Stopping Patent Trolls

Whats the latest synonym for “patent troll”? Last month, it was “NTP.” This month, the watchword is “MercExchange,” the name of the small e-commerce company thats suing eBay over eBays Buy It Now feature.

Patent trolls are companies that amass portfolios of patents, with no intention of deploying or licensing the technologies they describe. They make money by suing companies on the verge of releasing products and using the power of injunction to squeeze out a settlement.

NTPs strategy succeeded, as it won a $612.5 million settlement from Research In Motion, the vendor of the BlackBerry messaging system. Far from being an innocent victim of patent stickup artists, RIM had previously sued handheld rival Handspring (since acquired by Palm) over its thumb keyboard technology.

The MercExchange claim bobbed up before the U.S. Supreme Court on March 29. A U.S. District Court found in 2003 that eBay had infringed on two MercExchange patents the smaller company said underpin eBays fixed-price online sales.

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When the court awarded MercExchange $29.5 million in damages instead of an injunction to stop eBay sales via Buy It Now, MercExchange appealed; the U.S. Court of Appeals for the Federal Circuit reversed the decision and issued an injunction, sending the case to the top of the legal food chain.

The Supreme Court now has a good opportunity to fix a broken system. It was the Supreme Court that rendered a decision in 1908 in a dispute over paper bag technology (Continental Paper Bag Co. v. Eastern Paper Bag Co., 210 U.S. 405) that has been cited as precedent ever since, allowing one party to prevent another from using its patented technology, even though the patent holder is not using it.

That decision, combined with the excessive granting of patents, particularly for computer software and e-commerce methods, has brought us to the sorry state were in today, where patents are less a tool to stimulate innovation and extend choices, and more often are weapons of mass destruction against both, giving rise to a fallout of litigation.

But there is hope. Whatever the Supreme Court decides, vendors can start to drain the trolls swamp in the way they handle their intellectual property. The Open Invention Network, which includes Red Hat, Sony, Novell, IBM and Philips, enables members to toss patents into a common pool for their own use and to counterattack companies that might accuse them of infringing on their patents.

In addition, the patent reform bill that is being sponsored by U.S. Rep. Lamar Smith, R-Texas, promises to reduce patent litigation by limiting the awarding of indefensible patents.

As a group of tech companies stated in a friend-of-court brief in MercExchange versus eBay, “Money that could go to productive investments is instead diverted to legal fees and settlement payments. The costs of these practices are less innovation or a slower rate of innovation and higher costs for consumers.” We agree.

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Matthew Rothenberg is executive editor of Ziff Davis Internets enterprise news sites. His Web news experience includes stints at ZDNet and at Mac Publishing LLC. Rothenberg entered the tech journalism fray in the late 80s when he signed up with MacWEEK magazine. Hes a Neal Award winner and a card-carrying member of the Online News Association. He can be reached at matthew_rothenberg@ziffdavis.com.

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