Article

Patently unfair: The ATM industry's trouble with trolls

An attorney's take on patent trolls, their tricks, and tactics ATM deployers can use to trip them up. 

February 24, 2014 by Suzanne Cluckey — Owner, Suzanne Cluckey Communications

"Pay us $3,000 now and we'll forget all about this." Are you being blackmailed? Who are these brazen racketeers? You read on ... 

"If you do not, we will be forced to file suit against your business for patent infringement."

No, there's nothing criminal going on here. In the U.S., at least, such demands are legally permissible, if morally questionable. 

And according to Ralph Jocke, this sanctioned arm-twisting has given rise to an explosion of cases by "non-practicing entities," who do not produce or invent anything, but make a fortune from those who do. You might know them as "patent trolls."

Jocke discussed the problem of patent trolls at the ATMIA US 2014 conference this month. A co-founder of the law firm Walker & Jocke, he has both written patents and successfully defended clients against patent trolls in his 30-year legal career.

According to Jocke, people who make a living from litigating patents are nothing new. He pointed to Jerome Lemelson, who "invented" tens of thousands of products and processes — none of which he ever produced or employed himself, though he is said to have made $1.3 billion from them.

"He'd see some new technology and he would write a bunch of patent applications on uses for that technology and he'd file them," Jocke said. "And he would keep them pending in the patent office for years and years until the technology actually showed up. And then he would let them issue and then lo and behold he had patents that covered exactly what people were doing."

Using this "submarine" tactic (now mostly legislated out of existence), Lemelson was able to make patent claims against companies that made or used industrial robots, machine vision, bar codes, videotape recorders, cordless telephones, tape players, methods for creating synthetic diamonds, cancer treatments, facial recognition, and flexible race track for Hot Wheels, among other things, Jocke said.

But at least Lemelson came up with his own ideas. Modern patent trolls don't even do that.

Today's trolls, or NPEs, buy patents from inventors and bankrupt companies for the sole purpose of "monetizing" them. In some cases, this means using them to challenge competitors' technologies, preventing or delaying their rollout. But more often — and often more profitably — it means using them to squeeze licensing fees or legal settlements from alleged "infringers."

The latter has been a particular scourge in the ATM industry. According to Jocke, this has a lot to do with the fact that it's a sector teeming with small-to-medium enterprises such as IADs, credit unions and community banks.

These SMEs make quick and easy targets for trolls, who know they're more likely to cough up a $300 licensing fee per ATM than the $3 million they could spend just to prepare to defend an infringement claim in court, Jocke said. "That doesn't include the trial, that doesn't include the appeal, that doesn't include the damages you might have to pay if you lose."

Trial preparation can require literally hundreds of hours of discovery, including e-discovery, which involves tracking down every single piece of digital communication pertaining to an alleged infringement and providing it to the plaintiff's attorneys. It's all done by lawyers and it's all very expensive.

The enormous price tag for patent claim defense and the spiraling costs to settle claims that are probably spurious but too costly to challenge has lawmakers paying increased attention to the problem of patent trolls.

In 2013, members of Congress submitted five bills addressing patent reform (see inset, right). However, of the five, only one to date has made it out of committee.

That bill, H.R. 3309 was passed by the House in December 2013, and according to a statistical analysis by GovTrack.com, has a 24 percent chance of being enacted. Of the rest, only S. 1720 has better than a 3 percent chance of enactment, according to GovTrack.

A chief selling point of H.R. 3309 is that it would make the patent-holder liable for fees in the case of a loss.

Jocke said that U.S. patent cases are somewhat unique in that the losing side generally does not pay the winning side's legal costs. (Though some pending cases — including one before the Supreme Court — contest this arrangement, he said.)

"Say you're the patent holder, you bring a case, you lose. You're out your own attorney's fees, but you don't have to pay the other person's attorney's fees." (However, there are some cases pending, including

H.R. 3309 would make the patent-holder liable for fees in the case of a loss, a measure intended to make litigation riskier, and therefore less attractive, to patent trolls. 

"It's supposed to kind of have a generally 'loser pays' provision in patent cases, except where person, whether defendent or plaintiff, was reasonably justified," Jocke said. "Most of the time if people are going to be a plaintiff on a case, their positions do have some merit to them. So I don't think that law, even if it is enacted is going to change that much." 

Given the current lack of recourse and the questionable utility of pending legislation, what's a deployer to do?

Jocke had plenty of suggestions, though he cautioned that these should not be construed as legal advice, which come from a deployer's own qualified patent attorney, he said. Nevertheless, they might make a good start to an anti-patent troll strategy.

What to do if you face a claim:

• get legal advice. Some trolls allege infringement even when it is inconceivable that the patent is infringed — an experienced patent lawyer can advise whether this might be the case;
• if the infringement allegation is in a letter, force the troll to provide a claim chart that demonstrates infringement;
• develop information to show that the patent is invalid;
• develop information to show that the patent is not infringed;
• review supplier contracts for indemnity clauses; if they exist, put the supplier on notice;
• consider that a patent might have already been licensed to supplier, which invalidates the troll's claim;
• determine whether a threatening letter constitutes a violation of state law
• consider challenging the patent in the Patent Office; new procedures allow challenges without the cost of litigation; and above all
• remember — trolls are looking for easy money, not a fight.

photo: benimoto

About Suzanne Cluckey

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Suzanne’s editorial career has spanned three decades and encompassed all B2B and B2C communications formats. Her award-winning work has appeared in trade and consumer media in the United States and internationally.