|PATENT LITIGATION How to deal with “patent trolls”|
By Melanie Scarborough, contributing editor
In a recent ABA telephone briefing, expert panelists discussed "Patents and Patent Trolls: What Bankers Need to Know."
The issue is a crucial one for banks because they are a favorite target of "non-practicing entities" trolling for business methods they claim are patent infringements. Since it is often less expensive for banks to pay a settlement than to fight the charges in court, patent trolling is lucrative for its practitioners. Moderator Lauren Bowers, senior vice president and senior counsel of ABA, cited a Boston University study that found patent trolling cost the United States $29 billion in lost revenue last year.
"You're seeing a lot of defunct companies that have only intellectual property and are seeking ways to monetize that," explained Kirk Johnson, senior vice president and senior attorney at TCF Bank, Wayzata, Minn. "They have lawyers at the ready to sue vast numbers of people on patents."
Not only are the lawsuits tremendously expensive
to litigate, they can have devastating consequences when "trolls" win
injunctions. "If they stop you from
doing online banking, for instance, that can shut the bank down," said Hope
Mehlman, senior vice president and senior compliance manager at Regions
Financial Corp., Birmingham, Ala.
To mitigate such risks, she recommends that
banks put together a questionnaire for prospective vendors, asking about
indemnity and liability and whether they have the right to license the
intellectual property. "If they can't
make that warranty, beware," she advised.
Negotiating favorable contracts
The contract-review process is critical, not only to make sure there is a warranty of non-infringement, but also that indemnification is adequate. Regions Bank pushes for broad indemnification that includes such costs as expert witness fees. Ryan Pumpian, a partner at the Brian Cave law firm in Atlanta, said it may be difficult to get vendors to include your preferred terms in every contract, so negotiate for as much as you can get. Start with basics: Do they indemnify you? Do they hold you harmless? How much coverage do you have?
Mehlman recommended several tactics for
negotiating favorable terms. One is for banks to interview multiple vendors and
not become dependent on any. Second, try to negotiate or renegotiate contracts
during the time of year when a vendor has to show earnings. Third, don't be
swayed by bogus spiels such as, "Bank of America agreed to this; it was good
enough for them." Such claims aren't true, Mehlman said-the terms of contracts
are confidential-"and you can't go into court and say, ‘Regions agreed to that.' That's not a defense."
Don't count on regular insurance to protect you
from patent trolls either. Very few standard commercial liability policies
cover loss or damages to intellectual property. That's why it's important to
make sure your vendors can cover any claims made against your bank. Mehlman recommended that banks insist on
unlimited liability. That can have a potential drawback, according to Marc
Kaufman, a partner at Reed Smith in Washington: "If you demand that coverage,
vendors may say ‘fine,' but will price it accordingly."
One of the best times to get favorable
concessions is when you're renewing a contract. If you suspect a problem before
then, Kaufman recommends looking into your ability to terminate. "If you've
identified a particular risk, a particular patent, you may want to go to the
vendor with that and tell them your concerns and talk about
Bankers won some leverage last year with
enactment of the Leahy-Smith America Invents Acts. Before the AIA, trolls could
sue in any venue, so they shopped for the most amenable judges and courts, and
could sue multiple defendants in a single case. They no longer are allowed to
do either in most circumstances.
The new law also created a transitional program
for the review of business method patents. "The Patent Office has said they
will consider any credible threat of suit as qualifying for program review,"
Kaufman said. "You can expect costs to run from $150,000 to $500,000, so it's
not cheap; but it's less expensive and faster than regular litigation." Last year, the median cost of a
patent-infringement lawsuit where more than $1 million was at stake was $2.5
What to do if you're accused
After discussing preventive measures, the panel
addressed the steps to take if your bank is accused of patent infringement.
Pumpian said patent owners are obligated to put alleged violators on adequate
notice and to identify the patent number being infringed-although not all
The next step is to investigate the threat,
which requires help from your technology experts. "You have to understand the
system you're accused of infringing," Johnson said. "You need to partner with
someone smart who understands the technology, and that's probably not someone
in the legal department."
Panelists agreed that even if you believe the
accusation is unfounded, it's almost always best to acknowledge a demand
letter. "At least say you received it-that you take intellectual property
seriously, and will do your own investigation," Kaufman said. "Often these
letters have very little detail, so your response can say, ‘We'd evaluate, but
you have to tell us what patents/activities you're talking about.' That can
trigger additional liability, so you want to be careful, but you usually do
want to make some kind of response."
Review your contract and know what sort of
coverage and notice provisions it has.
Also, Kaufman advised, Know Your Troll. "Some send out thousands of
letters and never sue. Some send out targeted letters and sue everyone," he
said. "Find out how they've behaved in the past."
An accused bank also should retain a specialized patent attorney who knows the law and where liability hinges. Patents are very technical documents, case law is quite complex, and venue matters. Get competent counsel.
What are your options?
In deciding whether to fight or settle an
infringement claim, TCF Bank's Johnson said several factors should be
considered. How willing is your vendor to step up? Do you think you have substantive grounds on
which to fight?
The deciding factor usually is financial. "If
what the troll wants is in the low six-figures, you may want to start talking
settlement," Kaufman said. "As distasteful as it is to pay a troll $250,000 to
settle, that will be less than the cost of litigation."
Paying off a troll does not buy your bank
immunity from legal action, however. "People think if they settle, they'll
never see the troll again," Mehlman said, "but the trolls have a whole
portfolio [of lawsuits]."
Before the AIA, when suits were often brought
against multiple institutions, it was common for defendants to join forces and
share counsel. Panelists disagreed on
whether that is always the best strategy.
While presenting a strong and united defense can take leverage away from
trolls, there's also a risk that not all defendants will receive equal
attention from counsel. Moreover, not all the banks may be accused of identical
infringements. If you do participate in
a joint defense, Mehlman advised, it is wise to have your own counsel representing
your bank's interests.
Patent trolls create fear and uncertainty and
are costly pests, but they probably are here to stay.
Nonetheless, Mehlman told bankers, "Don't underestimate what you're able to
| TechTopics Plus