When the Government gets back to work, the Federal Trade Commission will begin a probe into the practices of patent assertion entities – a.k.a., patent trolls. In short, PAEs are in the business of capitalizing on registered intellectual property. Often criticized for not “actually produc[ing] anything themselves,” PAEs don’t have the best reputations. Regardless of how you feel though, many PAEs, like Intellectual Ventures, make a whole lot of money.
How Does The FTC Plan To Go About Investigating Patent Trolls & Legitimate PAEs?
Commission staff will use a formal inquiry process, known as a 6(b) study, which will involve requesting information from 25 as yet unnamed companies. The initial public comment period will take 60 days, followed by a review from the Office of Management and Budget, which may extend for a year before the requests are sent out. When the information is received, months of data analysis may be necessary before any results are announced.
In other words, this could take years.
What Issues Are The FTC Going To Focus On?
According to reports, the FTC is looking for specific answers to PAE practices. What types of patents do these companies hold? When did they acquire them? By what manner do these cases land in court and produce huge settlements?
When the study was announced, FTC chairwoman Edith Ramirez commented that the commission intended to use its full authority to get an accurate picture of PAE activity.
Patent Trolling Has Been On Politicians’ Radars For Awhile
The FTC announced their plans at a time when federal and state law makers are abuzz about patent trolling. Why? A cynic may say it’s a safe issue when it comes to public support. Moreover, it’s easy to make “troll companies” — that usually don’t get hit with a countersuits because as shell companies, they don’t have assets – look bad (and by the rule of foils, the politician look good).
As it stands, the FTC probe is a formal inquiry, not an enforcement action. However, the inquiry allows the commission access to documents and business records not readily available to the public. The FTC has also opened a similar study on companies that buy, sell, and tap consumer information in bulk — commonly known as data brokers.
Patent Related Lawsuits Are Costing SMBs Big Bucks
A report released in June 2013, claimed that PAEs were responsible for more than 60 percent of all patent lawsuits in 2012, a significantly higher figure than in previous years. Peter Detkin, co-founder of Intellectual Ventures, however, rejects that figure. Although the 25 PAE companies that will be asked to participate in the investigation is still unknown, it is assumed that Intellectual Ventures will be on the list. And they’re ready. Detkin recently stated that he and co-founder Nathan Myhrvold have no objection to the forthcoming FTC study.
A California Judge recently set a precedent that shields Internet subscribers from being sued due to their “negligence” in locking down their Wi-Fi security.
In the case of AF Holdings vs. Josh Hatfield and John Doe, AF Holdings sued Josh Hatfield for failing to secure his WiFi connection, which they said was negligence on his part and led to piracy of some of their adult movie content.
Hatfield filed a motion to dismiss the charges, arguing there was no way the adult entertainment company could say he had an obligation to secure his Wi-Fi Internet connection to protect their company from piracy. Judge Phyllis Hamilton agreed with Hatfield.
According to the court documents, “AF Holdings argues that it seeks to hold Hatfield liable for ‘negligent maintenance of his residential network,’ which it asserts allowed a third-party to commit large-scale infringement of AF Holdings’ copyrighted works.
“Specifically, AF Holdings alleges in the complaint that Hatfield owed it a duty to secure his Internet connection to prevent infringement of AF Holdings’ copyrighted works. Thus, the entirety of this claim involves the allegation that Hatfield failed to take certain steps – in other words, allegations of non-feasance (as opposed to misfeasance).”
Because Hatfield did not have a special relationship with AF Holdings, he had no obligation to try to secure his network to protect their copyrighted material. This ruling should have long lasting effects on a tactic that copyright trolls use, claiming “negligence” in the case of defendants who did not secure their personal computer networks – namely WiFi connections.
The Problem with the Negligence Strategy
The “negligence” tactic was used to circumvent previous court rulings that said “IP addresses do not equal people.” The main problem is that federal copyright laws would trump any claim of negligence by media companies. Additionally, Section 230 of the federal Communications Decency Act might also be used before a local personal injury claim.
This means that media companies will likely go back to the drawing board in order to come up with new ways to try to hunt down illegal downloaders. Most of the time, companies find a list of offending IP addresses and attempt to attach those IP numbers to specific people so they can take them to court. However, these methods have not been too successful in all areas of the country. And this recent case involving “negligence” is sure to slow down efforts.
Copyright Infringement and Fighting Piracy Online
While copyright protection is very important to the modern business world, the methods used to fight piracy need to be solution-based, not intimidation-based. For now, partly thanks to this ruling, private citizens don’t have to worry as much about “negligence” claims in illegal downloading lawsuits; but this does not mean media companies aren’t staying up late, trying to come up with ways to keep the copyright troll game alive.
To keep up with the latest Internet law news, sign up for Kelly / Warner Law’s newsletter. We only send the stuff that matters, and wouldn’t dream of bombarding your inbox with daily nonsense.
Trolls, trolls, trolls! Everywhere you look these days, litigation trolls – with their greedy little paws and Smegel-like sensibilities – are pouncing onto the scene out of nowhere – frightening visionaries, harmless bystanders, and small business owners, alike. And if you ask me, the increase in trolls, coupled with an outdated patent system, is creating perfect conditions for an innovation-killing storm.
At the risk of sounding hyperbolic, could we be heading into an era where mega-corps are actually the “big brother” they themselves warned against in their start-up days? Is the current trend in patent litigation unfairly and disproportionately favoring big-business, so much so that it may thwart digital innovation and market competition?
Intellectual Property Trolls & FRAND
For the past couple of years, copyright trolls have received the bulk of the attention, but patent trolls are on the prowl now too. One of the more alarming aspects of patent trolling is how Fair, Reasonable and non-discriminatory terms (FRAND) – also known as RAND – seem to be an after-thought for many trolls and the attorneys who do their bidding, which is a huge mistake in this lawyer’s opinion, considering that the standard should be a paramount factor in modern-day technology patent negotiations.
In brief, FRAND is a required licensing obligations rule, established by standard-setting organizations (like the IPO), whose job it is to “address the needs of a wide base of adopters” and ensure interoperability of devices that are manufactured by different companies.
In other words, if you develop widget X, there are certain standards you need to meet if you want to bring your product to market, so as to ensure cross industry compatibility. If one of those standards is associated with a patent, the rule of thumb is that it must be able to be adopted by other parties on “reasonable and non-discriminatory terms.”
In many of today’s patent lawsuits, however, the FRAND standard is either over-looked or the facts of the case are manipulated and presented in a misleading way. If, as an industry, we’re committed to reforming the nation’s tech intellectual property statutes, it’s important that we push for clearer FRAND guidelines that are uniformly enforced.
The Cost Of Patent Troll Lawsuits On Small Businesses
Greed-based lawsuits only lead to clogged courts and intimidation litigation, which severely damages small- and medium-sized businesses – especially tech businesses. According to the Electronic Frontier Foundation, in 2011 alone, patent litigation cost approximately $29 billion. $29 billion!
If that figure didn’t shock you, what James Bessen and Michael Meurer revealed in their book, “Patent Failure” should be cause for alarm:
- 62% of software patent lawsuits brought forth by non-practicing entities (a.k.a., trolls)
- Small businesses end up paying disproportionately higher legal fees than larger corporations with in-house legal teams.
- Small businesses, when faced with patent litigation, have to divert funds from R&D and marketing, making them less competitive.
The bigger tragedy is that many small business owners choose to just pay troll’s settlement fees out of fear, even if they think they have a strong case. As such, it can be argued that the current patent statutes allow for extortion camouflaged as legitimate litigation.
Current Patent Lawsuits & Working Groups To Watch
As of late, there has been a lot of discussion surrounding the software patent issue. Several high-profile patent lawsuits and cases are making news, like Apple’s recent acquisition of “The Mother of All Software Patents.” On the opposite end of the software patent spectrum is Judge Richard Posner, who recently threw the Motorola/Apple case out of court, but not before censuring both parties for failing to prove damage. And today, Samsung and Apple will be facing off in court in what is shaping up to be a hard-fought technology patent showdown.
In addition to the throng of lawsuits, the Electronic Frontier Foundation has also created a website dedicated to the topic of United States patent reform – defendinginnovation.org. On it, they outline their suggestions for patent reform in the United States. Anyone interested in the topic should make time to check it out.
If you’re a small business owner looking to avoid future legal headaches, it’s important to get your intellectual property house in order from the beginning. An AV-rated firm that is also on the EFF’s list of recommended copyright troll defense litigators, Kelly / Warner is who to call when looking to register and protect your intellectual property. For those embroiled in a software patent lawsuit nightmare, we know a vast network of troll-fighting lawyers, with whom we can pair you, based on your specific needs. Contact us today to begin the conversation.
Four porn studios who sued unknown or anonymous John Doe defendants for copyright infringement recently saw their case suffer a serious setback.New York Magistrate Judge Gary R. Brown found the studios to be engaged in abusive litigation tactics.
Brown severely limited their discovery requests for detailed personal subscriber identifying information from Internet Service Providers (ISPs). Brown also found the studios had improperly joined defendants in an effort to avoid the costs of filing individual lawsuits. He ordered that all but one John Doe be dismissed from each case. One studio’s entire case was dismissed when it admitted that it did not own a copyright on the downloaded films.
It Started Like Nearly Every Other Copyright Troll Lawsuit
The plaintiffs claimed their copyrights were infringed when the John Does downloaded the studios’ copyrighted films using BitTorrent technology. The studios sought to discover, from the ISPs, the “name, address, telephone number, e-mail address, and Media Access Control (“MAC”) address of the defendant to whom the [provider] issued an IP address.” In the eyes of the studios, the subscriber was the infringer. The theory being: if the subscriber’s information is revealed, his or her name would then be substituted in the lawsuit in place of a John Doe.
Magistrate Brown Compares An IP Address To A Telephone Number & Therefore Is Not Suitable Evidence To Warrant The Disclosure Of PII
In denying the discovery request, Magistrate Brown noted that an IP address only identifies the location where any number of computers may exist. Claiming the subscriber to that address was the one who downloaded the film, according to Brown, was no more likely “[T]han to say an individual who pays the telephone bill made a specific telephone call.”
Brown also noted that one subscriber can have numerous computers used simultaneously by a number of different people. With wire-less connections, unknown people could be using a subscriber’s ISP. A company or business may be an ISP subscriber that allows access to employees, customers, or clients.
Since there is no way to determine the true downloaders identity via ISP records, granting the studios’ discovery request would have created too great a risk for the potential of innocent Internet users being drawn into litigation. Thus, Brown denied the discovery request finding that “the alleged infringer could be the subscriber, a member of his or her family, an employee, invitee, neighbor or interloper.”
Judge In Illegal Downloading Case Realized Plaintiff’s Primary Goal Was To Push For A Settlement
It also appeared, to the judge, that the studios primary reason for wanting the information was to pursue settlement with identified defendants – defendants who would likely not want to go to a public trial for downloading pornography. This type of abuse was verified when one identified John Doe presented uncontroverted evidence that he had offered the studios unfettered access to his computer; he also offered all discovery they might need to prove he was not the infringer. Instead of taking him up on his offer, the studios badgered him repeatedly to settle.
Judge Said Joinder Was Inappropriate In Illegal Downloading Lawsuit
Magistrate Brown found the studios had engaged in other abusive litigation tactics by improperly joining a large number of defendants in one lawsuit. The studios claimed that the joinder was proper because all the defendants were “acting in concert” to violate the copyright and that each case was based on common facts. Brown debunked both of these theories.
First, the dates of the alleged infringements were often weeks or months apart so the “acting in concert” standard was not met. Neither was the standard of “common facts” when it was noted that at least six of the already known defendants had individual defenses and the only way that they could defend themselves was on an individual case by case basis.
Brown noted it was more likely the studios were filing a single case with a large number of defendants in order to avoid a filing fee that would be involved with each individual case. In Brown’s district court that amounted to about $100,000 in filing fees the studios had “evaded.” Thus, Brown found the joinder to be improper and dismissed all but one John Doe from each case. If the studios intend to pursue their litigation, they must file each case individually.
Granted Limited Information For One John Doe In Illegal Downloading Lawsuit
For the one remaining Doe defendant in each case, Brown allowed the studios to obtain only the name and address of that one particular subscriber. No other information, such as email or telephone number, would be provided.
Attorneys for the Electronic Frontier Foundation, was heartened by this ruling. Mitch Stolz, an experienced copyright attorney with the foundation, was quoted as saying, “There absolutely is a trend toward shutting down this sort of abuse of discovery.”
In fact, that trend is supported by Brown’s order where he cited several other district courts that have recently made the same rulings in similar cases. It can certainly be inferred from his order that he hopes other courts continue this trend.