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Patent "Trolling" 

Patent "trolls" (known more formally as "Patent Assertion Entities" or "Non-practicing entities") assert ownership rights on technologies, methods or techniques used by businesses or individuals –and demand compensation for such use. These are not companies in the traditional sense that employ workers or create, market and distribute products or services; rather, they are legal entities whose sole purpose is to threaten with patent claims and then secure expedient –and lucrative- settlements based on these claims.

Patent abuse for financial gain cost US companies nearly $30 Billion in 2011 according to estimates referred to by the Department of Justice and the Federal Trade Commission. Over 70% of all infringement cases are now driven by patent assertion entities. The vast majority of claims asserted were for computer or communications technologies.

Ad agencies –particularly digital ad agencies—find themselves on the forefront of the patent troll threat as claims are asserted on software and tools used in the development of client Websites and online ad campaigns. Actual examples range from online shopping carts, store locators, meal planners and 'mouse-over' displays to the most common WiFi and facsimile methods.

Many patent entities hide behind single or multiple shell corporations and blanket a vast array of businesses with settlement demand letters. The patents they assert are written so broadly and vaguely as to cover a multitude of potential uses. They exploit weaknesses in the patent application and review processes and use the threat of litigation to extract profits from unsuspecting targets.

Agencies may be vulnerable to patent risk if client service agreements provide material indemnity to the client. Patent troll settlements can range from hundreds of thousands to millions of dollars. In-court defenses against patent claims can cost small to mid-sized companies close to $1.75 million per case. This compels many to reluctantly settle in order to avoid compounding costs and lengthy court battles.

The unpredictable burden of patent claims combined with time and resource commitments and the lack of available patent risk insurance places many ad agencies in an untenable risk management position that potentially threatens their business viability.

Legislative Solutions

Historically, patent protection legislation has enjoyed mixed success due in large part to the efforts of those industries that benefit from existing patent law and resist any substantive changes to it.

However, government concern over the corrosive effects of patent trolling is now intensifying. The issue is receiving the strong attention of the Obama administration as well as the further scrutiny of the Congress:
  • In a February online interview, President Obama lamented that trolls, "don't actually produce anything themselves," and described troll activity as analogous to extortion. "They're just trying to essentially leverage and hijack somebody else's idea and see if they can extort some money out of them," the President said of patent trolls.
  • On June 4, the White House Task Force on High-Tech Patent Issues published its first set of legislative priorities and executive actions . These actions direct Federal agencies such as the Patent and Trademark Office (PTO), US International Trade Commission (ITC), Customs and Border Protection (CBP) and others in efforts to curb patent abuses.
  • In May, Senators Charles Schumer (D-NY) and John Cornyn (R-TX) and Representative Bob Goodlatte (R-VA) each introduced draft patent reform legislation. These bills press for more specificity and transparency in patent troll applications. They also demand limits on litigation costs as well as a shift in the cost burden to the losing party in a patent claim.
  • In April, the Congressional Research Service (CRS) published a comprehensive report on the patent troll debate to further inform the policy making process.

Much of this recent momentum builds on the Leahy/Smith America Invents Act (AIA) which was first signed into law by President Obama in 2011. AIA mandates the appointment of more administrative judges at the US Patent and Trademark Office (PTO), strengthens patent challenges and streamlines the patent review process overall.

Current 4A's Advocacy

4A's Washington is actively addressing patent trolling by forming industry coalitions, advocating for policy solutions and participating in select patent cases brought before the federal court system.
  • 4A's has formed Stop Patent Abuse Now (SPAN), the first coalition focused on preventing patent abuses to advertising, marketing and retail businesses. SPAN advocates before Congress and relevant federal agencies in support of policies that will eliminate the threat of frivolous patent infringement suits. SPAN members include 4A's, the Association of National Advertisers (ANA), Direct Marketing Association (DMA), Mobile Marketing Association (MMA) and the National Retail Federation (NRF).
  • 4A's has filed written comments to the FTC and DoJ that provide an advertising agency business perspective on patent abuses. This follows a conference on patent assertion entities co-hosted by these organizations in which the 4A's participated.
  • 4A's has brought member delegations to meet with several government bodies that influence patent policy. These include the US General Accountability Office (GAO), the FTC's Office of Policy and Planning (OPP) and Intellectual Property Protection division as well as the Department of Justice's anti-trust division. 4A's members provided compelling, first-hand commentary on the effects of patent trolling on their businesses. The GAO is expected to include testimony from 4A's and other organizations in a final report they will submit to Congress in the coming months. The FTC and DoJ continue to explore potential unfair trade practice and anti-competitive behavior on the part of patent assertion entities.
  • 4A's joined with Verizon Communications and Ford Motor Company as "amici" (friend of the Court) in the Apple v. Motorola patent case. While not taking a position in support of either party in the case, this amicus brief helps clarify and emphasize to the Court the importance of transparency in patent filings.

4A's Member Resources

4A's recently published guidance to members on patent assertions. This includes insights on the agency/client patent indemnity issue.

We also offer an online Patent Forum for members to share, discuss and collaborate on patent issues relating to the advertising industry. The Website offers legislative and regulatory information and case summaries of recent patent actions.

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