When you think about patents, what comes to mind? Pioneers like Thomas Edison, Alexander Graham Bell and the Wright Brothers. Revolutionary inventions like the light bulb, the telephone and the airplane.
What about a “Firewall System and Method via Feedback from Broad-Scope Monitoring for Intrusion Detection?” That is the title of U.S. Patent No. 6,715,084. It is one of five patents Intellectual Ventures has accused Huntington Bancshares of violating in a federal lawsuit.
With that suit, Huntington joined Bank of America and J.P. Morgan Chase as the latest financial institution to find itself in Intellectual Ventures’ crosshairs. Your credit union might be next. Is it ready?
Intellectual Ventures is a patent troll. The company prefers being referred to as a non-practicing entity or NPE. An NPE is a patent owner that does not commercialize its patented technology. Individual inventors and large academic institutions are good examples. Both look to others to take their inventions to market.
Intellectual Ventures and others like it are not traditional NPEs. They are not interested in commercialization. Their business is extracting licensing royalties by threatening litigation; hence the label, “patent troll.”
This is how a patent troll’s business model works. The troll acquires patents, usually broad business method patents. Patents in hand, the troll goes after businesses. A troll typically introduces itself through a demand letter. A reserved letter will ask the targeted business to buy a license to practice the patented business method. A more aggressive letter goes straight for the jugular: pay us or we will sue you.
Trolls know economics. They know that the cost of settling is often less than the cost of mounting a full-fledged defense. What this means is that most cases settle. You get a license. The troll gets paid. Rinse and repeat.
What if your credit union receives one these demands? Do you fold or fight? Sometimes it makes sense to buy a license. The patent might be strong. Your credit union might not have any viable defenses.
But not all patents are created equal. You can fight and you can win. One way is by showing your credit union does not infringe the patent. To prove patent infringement a patent owner must demonstrate you practice each and every element of the claims of its patent. If the asserted patent claims a process with elements A, B and C, and you practice A, B and D, you avoid infringement. Another way is to kill the patent altogether by proving it is invalid. You can do this if the invention claimed in the patent was already known or if it would have been obvious to a person with skill in the relevant field.
Fight and beware. Patent litigation is called “the sport of kings” for a reason. It takes a king’s ransom to play the game. A recent estimate from the American Intellectual Property Law Association found average legal fees in small patent infringement cases to be more than $500,000. Only a few credit unions have the budget to take that on.
What to do? An answer is wired into credit unions’ DNA. “Cooperation among cooperatives” is the sixth principle of credit union governance. It means credit unions should work together to tackle shared challenges. Patent trolls present that kind of challenge. “Cooperation among cooperatives” means a credit union should not face a threat from a patent troll alone.
Credit unions could pool their resources and create a mutual patent litigation defense fund. There are more than 7,000 credit unions in the United States. If half of those credit unions contributed $1,000 to the fund, there would be $3.5 million available for credit unions to take on patent trolls. Those funds could mean the difference between life and death for a small community credit union dealing with a patent troll. While participating credit unions would bear each other’s financial burden, they would also get to share in the rewards. If a patent is invalidated through use of the fund, it can never be asserted again against anyone ever again.
“Join, or die,” reads a famous cartoon from colonial America. To deal with patent trolls, that advice is as relevant today as it was in the eighteenth century.
James R. Lawrence III is a patent litigation attorney with Coats and Bennett PLLC in Cary, N.C. He can be reached at (919) 854-1844 or firstname.lastname@example.org.