Leeches, Ticks and Bloodsucking Lawyers are a Menace to “Little Guy” Startups

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(Chuck Muth) – Whenever big issues come up before Congress, it seems the little guy is often forgotten or overlooked.

So as we continue to debate patent reform, let’s take a minute to remember exactly who many of these folks are.  The following profile comes from a recent story by Julie Ann Formoso of the Las Vegas Sun…

“John Pinnington invested all of his money in the business he created in 2010, AA Printing Service. There was nothing left in the budget for his house. The power was shut off. So was the hot water.  That didn’t bother Pinnington.

“He walked around his home in the dark for a week. He washed himself with a 5-gallon bottle of water in his backyard. The day his business opened, he bought a shirt at Ross and put a jacket over it so no one would notice it was un-ironed.

“Today, it’s obvious Pinnington’s gamble has paid off. AA Printing Service’s average revenue is $50,000 a month. Business has been so good, Pinnington is considering opening a second location.”

Perhaps the most remarkable story about John Pennington is that it’s not really all that unusual at all when it comes to the sacrifices entrepreneurs are willing to make in pursuing their dream of starting their own business.  Indeed, stories like John’s are legion.

Unfortunately, there are leeches, ticks and other bloodsuckers out there who try to piggyback on the successes of folks like John Pennington without going through the sacrifice.

That includes “patent trolls” who try to shake down small business owners by claiming an obscure patent violation hoping the business owner will simply pay an extortion-like settlement fee rather than spend the enormous amount of money it would take to defend themselves in court.

This is far from an isolated problem

The 2015 Patent Dispute Report issued by UnifiedPatents notes that a record number of patent disputes were filed in 2015 and that 92% of those related to high-tech products came from patent trolls, otherwise known as “non-practicing entities,” and their lawyers.

“The cost of business is getting unaffordable and the increase in patent disputes is a contributing factor for many of those businesses,” writes Michi Iljazi of the Taxpayers Protection Alliance.

“On average, businesses are paying $1.3 million to settle the disputes out of court or an average of $1.75 million if they decide to take it to trial. Unfortunately, those legitimate businesses rarely win and even when they do there is no way for them to recoup their legal fees.”

Making this bad situation worse, the patent trolls further abuse the existing situation by filing a large number of their lawsuits in a handful of courts located in east Texas, far from the home office locations of their victims, further driving up the legal defense cost and making it even more attractive to settle and pay the extortion than fight.

Fortunately, there’s legislation pending before Congress to help fix this problem

H.R. 9, The Innovation Act, has been introduced by House Judiciary Chairman Bob Goodlatte (R-VA).  The bill would make it harder for these high-tech ambulance chasers to shake down innocent, unsuspecting small business owners, including venue reform that would require lawsuits be filed closer to the location of the business being targeted, not locations most favorable to the trolls.

A panel discussion on this issue was conducted at the recent Consumer Electronics Show (CES) in Las Vegas featuring Commerce Secretary Michelle Lee, Rep. Darrell Issa (R-CA) and Lee Cheng, Chief Legal Officer of NewEgg.com, a company that has been hammered unmercifully by patent trolls in recent years.

“We need to protect the little guy,” Mr. Cheng urged in the discussion.  “It’s the little guys that are the real entrepreneurs who are trying to start companies whose businesses are harmed by the ability to abuse the patent system. So reform, despite much positive legislative change, is absolutely necessary.”

Unfortunately, there are bad actors out there misleading the public on this issue and this legislation

Chief among them is global telecommunications giant Qualcomm.

As Mike Masnik of TechDirt points out, Qualcomm is a huge $70 billion company that is using its muscle, influence and money to block patent reform.

“If you see a big patent conference where all of the speakers are basically in favor of expanding the patent system and against reform, there’s a better than even chance that the top sponsor of the event is Qualcomm,” Masnik notes.

“Giant patent holding companies like Qualcomm are pretending that they ‘represent the little guy’ and are doing everything possible to muddy the waters and block real reform that targets abuse.”

Rep. Issa is himself a patent holder and was a victim of patent troll lawsuits before being elected to Congress.

The California congressman, Chairman of the Intellectual Property subcommittee of the House Judiciary Committee and a leading advocate of patent reform, noted that these types of lawsuits “can be devastating” for small businesses and start-up companies.

Let’s hope Congress, as it proceeds with its work this term, keeps true “little guys” like John Pennington in mind and tells these blood-sucking trolls to get back under their bridge.

Mr. Muth is president of Citizen Outreach and publisher of Nevada News & Views