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A potentially fatal blow against patent trolls

Evan Schuman | Jan. 4, 2017
Forcing law firms to pay defendants’ legal bills could undermine the business model of patent trolls

For years, patent trolls have been the best evidence that pure evil exists. And like most evil entities, they are almost impossible to stop. Even a 2014 U.S. Supreme Court decision that was highly critical of patent trolls has done little to slow their slimy, reptilian-like existence. But a federal judge on Dec. 19 crafted a novel tactic to curb patent trolls when she slapped a half-million-dollar bill on the lawyers and said that they were personally responsible for paying it, not their client. This could truly be a game-changer. 

This unusual decision could make lawyers hesitate to take patent trolls as clients. Part of the patent-troll economic model is based on lawyers taking a contingency fee, meaning that they take a percentage of whatever money is extracted from victims rather than being paid an hourly fee. This makes the lawyers more of a partner than a traditional contractor, which factored into the judge’s decision. 

The ruling may make lawyers say forget about contingency fees; we want upfront hourly fees. And patent trolls, unwilling or unable to do that, may forgo pursuing the most tenuous lawsuits. As a result, the patent-troll business model starts to crumble. 

Some background. The case at issue is Gust vs. Alphacap Ventures and Richard Juarez (some early rulings go into extensive background), and last month’s final ruling came from U.S. District Court Judge Denise Cote. Cote found that patent troll Alphacap had pursued a case against Gust, despite the U.S. Supreme Court ruling that made it clear it couldn’t succeed legally. 

“It is highly, highly, highly unusual for counsel to be held directly responsible for these fees,” said Lori Smith, an attorney with the White and Williams law firm that represented Gust, an internet crowdfunding company. “I think it is going to have a significant chilling effect on patent troll litigation. You’re going to see law firms thinking twice before they take on clearly questionable patent litigation.” 

Let’s start with a definition of a patent troll. A troll is a firm that does two distinct things. First, it purchases lots of patents that it has no intention of using. That is a prerequisite for being a patent troll, but it doesn’t make a company one. The second element is essential: They must take this patent (and the vaguer the patent, the better) and threaten lots of companies that in reality have done nothing wrong. Those companies must either pay license fees or be dragged through the court system at great expense. The troll then offers to sell a license at a deeply discounted price, counting on companies deciding that it would be much easier and cheaper to pay than fight. 

 

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