States. It was awarded to the Pittsford resident on July 31, 1790, under a patent statute signed into law by President George Washington three months earlier.
Hopkins’ breakthrough? An improved method of making potash, a form of potassium used for millennia as a bleaching agent and ingredient in soap.