Tech companies and McCaskill do battle with patent trolls

Supreme Court case could make it easier for trolls' targets to win legal fees.
2014-03-09T00:15:00Z 2014-07-16T06:58:11Z Tech companies and McCaskill do battle with patent trollsBy David Nicklaus 314-340-8213

In Scandinavian lore, trolls are odd-looking mythical figures who pose a threat to anyone they encounter.

Modern-day technology companies are afraid of something just as ugly and equally dangerous, but unfortunately all too real. Instead of hiding behind rocks and trees, these creatures lurk in the legal system.

They’re called patent trolls, and their game works like this: They dig up an old patent, look for some company with a technology that’s superficially similar to what the patent describes, and sue.

Usually, faced with the millions of dollars a court fight would cost, the victims pay the trolls to go away.

“It’s a good old-fashioned stickup,” says Rudolph Telscher, a St. Louis attorney who argued a patent case at the U.S. Supreme Court last month.

Telscher, a principal at Harness Dickey & Pierce, represented Octane Fitness, a Minneapolis maker of exercise equipment. A competitor, Icon Health & Fitness, had sued over a component in Octane’s elliptical machines, citing a 1999 patent.

Octane unearthed emails from an Icon executive who recommended “throwing a lawsuit” at his rival as a competitive weapon. It convinced a federal court that its technology was completely different from the one in the Icon patent.

Having shown that Icon’s suit was baseless, Octane asked to be reimbursed for $1.8 million in legal fees. That’s the issue that is before the Supreme Court in a case that’s being closely watched by some of the nation’s biggest technology companies.

Currently, federal courts award attorneys’ fees only when they find that a plaintiff showed bad faith. “You have to show the case was frivolous and had zero merit, and your opponent knew it,” Telscher explained.

It’s a very high standard: 4,000 patent cases were filed between 2005 and 2013, and only two defendants won awards for legal fees.

Telscher argues for a lower standard that would award fees in any case that had “an objectively low likelihood of success.” Apple, Google, Cisco Systems and Yahoo are among the companies that have filed friend-of-the-court briefs in support of Octane.

Apple, in its brief, claims to be patent trolls’ most frequent target. It has faced 92 infringement suits in the past three years, along with dozens of royalty-demand letters. Apple says it has “rarely lost on the merits,” but settled 51 cases because of the high cost of litigation.

The threat of being hit with a big legal bill, Apple says, would take away the trolls’ biggest bargaining chip.

The tech giants aren’t the trolls’ only targets. Paul Heirendt, a St. Louis technology entrepreneur, is involved with several early-stage companies, some of which have been hit with patent-troll suits.

A lawsuit is a red flag to any potential investor, Heirendt said. “Startups don’t have a choice but to settle, and the quicker the better,” he added. “If you don’t, it chokes you from a funding standpoint and it hurts you in business development.”

Entrepreneurs’ cries for help have been heard in Washington, where Sen. Claire McCaskill, D-Mo., has introduced a bill that would authorize the Federal Trade Commission to intervene in patent-troll cases. Under her proposal, the FTC could prohibit trolls from using misleading language in their demand letters.

In some Norse myths, trolls are afraid of lightning strikes, which are seen as a sign of the gods’ wrath. A pair of bolts from the Supreme Court and Congress probably wouldn’t wipe out the modern trolls, but might at least put them on the defensive.

David Nicklaus is business columnist at the St. Louis Post-Dispatch. Subscribe to his Facebook page or follow him on Twitter @dnickbiz.

Copyright 2014 All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


David Nicklaus

Looking for intelligent discussion of our fast-changing economy? You've come to the right place. Pull up a chair, pour yourself a tall glass of iced tea and join the conversation with business columnist David Nicklaus, who's been observing the St. Louis business scene for more than two decades.

St. Louis Coupons: Get fantastic deals — up to 80% off — sent to your e-mail. Sign up today!
Get weekly ads via e-mail