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Innovators fear the patent trolls
[May 07, 2006]

Innovators fear the patent trolls


(Wisconsin State Journal, The (KRT) Via Thomson Dialog NewsEdge)May 7--It probably wasn't until the threat of losing e-mail service through the popular, handheld BlackBerry devices sent a shudder through the nation that most people were even aware of a growing trend: small companies, often with only a handful of employees, taking on the tech giants in big-bucks patent lawsuits.



Microsoft has been a target; so have Intel Corp., eBay and many others.

Not only the big guys are affected. The Madison company Esker is in litigation, as well. Esker develops business-to-business software, and a small Atlanta firm called Catch Curve claims Esker is violating its patents, which cover fax systems and e-mail. Esker and Catch Curve have filed suit against each other in U.S. District Courts in Madison and Atlanta.


A term that's become popular lately in patent litigation is "patent trolls," used to describe companies that register or buy patents but have no plans to make any product based on the patent. Opponents say their sole purpose is to collect money from companies that have developed a technology, process or design covered under the patent and are successfully selling products or may do so.

But some say there's nothing illegal about patent trolls. The real problems, they say, are with the nation's patent system -- understaffed, backlogged and covered by broad, outdated rules -- and with the nature of technology today, which is advancing at lightning speed.

Patents can be a big deal. They are what's known as intellectual property, and are a prestigious sign that a company or university is actively involved in research and inventions. In the so-called "knowledge economy" that communities nationwide are striving to achieve, patents are one way to measure success.

UW-Madison is one of the top academic patent producers in the United States. In 2005, UW-Madison received 77 patents, ranking it fifth among universities nationwide. Since it was established in 1925, the Wisconsin Alumni Research Foundation (WARF) has reaped hundreds of millions of dollars in license fees, much of which is pumped back into the university to fund research. WARF holds more than 1,500 patents, ranging from one for a drug to fight osteoporosis to one for a system for forecasting agricultural commodity prices.

But just as the UW has sought patents, so have many others. The U.S. Patent and Trademark Office expects about 425,000 patent applications to be filed this year, up from 409,000 last year. That's on top of a backlog of about 600,000 applications, said Brigid Quinn, deputy director of public affairs for the office, in Alexandria, Va.

"Applications really began to grow exponentially in the 1990s and we were not able to hire at the same rate," Quinn said. It takes, on average, 30 months from the time an application is filed until a decision is issued, Quinn said. "A lot of that time" -- about 20 months -- "the patent (application) is sitting on a (virtual) shelf," she said.

Escalating patent lawsuits Patents can mean big lawsuits. In the case of the BlackBerry, for instance, Research in Motion, a Canadian company, was sued last week for patent infringement by Visto Corp., less than two months after paying $612.5 million to end a four-year legal battle with NTP Inc. RIM has filed a countersuit. That battle nearly pulled the plug on BlackBerry e-mail service in the United States.

"There's a lot of convergence in technologies," said Joe Leone, patent attorney with DeWitt Ross & Stevens in Madison. "For example, in the Internet world, you had a lot of very cool inventions done a while back that really weren't practical in a real-world sense. ... But now that you've got high-speed (Internet), wireless, you can do things that you couldn't do before."

Leone said the BlackBerry situation is a case of a business that "popped out of nowhere" with a product that caught on like wildfire. "Companies appear and grow big at the speed of light. And (an inventor) says, 'Wait a second, I've got a patent on that.' And all of a sudden, they're demanding 2 percent or 3 percent (of revenues)."

The patent system is "absolutely failing," said Dan Ravicher, executive director of the Public Patent Foundation, a nonprofit patent-reform group in New York City. "There is a point where you can benefit patentees and it actually harms the public. ... We are past that point."

Patent fight at home In Madison, the former Persoft, acquired by French company Esker in 1999, has been developing business communications software for two decades, including fax technology for much of that time.

In November, Esker first heard from Catch Curve, court documents say, when the Atlanta company declared, in 3 inches of documents, that it holds patents on fax systems and proposed Esker pay a $1 million license fee.

What followed were 42 e- mails, 26 phone calls and at least one express delivery.

"All of these communications centered on a single issue: Catch Curve's eagerness to obtain a seven-figure price for patents it had nothing to do with developing," says Esker's lawsuit against Catch Curve.

Catch Curve is a "patent troll," the lawsuit says, whose business model is "based on a single premise: extracting exorbitant license fees from real companies who on a daily basis innovate and develop new products for their customers."

Incorporated in Delaware on Jan. 31, 2005, Catch Curve operates out of an office in Atlanta at The Biltmore, a historic hotel remodeled into offices and condominiums; its president is Michael McLaughlin. He is also one of two "principals" in IPInvestments Group, which is "involved in running a licensing program for the patents-in-suit for Catch Curve and its predecessors," according to an e-mail interview with McLaughlin.

Catch Curve acquired its patents on fax technology on Feb. 17, 2005, McLaughlin wrote in the e-mail. The patents "contain over 400 claims that were examined and allowed by the United States Patent and Trademark Office." They have been licensed to more than 40 companies whose products come within their scope, he wrote.

If each of those companies provided the $1 million in license fees asked of Esker, as the Madison company's lawsuit alleges, Catch Curve may have received more than $40 million in payments so far.

Catch Curve also has been involved in about a dozen patent lawsuits since July 2005, according to an Internet search of the U.S. District Court system.

McLaughlin did not respond to questions about how the patents were obtained or if he or his IPInvestments colleague, Ryan Strong, was involved in inventing the technology.

However, an online check of one of the patents named in the Esker lawsuit, through the U.S. Patent Office Web site, shows that the inventors of that patent were Richard Gordon, Los Angeles, and James Kennedy, Tucson. The patent issued in 1991 describes the system by which fax transmissions move from one machine to another.

Gina Carter of the Whyte Hirschboeck Dudek law firm in Madison is one of the lawyers representing Esker. While she declined to discuss the case, Carter said the number of patents being issued in the United States has jumped substantially over the past 10 years.

"A lot of patents issued are not good patents," she said, because of inadequate evaluation or patent coverage that is not specific enough. "We've seen patents that are broadly written (and) could cover a range of things."

Improving the system This year and last, 1,000 patent examiners a year have been hired; that will continue for three more years, adding to the current 4,500 examiners, office spokeswoman Quinn said.

Attorney Leone said the patent office should be able to keep more of the money it receives in user fees; right now, "the federal government siphons off a big slug of that money," for other programs, he said. The Public Patent Foundation's Ravicher said some system changes are needed, too. Injunctions should not be allowed as a tool to keep technological advances from becoming available to the public, he said, and a previous rule that said patents cannot be issued for something "obvious" should be restored. Patents have been too easy to obtain, Ravicher added, lowering their value.

He said it costs a company about $2 million to $4 million to defend itself against a patent-infringement lawsuit, and that cost is generally passed along to consumers in higher prices for products. But he said patent trolls are not practicing extortion. "I have not been presented with any evidence that what they're doing is illegal. It's the law that doesn't make sense here," Ravicher said.

Carl Gulbrandsen, managing director of WARF, takes it a step further. Patent trolls "don't exist. Trolls are imaginary creatures," Gulbrandsen said. "I think the whole issue is overblown."

WARF, a middleman organization that owns patents on discoveries made at the UW and licenses them, could be considered a patent troll under some definitions, he said.

"Patents are a piece of property. To say that it's wrong that a company acquires property and then expects to be paid for use of that property, I think, is a pretty simplistic approach," Gulbrandsen said.

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