COLUMBIA, SC — Attorney General Alan Wilson has joined 43 other state attorneys general to encourage the Federal Trade Commission to act on patent trolls, which they describe as a growing consumer protection problem in the United States.
The FTC has said it wants to launch a study into businesses that regularly file lawsuits over patents after receiving a growing number of complaints about the issue. The attorneys general said in a letter they support the fact-finding study, saying regulators need more information to enforce consumer protection laws.
Complaints over patent lawsuits have been growing. The controversy surrounds companies that buy patents and then file lawsuits against companies they believe are violating the patent. Critics say the companies do not produce or create goods but only exist to make money through lawsuits.
“They patent this thing that is a concept and then extort small businesses who don’t have the finances to litigate it,” Wilson said.
The nickname “patent troll” is an unflattering description given to those companies by the tech industry. The FTC refers to them as “patent assertion entities.”
While Wilson and other top prosecutors want to regulate patent trolls, they also think patents serve a legitimate purpose in the American economy. Patents protect intellectual property and the hard work that goes into development, Wilson said.
“In those cases, patents are a good thing,” he said.
Rather than have knee-jerk reactions, the attorneys want more information. The last thing anyone wants is a law that further complicates the issue, Wilson said.
“We are very concerned by what we are observing,” Wilson said. “But you don’t run kicking in doors with guns blazing until you know what’s on the other side.”
It’s hard for experts to know just how many lawsuits are filed each year over patents. Many cases are settled out of court because it’s less expensive to pay settlements than to hire lawyers. The defendants sign non-disclosure agreements that prevent them from reporting financial amounts.
But two researchers at the Harvard School of Law, James Bessen and Michael J. Meurer, wrote in a paper last year that 2,150 companies in 2011 were involved in 5,842 lawsuits over patents. Those lawsuits cost an estimated $29 billion to defend, they reported.
South Carolina businesses have been caught up in litigation over patents. Wilson said he has met with two people who have been sued.
One of those is Austin Meyer, whose Laminar Research makes the X-Plane flight simulation software. The Columbia resident was hit in 2012 with a lawsuit that accused him of infringing on a patent by using Android-based phone and tablet apps that require communication with a server to perform a license check.
The lawsuit was filed in U.S. District Court in the Eastern Texas district by a Luxembourg-based company called Uniloc. Multiple software developers were named in the suit with Meyer, including Electronic Arts, which makes popular video games such as Madden NFL.
Meyer and his co-defendants refused to settle and since then have accumulated nearly $2 million in legal fees to defend themselves, Meyer said.
Earlier this month, a federal agency ruled the patent was not valid. The lawsuit had been put on hold while that determination was being made. But Meyer doesn’t expect the ruling to end the suit.
Uniloc owns multiple patents and could have the option to file a claim against Laminar Research and the other defendants for violating them, he said. Uniloc makes a practice of not commenting on its lawsuits.
Meyer, who has immersed himself in the issue, said he has read patents that make absolutely no sense. One patent may read the same as another except it has more commas inserted into the paragraphs, he said.
“They approve garbage and these extortionists use the garbage to ruin everybody’s business,” Meyer said.
Meyer said he supports any efforts made by the attorneys general or FTC to bring the patent lawsuits under control.
As for Wilson, he predicts that laws soon will be developed to address the issue.
“A body of law will develop out of this at some point in the future and we will go after patent trolls,” he said. “We’re not going to put this off indefinitely.”