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.
from an amicus brief filed in eBay v. MercExchange as reported by the Washington Post.com, March 27, 2006.
CNNMoney.com reports that all eyes were on the eBay v. MercExchange case being argued before the U.S. Supreme Court yesterday. The narrow legal issue on appeal is whether a holder of a valid patent has the near automatic right to injunction that in effect shuts down the operations of a patent infringer. It’s similar to the suit which recently threatened to paralyze millions of BlackBerry users.
The twist here, and why legal experts consider this case more important than the BlackBerry case, is that eBay is challenging the classic standard used to issue injunctions. They believe the equities weigh in their favor because patent trolls abuse the power of injunctive relief.
What are patent trolls? According to the article, a patent troll is a “derogatory term for entities that acquire patents with no intention of producing products, and then use them to squeeze big settlements out of companies whose products — which often contain thousands of patentable components — might infringe on the patent.”
Today, patent trolls play a much bigger role in the marketplace than before. According to patent expert Matthew Powers of Weil, Gotshal & Manges, “You [previously] didn’t have patent trolls who were buying up patents for $25,000 and then asking for $5 billion.”
To level the playing field, eBay and nearly 30 friend-of-the-court amicus briefs are asking the highest court in the land for a tool to deal with the mess: they want the automatic right to an injunction to be, well, less automatic. EBay’s position, however, has patent heavy companies in the pharmaceutical and biotech industries, for example, up in arms.
It’s never a good idea to guess how the high court will rule; but early reports suggest the court was not impressed with eBay’s argument. Nonetheless, from my perspective this is a classic case of an ounce of prevention being worth a pound of cure.
Whether we like it or not, patent trolls arbitrage legal literacy. They leverage knowledge of a particular patent’s applicability into settlements and licenses. In essence, they capitalize on others’ illiteracy. It’s a steep price to pay and one of the many ugly costs associated with poor legal literacy.
The cure: more legal literacy for everyone.
Improving legal literacy and being more diligent about patent searches at the beginning of the invention process helps identify the potential grappling hooks trolls can lob at your invention. Figuring that out up front gives you more control over your legal risk.
Many companies already do that but they often discount the risk associated with “paper patents.” The problem is that those paper patents are a lot like distant relatives you never hear from . . . until you win the lottery that is.
For more information about building a proactive corporate culture read The Business Guide to Legal Literacy: What Every Manager Should Know About the Law.