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Alleged ‘Patent Troll’ Hit With Large Fine In Appeals Court

Filed by KOSU News in Business.
August 8, 2011

A ruling by the U.S. Court of Appeals for the Federal Circuit is being seen as a victory against “patent trolls,” companies that acquire intellectual property for the sole purpose of extracting licensing fees or settlements, despite having no intention of using the protected technology or idea themselves.

In the case of Eon-Net LP v. Flagstar Bancorp, the federal appeals court “allowed the district court’s award of $141,984.70 for Rule 11 violations and another $489,150.48 in attorneys’ fees,” according to the blog Tech Dirt.

The case revolved around methods for processing information — according to the case summary, “a system and method for inputting information from a document, storing certain portions of the inputted document information in memory according to content instructions, and formatting the stored document information for use by a computer program, effectuating a paperless office.”

That may sound pretty vague and very general; the description continues into the territory of how the information might be “abstracted,” but you get the point.

The district court found several problems with the plaintiffs’ case, listing especially “Eon-Net’s pursuit of baseless infringement claims, Eon-Net’s improper purpose of bringing the law-suit against Flagstar to obtain a nuisance value settlement, Eon-Net’s destruction of evidence, and Eon-Net’s offensive litigation tactics.”

Eon-Net then appealed, finding fault with how the court used these terms: “document,” “file,” “extract,” and “template.” And of course, the company didn’t like the whole being-fined-$142,000 thing, either.

Tech Dirt sums up what the appeals court judges made of that: “The court points out that Eon-Net had filed over 100 patent infringement lawsuits, following up each one quickly with an offer of settlement. In this particular case, it was clear that Flagstar did not infringe on the patents in question.”

The story and its apparent resolution might ring a bell for anyone familiar with a recent story on patent trolls, which aired jointly on This American Life and Planet Money. That piece explored the case of Nathan Myhrvold, a former Microsoft chief technology officer whose company, Intellectual Ventures, is seen as a patent troll in some quarters.

Myhrvold defended himself, saying that “patent troll” is often a name that big corporations try to hang on small companies and private inventors.

“That’s a term that has been used by people to mean someone they don’t like who owns patents,” he told Planet Money’s Alex Blumberg and NPR’s Laura Sydell. “I think you’d find almost anyone who stands up to their patent rights has been called a patent troll.”

NPR reported that Myhrvold’s company does have its own development lab:

But the lab is a tiny fraction of what IV does. The company has received about 1,000 patents on stuff it’s come up with at the lab; it’s purchased roughly 30,000 patents from other people. In fact, nothing that’s come out of this lab — not the mosquito zapper, not the nuclear technology — has made it into commercial use.

Freakonomics recently posted about the effects patent trolls can have on innovation. In particular, they tell the story of how one man tried to hold the U.S. automotive industry hostage:

In 1895, George Selden obtained a U.S. patent for putting a gasoline engine on a chassis to make a car. The patent clearly should never have been granted: the idea was so obvious that many people worldwide thought of it independently as soon as the first workable gasoline engines became available. Nevertheless, Selden brandished his patent, threatened nascent carmakers with suit, and collected hundreds of thousands of dollars in royalties.

Selden didn’t contribute anything meaningful to the development of the automobile, but his patent abuse made cars more expensive for years, until Henry Ford, who refused to license from Selden, finally busted the patent in court in 1911.

[Copyright 2011 National Public Radio]

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