Identifying the Real Patent Extortionists: A Review of the Extortionist Demand Letter
|Written by Steve Moore
Posted: April 9, 2014 @ 8:00 am
Congress is on the cusp of passing legislation that is said to be designed to control the so-called “patent troll.” Of course, as belatedly recognized by the person who came up with the moniker “troll” in 1993, Peter Detkin (former Assistant General Counsel at Intel at the time), the word “troll” is often in the eye of the beholder. Indeed nearly every litigator will tell you that term “troll” is commonly used against any opponent in a patent litigation suit, much as Arthur R. Miller asserted that “a frivolous lawsuit is any case brought against your client, and litigation abuse is anything the opposing lawyer is doing.” Miller, Simplified Pleading, Meaningful Days in Court and Trial on the Merits: Reflections on the Deformation of Federal Practice, 88 NYU Law Rev. 286, 302 (2013).
In several articles, The AIA: A Boon for David or Goliath? and What New Patent Legislation Portends for the Small Entity Patent Filer, we uncovered the unsettling fact that the AIA itself was disproportionally affecting the patents of small entities and universities. In these articles, we argued that any congressional legislation being taken in regard to “troll control” should be taken slowly as to assure that any further changes to the patent law did not lead to a further lock out of small entities from the U.S. patent system. Of course, politics often does not wait for facts.
In our detailed study of the NPE, See A Fractured Fairy Tale: Patent Troll Epilogue, we found simply no basis for conflating the truly bad patent extortionists with the category “NPE” as a whole. Indeed, we found after analysis of hundreds of resolved patent suits (along with any intervening reexaminations), chosen randomly (something we believe no one had done before), that there was no basis for the assertion that the patents being asserted by the NPEs as a group fare any worse than those asserted by operating companies as a group. Indeed, we were surprised to find that the largest non-independent inventor based NPEs were doing significantly better in their overall litigation/USPTO proceeding profiles than were the operating companies as a whole. We attributed the latter surprising finding to the likelihood that large NPEs were purchasing the best patents they could find, likening their strategy to that of one entering a monster truck rally–who would be foolish to enter such a competition in a 1970s Yugo?
To break the rhetoric from divergent sources, we have been undertaking a large study of those entities which have consistently been fingered in the press as what we call “patent litigation extortionists” (and which we suggest the press has inappropriately been sweeping into the larger category “NPE” or “troll”). It is the goal of our study to actually identify the bad actors, and to actually understand how they function. It is surprising that no global study of the accused bad actors themselves has been undertaken previously, given the long run of the story of the “patent troll.” Instead, academicians and scholars have until recently seemed pleased to base arguments solely on their self-described NPE databases, generating what we now consider lots of analysis with little meaning. We say “now” in the sense that we could not confirm many of their assertions which we previously thought were true. See A Fractured Fairy Tale.
As part of our study, we are reviewing demand letters which we can locate on the internet that were filed by entities that the press considers “patent extortionists.” Of course, the website Trolling Effects (Electronic Frontier Foundation) has been extremely useful in this regard. In order to avoid any disparagement claim, as we make no comment on the strength of the claims of each entity, we will refer to such entities identified by the press as “purported Extortionists.” We set forth herein some of our findings.
The Morphing of Corporate Names Allows the Purported Extortionist To Hide
Probably one of the first things that hit us in reviewing the demand letters we isolated was how many times the same letter was being posted by different recipients. Likewise, we were surprised to see how many articles were written on the same purported extortionist by the press in regard to different recipients of the letter. This suggests that the extent of the “troll” problem is being fed in great part by the many letters that some entities are sending. These can be in the hundreds.
Of more interest, is our realization that a demand letter database is extremely useful in identifying how many of the letters are coming from the same source. For example, a demand letter from IntPar LLC (seeking $1000 per employee for use of a scanner), which asserts that scanning images to create image data to be transmitted to a network is covered by claims issued in at least one of five patents, is substantially the same letter issued by AllLed LLC and HarNol LLC in respect of the same patents. On further investigation, it was found that one or more of the same patents has been asserted under the corporate names of: Adco Pro, CalNeb, ChaPac, Hununbs Betnam, and Project Paperless LLC. Undoubtedly, the use of many aliases also leads to an inflated estimate of the number of the bad guys in the patent field.
The use of many corporate names or aliases, further fogs the ability of defendants to come together in a joint defense group. A simple work around would be to set up a database wherein all demand letters are logged against the patents being asserted. This seems imminently easier and less intrusive than that which has been proposed in Congress. Such a database would allow persons receiving the demand letters to find others whom with they might join via a joint defense agreement to combat the party asserting infringement.
Nearly half of all Purported Extortionists Are Asserting in Their Demand Letters at Least one or more Patents which at One time were Owned by A Practicing Entity Company
Our review looked at what have been characterized in the press as the worst offenders in patent litigation. We were therefore surprised when we looked at 40 of them and found that slightly more than half were asserting patents that were originally owned by a so-called “practicing entities.”
Demand Letters of the Purported Extortionist Rarely Set forth The Claims Thought to be Infringed In Their Totality
Other than those demand letters which were sent after a complaint was filed, the largest percent of demand letters for the most part lacked any specificity with respect to the particular claim which was believed to be infringed. Rather, in general, they either cite to the patents alone, and suggest that they be reviewed for infringement, or set forth a discussion of the scope of certain claims without specifically asserting infringement of any particular claim. Of course, the latter is not completely surprising as most entities sending demand letters understand the risk that they run in having a declaratory judgment action filed in some far flung jurisdiction, and may be writing their letters to reduce this possibility.
More surprising is that we reviewed more than a few demand letters that were filed with a complete analysis of infringement at least in respect of one of the claims, or which referenced claim charts, or which made specific infringement allegations, even though suit was not commenced before receipt of the demand letter. It may be that such entities feel that the odds of a DJ action are low when the recipient of the letter is a smaller entity. In most cases they were correct, as we were unable to find a DJ action having been filed after receipt of such a letter, although, we found that a motion for DJ was filed in roughly twenty five percent of the cases by some recipient after a demand letter was received.
If Congress requires more specificity in terms of claim assertions in demand letters, it should weight the possibility of a large flux increase in suits before any letter is sent, in order to avoid a DJ action.
Demand Letters of the Purported Extortionists are Very Varied In Nature
If there is one thing one can gain from reviewing the demand letters that are publicly available is the knowledge that the nature of demand letters ranges across the spectrum in tone. Some are quite to the point, alleging infringement by use of claim charts, while others are simply “friendly” letters apprising the recipient of the patents and the breadth of their claims, and offering them a license thereunder. Some offer a license outright for a specific sum of money, while most keep the terms of a license completely under wraps. Letters may be as short as one page, or as long as six pages in length (not counting claims charts). Most come on company letterhead, while a smaller subset come directly from private lawyers on behalf of the company. Some come by Federal Express or overnight mail to indicate the importance of the letter (e.g., Lodsys LLC), while others simply use regular or certified mail. One of the more interesting letters we reviewed was sent by “Registered Email” (RPost).
The demand letters being sent by the “purported extortionists” are very varied. Clearly, most demand letters do not provide the specificity in allegations which most recipients need to make an informed decision. The fear of a DJ action is likely dictating the content of the demand letters. As stated above, if Congress requires more specificity in terms of claim assertions in demand letters, it should weigh the possibility of a large increase in complaints be filed before any letter is sent, in order to avoid a DJ action.
About the Author
Steve J. Moore is a prominent litigator having been involved in numerous high-profile cases involving Hatch-Waxman challenges, and patent infringement actions in the software, electrical, chemical, biotechnology, and medical device arenas. He is probably best known as lead counsel in the representation of Dr. Tafas in the suit of Tafas v. Dudas, for which he won the 2009 award for Patent Case of the Year (Managing Intellectual Property), and his client won the prestigious Jefferson Medal for exceptional contribution to the intellectual property field (NJIPLA 2010). He also has participated in numerous amicus briefs including one filed in the Supreme Court in the Microsoft v. I4I case, arguing for the prevailing side.