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Patent Trolls Focus on the Banking Industry

on in Banking Update:

As the Nebraska Attorney General takes to Capitol Hill to testify to the deleterious practices of patent trolls on Nebraska banks and businesses, many institutions are still grappling with exactly what a "patent troll" is, how they operate and why they are allowed to do what they do.

 

Patent assertion entities, more commonly known as patent trolls, employ a distinct business model. Their method of operation consists of acquiring patents with no intention of producing the patented technology and instead suing companies that they allege infringe the patents that the patent troll owns. The goal of these suits is to either extract licensing fees from a large number of smaller companies or large sums from a few industry giants. In addition, patent trolls are generally shell companies of a larger entity. This structure is employed purposefully to insulate the patent troll in two respects. First, a patent troll usually only has the patents it asserts as assets, so the larger company puts very little money at risk if a counter claim is successful. Second, it can be difficult to determine what larger company controls the patent troll, making it difficult to ascertain the real party in interest and the motive behind a demand letter or infringement suit.

 

While patent trolls affect all industries, the banking industry has been particularly prone to suits initiated by patent trolls. Patent trolls target the banking industry because of its reliance on software. By nature, software patents are more amorphous in the scope of their claims, making it easier for patent trolls to exploit these patents and allege infringement. Intellectual Ventures, one of the largest patent trolls, has used this strategy against several banks in recent months, including Bank of America, JPMorgan Chase and Capital One. Intellectual Ventures owns several patents dealing with the security of online payments and online banking, which relate to the banking industry. These and other similar suits put the banking industry in a difficult position because many of the allegedly infringed patents relate to core services provided by banks. This makes it very difficult for a bank to avoid an infringement suit because a bank cannot simply stop offering a core service that allegedly infringes one of these patents.

 

Suits of this nature are of obvious concern for the banking industry, but there is some positive news in the battle against patent trolls. Patent troll suits have not gone without notice, and lawmakers are introducing legislation to help curb the exploitation of businesses by patent trolls. On October 29, 2013, Representative Robert Goodlatte introduced the Innovation Act. This Act aims to combat patent trolls by several mechanisms, but most notably through fee shifting and transparency. The fee shifting mechanism of the proposed bill would make a losing patent troll who practiced abusive litigation techniques responsible for paying the winning defendant's attorney's fees and costs. The transparency provision of the Innovation Act would work to eliminate the problems associated with structuring a patent troll as a shell company. This provision would require naming the real party in interest, and also allow joining the real party in interest in the suit. This means that the company which set up the shell would have to be identified and the defendant would have the option of joining them in the suit, which would put greater assets at risk for the company that owns the patent troll.

 

While the Innovation Act is far from becoming law, it is clear that the discussion about stopping the exploitation of businesses by patent trolls is a serious one. The Innovation Act and other bills aimed at curbing this abusive litigation are a step in the right direction in the battle against patent trolls.

 

AriAnna C. Goldstein

 

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