Time to demand an end to abusive patent troll tactics

Not too long ago, BrandsMart USA received a letter accusing the small chain of Florida and Georgia electronics and appliance stores of patent infringement.

Their transgression? Using swipe machines to read the magnetic stripes on the back of credit, debit and gift cards. The machines were the same type used every day by millions of retailers, and BrandsMart ultimately showed the technology was not the same as that claimed by the patent holder. Yet it cost the company a five-figure settlement and five figures in legal fees to make the frivolous claim go away.

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More recently, the White Castle restaurant chain was told that including links to its web site in Twitter messages or placing “QR” codes in promotional materials could be a patent infringement. Just as with BrandsMart, White Castle had to spend significant sums with patent attorneys to protect itself against frivolous claims over everyday business practices.

What do the two cases have in common?

Both claims were made by “patent trolls.” And that’s why the House Judiciary Committee is scheduled to vote this week on legislation intended to bring frivolous patent claims under control.

Lawmakers have heard repeated stories of businesses forced to spend huge amounts to defend themselves against patent trolls – companies that buy up patents for things they didn’t invent just so they can threaten to sue for licensing fees. Trolls often demand fees for technology buried inside equipment the user has bought and paid for, the equivalent of suing someone for patent infringement for using their cell phone. Or the dispute can be a common practice no one would expect to be patented, like attaching a scanned document to an e-mail.

The trolls lose about 90 percent of the cases that make it to court. But the average patent case can last 18 months and costs $2 million, so many small companies are forced to pay licensing fees or enter a settlement even when the claims are completely false. Ultimately, patent trolls cost legitimate businesses close to $30 billion a year. That’s money diverted from creating jobs, engagement in the community, refurbishing stores and innovation.

A wide range of industries are victims of patent trolls, but retailers are favorite targets because of their use of cutting-edge technology ranging from in-store innovations to Internet web sites to mobile shopping. And with retailers operating on razor-thin profits, Main Street stores often lack the financial resources and technical or legal expertise to fight back.

But large and small retailers are coming together as an industry to do just that —fight back. And we are looking for common sense solutions to put an end to the outrageous demands patent trolls make.

As an example, patent claims often involve a piece of equipment the retailer has purchased. It’s the manufacturer who’s responsible for any patents involved, and manufacturers often file a counter-suit against the troll. Yet many courts have allowed the troll’s suit to move forward while the counter-suit is pending, forcing the end user to rack up needless legal bills. We think reform legislation should require that the original suit be put on hold until the manufacturer’s suit is resolved.

In addition, the initial letters accusing a business of infringement are typically short and vague, with little description of what the patent covers or how it’s being violated. That forces recipients to call a patent attorney. And that’s when they find out it can cost thousands of dollars in legal fees just to decipher what they are being accused of. At the very least, patent trolls should be required to provide more details in their letters.

Other issues need to be resolved such as making trolls pay both sides’ legal bills when they lose a frivolous suit, and consolidating lawsuits that target multiple companies for the same claim.

Not surprisingly, patent lawyers have no interest in curbing lawsuits, and blocked true litigation reform when patent law was last updated in 2011. The patent protection racket is at it again, and the deck is stacked against end users like retailers, restaurants, car dealers, grocers and convenience stores.

Patent laws were meant to protect inventors and innovators. But patent trolls abuse those laws to create a drag on the nation’s economy and, perhaps more importantly, stifle the very spirit of innovation that was supposed to be protected. We think it’s time for this abuse to come to an end.

Shay is president and CEO of the National Retail Federation.