Retail’s $30 Billion Problem

By Jeffrey Green (@epaymentsguy)

Banks and retailers tend to fight about a lot of things, but when it comes to a common enemy – patent trolls – they’ve clearly got each other’s back.

The House Energy and Commerce Subcommittee on Commerce, Manufacturing And Trade on April 8 took up the issue and has begun examining companies’ use of purposely vague demand letters accusing legitimate businesses of patent infringement.

The House last year approved a bill designed to curb patent trolls’ abusive practices, and the legislation is now pending in the Senate. The Senate Committee on Commerce, Science and Transportation held a hearing on patent abuse last fall.

In an opening statement at this week’s House hearing, subcommittee Chairman Lee Terry noted that he majority of complaints on the issue appear to come from end users who are not versed in patent law. “Some may say that legislative action to curb abusive demand letters would devalue intellectual property rights generally. I disagree,” he said in the prepared statement. “The fact remains that these bad actors are arrogantly manipulating the intellectual property system, and they’re getting away with it.”

During the hearing, the subcommittee heard testimony from various experts and industry insiders on the impact abusive patent-demand letters are having businesses. Among those testifying was Rheo Brouillard, who was representing the American Bankers Association.

“Banks are often end users of technology and, as a result, have been inundated by abusive and deceptive patent demand letters by patent-assertion entities, commonly referred to as ‘patent trolls,’ he told the subcommittee, according to prepared testimony. “These patent trolls use overly broad patents, threats of litigation, and licensing-fee demands in an effort to extort payments from banks across the country.”

Brouillard, who also is director, president and CEO of Savings Institute Bank & Trust, a $1.3 billion community bank in Willimantic, Conn., went on the note that patent trollers tend to prey on small businesses that do not have the resources to fight such false claims.

For banks, fighting such claims means less capital and fewer resources available for making the loans that drive economic growth, he said.

Patent trolls are able to make patent-infringement claims “for nothing more than the price of a postage stamp and the paper the claim is written on,” yet the claims are often intentionally vague and based on shaky legal standing, Brouillard said.

“However, when confronted with threats of expensive litigation, many banks – especially smaller banks – find that their only option is to settle rather than paying millions to defend against extortive claims of patent infringement,” he said. “Well-funded and sophisticated patent trolls take advantage of community banks with limited resources and little patent experience, and have amassed significant ‘licensing’ fees from banks.”

Though the National Retail Federation didn’t testify directly, it did submit a statement from David French, senior vice president, acknowledging the increasing threat patent trollers place on retailers. Such “shadowing figures,” he said, present claims that not only affect eCommerce applications and everyday use of technology, but also the storefront operations of traditional brick-and-mortar retailers, he said.

Examples include point-of-sale and inventory-control equipment, including scanning barcodes, printing receipts, the sale of gift cards, and the connection of a computer or printer to an Ethernet network, French said.

Retailers, French said, often settle trolls’ claims rather than challenge them in court because the average case takes about 18 months and costs roughly $2 million to adjudicate. For the retail industry as a whole, the patent-troll problem costs the economy $30 billion a year.

The federation supports legislative and regulatory proposals aimed at requiring greater transparency and specificity from the trolls, and stopping the trolls’ abusive and costly behavior before the suit ever reaches a court.

Also testifying during the subcommittee hearing was Michael Dixon, president and CEO of the UNeMed Corp., the technology transfer and commercialization entity for the University of Nebraska Medical Center. One thing he wanted to distinguish to avoid overly broad legislation was the difference between two types of activities that might be deemed demand letters: letters marketing inventions seeking investment, and letters with allegations of infringement seeking compensation.

The first, marketing inventions to potential licensees, is one of the primary missions of university technology transfer offices, he said in prepared testimony.

“We feel strongly that such activity is not a demand letter and should not be impacted by legislation aimed at those seeking damages for patent infringement,” Dixon said. “As a university with a significant patent portfolio, every day we send letters and communications to established companies in an effort to convince them to license and invest in our innovations and technologies. If legislation to standardize patent-demand letters is contemplated, it is important to consider the potential impact on the technology transfer process.”