62 APRIL/MAY 2012 � MASS TRANSIT � www.MassTransitmag.com

LEGAL

There has been a lot of fuss in the

last few years over patent trolls.

A “patent troll” is an individual

or company that holds the pat-

ent rights to an invention, but does not

produce the invention. T e troll just

waits until someone else produces an

infringing invention, and then fi les a

lawsuit against the alleged infringing

producer. Once the lawsuit is fi led, the

troll sends a notice to the alleged infring-

er announcing that the troll is willing

to settle the case if the alleged infringer

pays a patent licensing fee for a six-fi gure

sum. Because

of the uncer-

tainty in defending patent lawsuits and

any such defense generally costs more

than $1 million, it is cheaper for the al-

leged infringer to pay the settlement

amount, even for meritless claims. T e

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Countering the Patent TrollPatent extortion: Next-vehicle arrival informationis fi nding some communities facing hefty lawsuits.

By Eric J. von Vorys

63

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IT U

S AT BOOTH 102

typical business model of a troll also

has been called patent extortion.

T is runs counter to the purpose of

granting patents to inventors. T e U.S.

Constitution recognizes that in order to

“promote the progress of science and

useful arts,” inventors should receive

for a limited time the “exclusive right to

their respective writings and discover-

ies.” T is expression forms the basis for

the U.S. Patent Act. T e Patent Act can

be seen simply as a pact between an in-

ventor and the U.S. government. Under

the pact, the inventor tells the U.S. gov-

ernment exactly how the invention is

built and how it works in language that

ordinary people can understand. In ex-

change, the U.S. government grants the

inventor 20 years of monopoly rights

to practice the invention. When the 20

years runs out, the invention becomes

part of the public domain and anyone

can practice the invention without

liability. Trolls are not in the business

of practicing inventions; they are in the

lawsuit business.

PATENT TROLLS AND TRANSIT

Recently the trolls began targeting cit-

ies and municipalities. One such widely

reported troll is ArrivalStar, S.A., the

patent enforcer for the inventor of track-

ing and notifi cation technology. Arriv-

alStar fi led suit against Seattle’s King

County and the city of Portland, Ore.,

among others, over their mass transit

tracking systems. T ese systems keep

track of when the next bus or train will

arrive and then posts the information

for the mass transit ridership. In the

lawsuits, ArrivalStar alleges that King

County and the city of Portland are us-

ing technology that infringes one of its

patent holder’s patents. Instead of try-

ing the case in court, King County de-

cided to accept ArrivalStar’s settlement

off er for a reported $80,000. While this

article was being written, the city of

Portland had not yet settled, but was

still weighing its options.

T e extortion model wouldn’t work

as well without a couple of Supreme

Court decisions. First, in Metro-Gold-

wyn-Mayer Studios Inc. v. Grokster

Ltd., the Supreme Court held that

liability for intellectual property in-

fringement extends from the directly

infringing company to all down-

stream defendants. Under this ruling

the liability for intellectual property

infringement is not just limited to the

company that produces the infringing

device, it also fl ows downstream. So

both the middleman who distributes

the infringing device and the ultimate

end-user consumer are likewise liable

for intellectual property infringement.

T at’s potentially three settlement pay-

off s to the trolls.

Next, the Supreme Court in Jinks v.

Richland County held that cities and

municipalities do not have immunity

64 APRIL/MAY 2012 � MASS TRANSIT � www.MassTransitmag.com

LEGAL

from lawsuits under the 11th Amend-

ment. In short, the 11th Amendment

says that states enjoy a position of

sovereignty, like a king, and as such

cannot commit a legal wrong in the

performance of its duties. So by this

logic, states are immune from law-

suits. T e court continued that this

sovereign immunity, however, does

not extend to a state’s subdivisions,

such as counties, cities or munici-

palities. A state’s subdivisions, like

the knights and lesser nobles, do not

have sovereignty. Consequently, they

are ready targets for trolls.

CAN YOU BE PROTECTED?

Congress has not yet exterminated the

troll through amendments to the Patent

Act and courts are of no help because for

the most part, the cases settle prior to

trial. Nonetheless, there are a few con-

tractual strategies to, if not eliminate the

troll, then at least shift the risk of a down-

stream defendant from having to pay the

troll’s patent license. T e fi rst is to have

an agreement with the producer of any

invention that contains an indemnity

provision to pay all costs and damages

if the buyer ever is sued for patent in-

fringement. Along with this indemnifi -

cation provision, it also is advisable to

have provisions in the agreement with

the producer that state in the event

of a notice of patent infringement,

the producer will either modify the

invention so that it is no longer in-

fringing the patent or pay the patent

license fees. Unfortunately, these pro-

visions depend entirely on the credit

worthiness of the producer of the in-

vention. If the producer of the inven-

tion does not have the money to pay

for defending the lawsuit or paying the

patent license, then these contract pro-

visions will be of no value.

Alternatively, the producer of the

invention and any downstream de-

fendants can buy patent infringement

defense insurance, which covers the

costs of patent litigation or securing

the patent license up to the limit of

the policy. At one time patent in-

fringement defense insurance was

considered too expensive to be worth

it. With the advent of the troll, how-

ever, new intellectual property insur-

ance companies have sprung up that

off er creative options to try to control

the high cost of coverage. MT

Eric J. von Vorys is an intellectual

property and corporate law attor-

ney with Shulman, Rogers, Gandal,

Pordy & Ecker, P.A.

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