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October 8th, 2013

Patent DefinedYouTube entrepreneurs and podcast producers sued; international tech titans battling in court; developers targeted for creating mobile apps; offices around the country threatened for being in possession of ordinary scanners. Innovators of all kinds, the very creators of the future, are falling victim to “patent trolls.” Trolls can be individual lawyers, legal firms, or some other type of company, but they all operate the same way, buying up patents and making sweeping claims of infringement.

With no “loser pays” system in the U.S., it is cheaper for firms to settle than fight—but for years there was no reason to do either. There was no patent protection afforded software even as Silicon Valley took over the world. It was the mid-1990s before a federal court determined that an “algorithm…in a general-purpose computer” could be “patentable.” The U.S. went from zero software patents about 20 years ago to around 100 per day now, a deluge that has overwhelmed patent examiners and allowed vague, overly-broad claims that do not “delineate the boundaries of the invention.” In the hands of skilled patent attorneys, unbounded claims can be applied in a sweeping fashion.

The trolls take a toll

There were 5,000 patent lawsuits in 2012. For the first time, more than half were initiated by trolls. One good thing: Patent trolls often own weak software patents that are often successfully challenged. Between 1995 and 2011, of cases that proceeded to a judgement, patent trolls only won one of four. Notoriously obnoxious trolls fared even worse, with the most frequent litigators winning a mere tenth of their cases. Another positive development is the recent, well publicized pushback against patent trolls by Newegg, Twitter, and others. Still, even the smallest companies taking a patent case all the way can spend $1 to $2 million or more. This is an impossible sum for many.

The actions of patent trolls essentially constitute a fee on innovation, once that’s increasing annually. American firms made almost $30 billion in direct payments to patent trolls in 2011, while the overall economic cost is likely much higher. Plus there are other problems besides trolls, like “patent wars” where firms fight it out in court instead of the marketplace. Had Steve Jobs been fighting with Samsung (and others) in the late 1990s instead of a decade later, he might not have had time to birth the iMac and change history. And yet, both Apple and Google spent more money in 2011 on buying and litigating patents than on R&D.

A bit of progress

Don't get Martha madJust last week, major troll Lodsys dropped its case against Kaspersky Labs. Until recently, Lodsys had been doing well—the firm went after Apple once or twice, tweaked a few other tech firms’ noses, but recently skedaddled out of several courtrooms with the corporate tail between their legs. And, while gradually fading out on the Kaspersky case, Lodsys tried sticking up Martha Stewart for $5,000. Now, that’s not a lot to Martha, but the Lodsys brain trust should have, at the very least, read a few Cosmo or Elle columns about the lady—or a few tabloids, what the heck? So now, on top of everything else, they’ve gone and upset Martha Stewart? Game over. Those guys are so doomed. And amidst new patent reforms, more and more companies are starting to fight back.

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