[Ip-health] Patent-troll fight ends in retreat

Claire Cassedy claire.cassedy at keionline.org
Tue Jul 8 13:28:24 PDT 2014


http://www.burlingtonfreepress.com/story/news/politics/2014/07/05/patent-troll-fight-stalled/12154323/

Patent-troll fight ends in retreat

DAN D’AMBROSIO, Free Press Staff Writer 11:41 a.m. EDT July 7, 2014

After nearly two years of effort, MyWebGrocer Chief Operating Officer Jerry
Tarrant has seen his crusade to fight back against patent trolls come to
nothing.

Tarrant was stunned and bitterly disappointed in May when U.S. Sen. Patrick
Leahy, D-Vt., abruptly dropped a bill addressing the practices of trolls —
companies, usually shells, that threaten to sue businesses such as
MyWebGrocer over frivolous, and often ridiculous, patent-infringement
claims. Leahy took the bill off the agenda of the Senate Judiciary
Committee he chairs just as the measure appeared to be nearing a vote.

Tarrant found Leahy's action particularly hard to swallow given that a
patent troll bill had passed, 325-91, in December in the ultra-contentious
House of Representatives, and that President Barack Obama had said he would
sign a bill.

U.S. Rep. Peter Welch, D-Vt., called the vote in the House a "miracle of
miracles."

"We had a bipartisan bill on a very important issue, protecting our small
businesses, nonprofits and entrepreneurs from these stick-up artists that
are lower than low — patent trolls," Welch said in a recent interview.

EARLIER: Patent trolls demand "infringement" fees

So what could possibly have gone wrong in a Democratically controlled
Senate?

"You have this divided House that is so partisan typically, and they're
able to get a strong bill through," Tarrant said. "The president of the
United States comes out and strongly supports it. He mentions it in his
State of the Union address that he wants to see a bill. And the
Democratically controlled Senate can't even get a bill to the floor for a
vote? I think it's disgusting."

In an interview with the Burlington Free Press, Leahy said he was
essentially forced to drop the bill by U.S. Senate Majority Leader Harry
Reid.

"I am furious with what happened," Leahy said. "We worked so hard to get a
coalition. Harry Reid and a couple of others said, 'We won't let it come to
the floor.' I think that's wrong, but I'm not going to give up."

Calls to Reid's office seeking comment were not returned last week.

Leahy said opposition to the bill came primarily from the
bio-pharmaceutical industry, along with universities and trial lawyers. The
Vermont senator's postmortem confirmed rampant speculation in the
Washington media that Reid had strong-armed Leahy at the behest of
lobbyists representing those groups.

Asked about Reid's opposition, Leahy said only that Reid knew there were
enough forces aligned against the patent-troll bill that it would be
filibustered by Republicans and by Democrats. Therefore, why bring it up?

Ron Eritano, director of federal affairs for The Normandy Group, a
Washington lobbying firm, has been working with a variety of clients for
the passage of a patent-troll bill. Eritano said the most outspoken
opponents of the bill have been the bio-pharma companies, which hold large
patent portfolios and like the laws governing patents the way they are.

"They've utilized the system for a long time, and it's worked very well for
them, particularly as it relates to interactions with generic drug makers,"
Eritano said.

Other industries and companies with large patent portfolios, particularly
Johnson & Johnson and 3M, have lined up against the bill, too. Universities
have expressed their concern that their research and development efforts
could be hindered.

"Any time you tinker with ways to litigate patents, these folks are
concerned it will affect the value of their portfolios," Eritano said.

Trial lawyers have come out against the reform, also, and particularly
against fee shifting, which would make it easier to collect legal fees if
the target of a patent-troll lawsuit demonstrates there was no patent
infringement.

The idea behind that provision is to ensure that patent trolls have skin in
the game. As lawyer Peter Kunin of the Burlington firm Downs Rachlin Martin
explained, the prospect of paying your opponent's legal fees can be
sobering.

"This rule helps discourage a patent holder from bringing frivolous
lawsuits, because the plaintiff bringing the suit knows that the trial
court might require them to pay the target's legal fees," Kunin said.

The trial lawyers worry fee shifting as envisioned in the patent reform
bill will inhibit the ability of legitimate plaintiffs to file lawsuits.

"The trial lawyers make a slippery slope argument, saying patent reform
could set a precedent for other types of litigation," Eritano said.

Leahy, a former state's attorney in Vermont, said he was unconcerned about
the opposition of trial lawyers.

"I told trial lawyers I didn't give a damn what their feelings were,
because it didn't affect them anyway," Leahy said.

But Leahy does want to bring the bio-pharma companies and universities back
to the bargaining table.

Bad faith

When patent trolls strike, many small- to medium-sized companies opt to pay
"licensing fees" rather than go to the trouble and expense of defending
against the infringement claims. The practice was estimated by researchers
at Boston University to have cost the nation's businesses $29 billion in
2011 alone, a figure cited by the White House in a June 2013 report,
"Patent Assertion and U.S. Innovation."

In Vermont, Attorney General Bill Sorrell filed a first-of-its-kind lawsuit
last year against MPHJ Technology Investments, based in Wilmington, Del. In
the lawsuit, Sorrell alleged that MPHJ sent demand letters to "numerous"
businesses and nonprofits across the state, threatening patent litigation
if the businesses fail to pay licensing fees. MPHJ claimed to hold a patent
on the process of scanning a document and attaching it to an email, among
other claims.

MPHJ has been trying — and so far failing — to have the case transferred to
federal court in eastern Texas, which Sorrell says the company believes is
a more favorable jurisdiction than Vermont state court.

Tarrant cites harassment by trolls for costing MyWebGrocer jobs during the
past year. Tarrant's company works with major grocery chains across the
country on digital marketing and sales.

"We have never paid any money to trolls. We feel like that opens up the
floodgates," Tarrant said. "We've spent an enormous amount of money in
defense costs. It's cost us business. We had two different clients that
were going to do bigger deals with us that pulled it back because of
threats of patent trolls. I calculated eight to 10 people weren't hired."

Mike Lane, co-founder and chief operating officer of Dealer.com in
Burlington, echoed Tarrant's remarks. Lane said his company, which provides
sales and management software and online services for car dealers across
the country, also has been the target of patent trolls and has been forced
to deal with illegitimate infringement claims. Lane said he was
disappointed by the failure of the Senate to pass a bill for patent reform.

"Patent trolls and their 'bad faith claims' and frivolous lawsuits
represent a significant problem for legitimate businesses and serve as an
impediment to innovation," Lane wrote in an email to the Burlington Free
Press.

Over in an hour

Sitting recently in his spacious office in the Champlain Mill building in
Winooski, Tarrant recalled the details of May 21, when he received the call
that the Senate bill was dead.

"At 11:04, I get an email to schedule a call with Leahy's staff at noon,"
Tarrant said. "At 11:36, I get an email that says, 'A few things need to be
worked out, can we push off the call?' Then it was probably around noontime
I got the call from the senator's office that it was done.

"So within the course of an hour, we went from 'Things are progressing,' to
death."

Leahy issued a statement May 21that stated: "Because there is not
sufficient support behind any comprehensive deal, I am taking the patent
bill off the Senate Judiciary committee agenda. If the stakeholders are
able to reach a more targeted agreement on the problem of patent trolls,
there will be a path for passage this year and I will bring it immediately
to the Committee."

Tarrant said Leahy has worked hard for patent reform, despite the
complexity of the issues and the obstacles placed in his way. Tarrant's ire
is focused elsewhere.

"I blame Harry Reid," Tarrant said. "You have a bipartisan bill out of the
House, strong voices in support in the Senate, and one guy who can pull the
plug on it, and that's wrong."

No fee shifting, please

Adding to Tarrant's frustration was the news that the University of Vermont
had expressed concern about the bill, as well. In a letter to Leahy dated
April 1, John Evans, vice president for research, recently retired,
addressed the aspects of the House bill that concerned him most, should
those provisions make it into the Senate bill.

The first was fee shifting.

"We would like to see this amendment limited to infringement cases only and
for fee shifting to remain within the discretion of the trial judge," Evans
wrote.

The second aspect of patent legislation that Evans found troublesome was
so-called "joinder," which refers to the legal concept of adding parties or
additional claims to a lawsuit in the interest of solving the issues at
hand. Evans worried that under certain circumstances, UVM could be required
to pay hefty judgments or give up its patent rights.

In a subsequent interview with the Burlington Free Press, Evans said
research at UVM and resulting patents have been a boon for Vermont
businesses. As one example, Evans cited Leader Evaporator in St. Albans,
which has a license for a maple syrup tap invented at UVM that increases
the amount of sap coming from a tree by nearly four times. Leader has the
taps made by another Vermont company, Evans said.

Evans worried that the proposed legislation could threaten all of this.

"It would only take one large judgment to be assessed to the University of
Vermont or a similarly situated university to put many of us out of the
technology transfer business," Evans wrote in his letter to Leahy.

Evans also expressed concerns about the patent bill's discovery provisions,
heightened pleading requirements and transparency requirements, all of
which are intended to force trolls to make detailed claims, explaining
exactly how they believe their patents have been infringed and providing
documentation to support those claims.

"Patent trolls inundate you with discovery requests instead of sticking to
the issue," Jerry Tarrant said. "They go at you and bury you in paperwork,
ringing up your attorneys' fees to make it more painful so you'll be more
inclined to settle."

As the law stands now, trolls can hide behind vague claims and thin or
nonexistent evidence, sending out thousands of infringement letters to
prime the pump for collecting so-called "licensing" fees.

Attorney General Sorrell said an investigation by the Federal Trade
Commission showed MPHJ Technologies mailed more than 16,400 letters to
small businesses and nonprofits in all 50 states that claimed infringement
on its patents, including letters to dozens of Vermont companies and
nonprofits.

"I'm disappointed that Congress has thus far not taken action in the patent
troll arena," Sorrell said in an interview. "I know the compromise being
discussed in the Senate fell apart, but I can't say with certainty what
that compromise was going to be."

May 21, the day the patent bill died, Evans emailed a second letter to
Leahy's office urging restraint.

"It is critical to the University of Vermont that the patent legislation
now before your committee both limit troll activities and protect the US
innovation system," Evans wrote.

"We understand that some high tech companies are pushing for immediate
consideration of the draft of this legislation that troubles us," Evans
continued. "We hope you will not feel the necessity to report the patent
legislation before this balance is reached."

Leahy said he hopes universities and others voicing opposition to the
reform see the value of compromise.

"We tried to explain to them that not everyone gets everything they want,
but you can have something a heck of a lot better than where we are," Leahy
said.

High-tech companies — frequent targets of patent trolls — were indeed
pushing for legislation. In late April, companies including Adobe, Apple,
Cisco Systems, Dell, Facebook, Google, Oracle, Twitter and dozens of others
sent a letter to Leahy and Sen. Chuck Grassley, R-Iowa, the ranking
Republican on the Judiciary Committee, urging passage of patent troll
legislation.

"Today, abusive patent litigation is killing small companies, chilling
employment and growth of all companies, and stifling the economies of a
wide range of industries nationwide," the letter states. "Instead of
investing in new jobs and services, businesses must fight frivolous claims
and overly broad lawsuits made by patent trolls against a range of
technologies and commonplace ideas."

UVM's John Evans says he, too, is in favor of legislation targeting patent
trolls, as long as any new law steers clear of targeting his university and
other legitimate patent holders.

"We just got to be careful as one tries to eliminate the patent troll that
at the same time we don't hurt the legitimate defense of patents, whether
they be big companies or small companies or universities," Evans said. "I
would like to dispel in any way, shape or form that we tried to have this
legislation pulled, and I would like to dispel any idea we aren't fully
supportive of eliminating patent trolls."

>From Jerry Tarrant's perspective, UVM remains on the wrong side of the
issue.

"They came out against small business in Vermont on this thing," Tarrant
said. "It was a huge mistake. I've let them know it. It was very, very
disappointing to me. I can't tell you how upset I was about it."

Despite Leahy's determination to revisit the patent-troll bill this year,
lobbyist Ron Eritano believes it will be early 2015 before the proposal
returns.

Sen. Leahy wants to make something happen sooner than that. He's targeting
the mid-term elections in Congress in November.

"I'm hoping after the elections, tempers calm, and with Republicans and
Democrats who joined me in the past we can get it done," Leahy said. "I
really want to get it done."



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