Patent Trolls Get Worked Over at CES

Ad industry could join tech's next big fight

Last year, it was SOPA that rallied the Internet community. This year it may well be patent trolls, companies whose sole business is to buy up patents and then go after companies for patent infringement, costing those companies millions of dollars in fees in order to avoid paying even more to defend themselves in court.

In fact, today's panel, "Fighting the Patent Trolls," seemed to be the one session during the International Consumer Electronics Show's Innovation Policy Summit that wasn’t doing a victory lap for killing the evil anti-piracy bill SOPA.

Although tech and software companies have complained the most and the loudest about patent trolls, other industries—including the advertisers and agencies—have also fallen prey to the trolls.

“We’re dealing with a situation that is keeping the ad community from potentially optimizing innovation,” Bob Liodice, president and CEO of the Association of National Advertisers, told Adweek.

According to a study from Boston University, patent trolls cost businesses $29 billion in 2011. Suzanne Michel, Google’s senior patent counsel, estimated that patent trolls were responsible for 61 percent of patent litigation today compared to 22 percent in 2007.

“Helferich Patent Licensing, which claims a patent for putting a link in an SMS message has extracted hundreds of millions in licensing fees from the ad industry,” noted Marc Kaufman, a partner with Reed Smith, who represents advertisers.

The New York Times is taking on Helferich, but smaller Internet startups are hurt the hardest and are the biggest target. Usually the best solution for companies is to just settle for hundreds of thousands of dollars because court challenges cost a minimum of $2.5 million.

“It’s protection money,” said Lee Cheng, chief legal officer and corporate secretary for online retailer Newegg Inc. of settlements with patent trolls. “It’s extortion.”

Patrick Levelle, president and CEO of electronics equipment manufacturer VOXX International—a company with $900 million in revenue—said patent trolls have cost his company $25 million. “It just drains a corporation. These expenses end up in the cost of your product,” Levelle said.

One advertiser has 100 patent issues it is dealing with, said Liodice, declining to name the advertiser.

There are a lot of reasons for the trolls, including a U.S. Patent Office that, as technology began to take off, issued patents that were too broad. There are also hundreds of thousands of patents, so many that it’s nearly impossible for any company, even the largest, to keep up with them.

While new legislation won’t completely wipe out the trolls and addressing patent law seems a pipe dream for today's Congress, Rep. Peter DeFazio (D-Ore.) is getting ready to re-introduce in the coming weeks a narrow bill that would put in place legal protections for companies and individuals sued by patent trolls by allowing judges to compel patent trolls to pay all legal costs if they have no chance of winning.

“Congress is wary of going after software patents, so we’re going after the procedure. It may be small ball, but I believe it will be an impact,” said De Fazio, who co-sponsored last year’s bill with Rep. Jason Caffetz (R-Utah.) He’s already held preliminary discussions with Rep. Bob Goodlatte (R-Va.), chairman of the House Judiciary Committee, about holding hearings.

DeFazio is optimistic there is building momentum for his bill because other industries have begun to joint the fight, like the airlines industry, which recently approached him. More segments of the economy coming together “is the secret to getting attention from all 435 members of Congress,” DeFazio said.

Advertisers and agencies support DeFazio’s bill, called the Shield Act for “Saving High-Tech Innovators from Egregious Legal Disputes” but they are also looking at other ways to take action on their own.

“The Shield law will help, but it doesn’t change the current state that much. I’m not sure Congress can make it go away,” said Kaufman. “What would solve the problem is to tip the scale by spreading costs among industry participants,” he suggested.

Both ANA and the American Association of Advertising Agencies are exploring that and other solutions, Liodice said. “We are at the beginning. We don’t know the size of the problem because many of the lawsuits aren’t public. We don’t have a full strategy yet. It’s not an easy place to be. We don’t know which button to push yet.”