Dear Patent Troll: Drop Dead

By Scott Burt
October 29, 2014

EDITORIAL NOTE: Conversant IP has set up a website called Stand Up to the Demand, which helps those being sued for patent infringement to distinguish between a bogus claim of patent infringement and a legitimate licensing inquiry from a patent owner. 

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One thing you can say about patent trolls: They sure are cowboys! In fact, one of the biggest patent trolls of all time is a cowboy hat-wearing Texas lawyer by the name of Jay Mac Rust.

In 2012, Mr. Rust bought five patents from an inventor named Laurence Klein for exactly $1. He then set up 101 separate limited liability companies (LLCs), each with bizarre six letter names like IsaMai, BriPol, and HarNol. No one but Mr. Rust knows what those acronyms mean. But thousands of Mom and Pop small businesses — 16,465 to be exact — soon found out that they translate as “trouble.” Each of these businesses received a “demand letter” from one of Rust’s shell companies accusing them of patent infringement and demanding roughly $1,000 per employee if they wanted to avoid a minimum six-figure (and possibly seven-figure) lawsuit in U.S. federal court.

How did Rust’s parent company MPHJ Technologies and its hydra-headed hundred-and-one LLCs decide which small business to target? Simple. His lawyers selected a random batch of companies listed in public records as having 1-49 employees, then 50-99 employees, and so on. Then they began moving up the food chain, making unsubstantiated accusations of patent infringement — starting with those least able to fight back.

There’s a word for that: “bully.”

It’s an axiom of modern-day political gridlock that Americans can’t agree on anything. But patent trolls have succeeded in uniting just about everyone in the country around one urgent task: stopping the victimization of small business through extortionist demand letters.

Last year, Vermont Attorney General Bill Sorrell went after patent troll demand letters using a novel legal strategy: he used the state’s existing consumer protection laws to sue the patent trolls who send them. The State of Vermont charged MPHJ Technologies with engaging in unfair and deceptive trade practices by making false claims to recipients of its demand letters. These false claims included:

“Stating that litigation would be brought against the recipients when Defendant was neither prepared nor likely to bring litigation … [implying] that Defendant had performed a sufficient pre-suit investigation, including investigation into the target businesses and their [supposedly] infringing activities, that would be required to justify filing a lawsuit …[claiming that] many if not most businesses were interested in promptly purchasing a license from Defendant … [and] using shell corporations in order to hide the true owners of the patents, avoid liability, and encourage quick settlements.”

 

FIGHTING BACK

Vermont’s suit asked the court to order a permanent injunction barring MPHJ from “threatening Vermont businesses with patent infringement lawsuits” or “engaging in any business activity” in the state that violates Vermont law. It also asked the court to order MPHJ to make “full restitution to Vermont businesses who suffered damages due to Defendant’s acts,” and impose “civil penalties of up to $10,000 for each violation of the Consumer Protection Act.”

The effect of Vermont’s actions has already been felt far beyond the state’s tiny borders. In the last year alone, Nebraska filed a cease-and-desist order against MPHJ and its attorneys, and New York forced MPHJ to sign a consent decree requiring it to pay back all monies it extorted from businesses in the state and stop sending deceptive demand letters to any others. In addition, new laws against patent troll demand letters have been enacted in 12 states and are being considered in 24 others.

When was the last time a common cause has united so many states?

It’s not just the states that have acted with such surprising vigor. At the federal level, in June 2014, Representative Lee Terry (R-Nebraska) unveiled a draft demand letter bill that would clarify the power of the Federal Trade Commission (FTC) and state Attorneys General to regulate patent demand letters sent in bad faith.

The FTC itself announced last December that it would sue MPHJ for violating Section 5 of the Federal Trade Act, which bars deceptive trade practices such as threatening litigation without any genuine intention to bring it. MPHJ responded with a suit of its own against the FTC, claiming the agency is overstepping its bounds. It certainly seems as if the tide is turning against MPHJ, at least.

 

BEATING THE TROLL TOLL

Even the U.S. Supreme Court has jumped into the fray and helped to pave the way for more effective action against the senders of bad demand letters. In April 2014, the Court issued a ruling in the closely-watched Octane Fitness case that significantly expanded the grounds under which defendants may collect attorney’s fees from abusive patent litigants.

The effect was felt almost immediately. One month and two days after the Supreme Court ruled in Octane Fitness, Judge Denise Cote of the Southern District of New York awarded attorney’s fees to a startup company called FindTheBest.com after it was victorious in a patent suit filed by a patent troll that had demanded a $50,000 “license fee” from the startup. The judge also ruled the troll’s ridiculously vague patent invalid, thereby making it impossible for the troll to extort other businesses — with that patent, at least.

Although this ruling is significant and likely presages more such victories against patent extortionists, it should be noted that many small businesses don’t have the funds required to go to trial rather than surrender. Octane Fitness, based in Minnesota, is seeking reimbursement for $1.8 million in attorneys’ fees, while FindTheBest spent close to $200,000 to win its case — four times the amount they could have settled for. Although they will now recoup those fees, many other small firms are simply not in a financial position to follow their example.

The breadth of anti-troll sentiment and activity is breathtaking in scope. From Montpelier, Vermont to Washington, D.C. — and from the corridors of our regulatory agencies to the chambers of the U.S. Supreme Court — a clarion call is being heard to stop these extortionist demand letters now! Only an intense popular rage at the patent trolls who corrupt America’s venerable and vital patent system could possibly account for such a strong and united effort.

 

AN EMOTIONAL RESPONSE

That rage is felt every day, of course, by the individual owners of thousands upon thousands of small business victims. Take Chris Hulls, the CEO of family social network Life360. When he received a demand letter, he overruled his company’s attorneys and sent a rather more personal response to the patent troll.

“Dear Piece of Sh*t,” he wrote. “We are currently in the process of retaining counsel and investigating this matter. As a result, we will not be able to meet your Friday deadline.”

Hulls closed his letter thusly: “I will pray tonight that karma is real, and that you are its worthy recipient.”

While Hulls’ anger is certainly understandable, your own mileage may vary should you adopt a similarly aggressive approach. In Hull’s case, the patent troll immediately filed suit in a Florida district court.

The Author

Scott Burt

Scott Burt  
Scott Burt leads Conversant’s legal professionals, including the corporate counsel and secretary functions, ligation, and patent prosecution. He also heads the Company’s public policy initiatives, and in 2013 spearheaded the development of its Patent Licensing Principles document. He actively participates in patent licensing negotiations and patent acquisitions. Scott joined Conversant in 2012 and was named to his current role in 2014.

Scott is a 21-year veteran of Jones Day, one of the top IP firms in the United States and globally. At Jones Day, he led a diverse IP and technology practice focused on complex litigation, IP counselling, and IP transactions. In the patent enforcement and litigation area, Scott’s practice emphasized patent analysis, global litigation and dispute resolution for clients in electronics, software, communications and other industries.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 3 Comments comments.

  1. Curious October 29, 2014 3:35 pm

    Judge Denise Cote of the Southern District of New York awarded attorney’s fees to a startup company called FindTheBest.com after it was victorious in a patent suit filed by a patent troll that had demanded a $50,000 “license fee” from the startup. The judge also ruled the troll’s ridiculously vague patent invalid, thereby making it impossible for the troll to extort other businesses — with that patent, at least.
    I am no fan (whatsoever) of the tactics employed by MPHJ — disgraceful. That being said, I did look up the patent at issue regarding FindTheBest.com. To say it is “ridiculously vague” is hyperbole at its best (worst?).

    I also read the judge’s opinion that invalidated the patent under 35 USC 101. It is classic District Court approach to patents these days:
    (1) abstract the invention down to a short sentence;
    (2) declare the result an abstract idea;
    (3) ignore the other limitations;
    (4) declare the patent invalid under 35 USC 101; and
    (5) knock off early so you can get a good seat at the bar in the country club.

    While Hulls’ anger is certainly understandable
    It is understandable. I catch my 7 year old with his hands in the cookie jar and he gets angry at me — he is angry because he got caught. Hull’s anger aside — was his company infringing? and is the patent valid? Unless Hull absolutely knew that the answer to at least one of those questions was “no,” then I would have counseled him to take a different tact.

    “We’re getting sued for having markers on a map showing where people are and allowing communication between them. I could show them a Star Trek episode from the 1960s” that had a similar concept, Hulls told VentureBeat at the time.
    I found this quote in doing a little research. I would hope that Hull’s patent attorney has, in the mean time, explained to Hull the problems with that statement.

    Every patent defendant calls every patent asserted against them vague and/or obvious and/or practiced decades ago — this is straight out of the patent defendant’s handbook. These days, anybody who asserts a patent is a troll. Compound this with the over-zealous application of Alice and the technology market has all but dried up. Why put the effort into being an inventor these days when those that use your technology will vilify you and the court system is increasingly turning their collective backs to you?

  2. Moocow October 30, 2014 9:10 am

    Gene,
    This post is little more than a naked rant; a sorry addition to your otherwise fine publication.
    It did pique my interest, however. After a little research of my own I learned that the “piece of s**t” patentee seems to be a small company in Florida that’s been around for a decade, seems to have real operations, has been awarded government contracts, and appears to be in the business of developing software for military and law enforcement applications, not sending demand letters to small businesses. Not everyone’s idea of a patent troll. I hope the angry Mr. Burt will correct me if I got my facts wrong.
    There’s another thing I keep wondering about: The infamous Mac Rust and his MPHJ Technology have sent thousands of letters, true enough. But how much has Rust actually collected? From the NY AG settlement documents it appears that almost no small business recipients ever paid a dime; most seem to have thrown these letters straight into the trash, just like any other scam. Small businesses may be small, but they’re not the helpless, gullible chickens they’re made out to be. Mind you, these practices shouldn’t continue, but does this really rise to the level of a national crisis?
    Moreover, in MPHJ’s case, are the manufacturers of the involved scanners and office software doing anything in the face of these infringement letters that are being sent to their customers?

  3. Anon2 October 31, 2014 8:30 am

    Naked rant indeed… but in a moment of excruciatingly critical defense, to be expected.

    In a climate of unjustified, unprincipled, irrational naked ranting by the wider public against a class, group, or sector, it is to be expected members of that unjustly vilified and marginalized group will have a similar rant against those truly deserving the heat of the wider public, and because the focus is on the group, it is easier simply to find particular bad-apple scapegoats in the group.

    If a principled rational climate had existed in the first place, unjustified, unprincipled, irrational naked ranting by the wider public would have been rare to begin with and could easily have been rebutted by cool collected identification of the logical fallacy of the original public ranting. When the wider public vilifies all members of a group unjustly, logically one can simply point out that individuals of any group do “bad things”, not because they are from any group, but simply because they are “bad people”.

    With all the heat though it is sometimes easier to point at other members within the group as the scapegoats because that is where the attention currently lies.

    But I reflect, if I were of a particular race, religion or creed, the whole of which is being vilified for “crime”, should I simply argue crime is committed by persons of all races, religions, or creeds, by people primarily because of their nature: i.e. those people are criminals, and belong to THAT particular group of people, and not for any other reason? or should I find a real criminal of my race, religion, or creed … point to them ranting .. and imply the rest of us in the group are not the same simply because of the level of my indignation?

    It is an interesting strategy… possibly a natural reaction. I do wonder if put in the same position whether I would choose it. I tend to think not.