Most recently a small non-producing-entity (NPE) called Innovation IP has acquired a patent portfolio that covers WiFi implementations. Following the patent troll business, one would expect Innovation IP to sue manufacturing companies like component producers or OEMs. But following the mantra: “Many a little makes a mickle” Innovation IP sues coffee shops, grocery stores, restaurants and hotels. All of these small businesses offer WiFi excess and therefore (obviously) infringe Innovation IP’s patents. But, wait a minute; most of us have WiFi hotspots at home, or connect our notebook or smartphone to W-LAN. Are we infringers? The simple answer is: YES WE ARE!
A patent troll is a person or entity who acquires ownership of a patent without the intention of actually using it to produce a product and in many cases did not actually engage in developing the technology. The business model of trolls is to claim excessive compensation for infringed patents. Following this definition Innovation IP truly is a patent troll. But while most of the times these patent trolls attack big manufacturing companies in big litigation cases with settlements of billions of dollars, Innovation IP sues small businesses at settlements between $2,300 and $5,000. A recent study by James Bessen et al. (2011) has revealed half a million dollar of loss for defendants being sued by patent trolls. Bessen uses financial data of publicly listed firms. The authors state that this might even underestimate the true loss of wealth. When now looking at the Innovation IP story we can easily imagine these numbers to be much higher, especially because most of the smaller infringement cases never reach court.
There have been several comparable stories in the past where companies especially target small- and medium-sized business that use rather than manufacture the technology. I myself have reported about the case of EpicRealm, a company that held patents on code for the dynamic construction of web pages. These patents were infringed by almost all companies that provided websites that can produce custom responses to individual visitors or users. Comparable to the story of the WiFi patents one can image the never-ending list of companies, institutions or even individuals that infringe these basic patents. Same as Innovation IP, EpicRealm sued small- and medium-sized companies such as dating homepages (eHarmony.com and Friendfinder.com). The strategy is simple: Attack small companies who don’t know about infringement law suits and offer them a simple lump sum settlement cost.
But what is different now? In the case of EpicRealm, the USPTO has found existing prior art technology and reassessed the patents. But the case of Innovation IP is very different. These patents are valid and basic not in terms of obviously prior art, but in terms of essentiality to a standard (IEEE 802.11). As I already reported in my last blog post patents essential to technological standards have a special position. The case of Innovation IP again underlines how standard essential patents may harm the public. If you have a notebook, desktop-pc or a smartphone that uses WiFi you are already infringing these patents. Firm’s owning these patents have the potential to block whole technologies and to harm any user. That is why when essential patents are involved the problem of patent trolls but also litigation of global companies has the potential to go one step further and to harm consumers and end-users.
How can we manage these new challanges for our patent system and limit the laverage potential of essential patents? How can we still protect incentives to innovate? And how can we protect heplless small businesses and especially consumers from potential infringement suits?