Intellectual Property: A License to Blackmail

Joe Nocera wrote a fascinating story about a nasty patent suit between a patent-trolling company, whose board is chaired by none other than Paul Allen, and audible.com. The story begins:

Nocera, Joe. 2006. “Tired of Trolls, a Feisty Chief Fights Back.” New York Times (16 September).

“Patent disputes have become part of the dark underbelly of American business. So-called patent trolls acquire patents, often from bankrupt companies — and often overly broad patents that should never have been issued by the United States Patent and Trademark Office in the first place. Instead of using them to build a commercial product, they extract licensing fees from companies that are making and selling real products. As The New Jersey Law Journal put it not long ago, “They exist solely to exact a tax”.”

“The deck is stacked against target companies, even when their product is not infringing. Patent litigation is expensive, and the judicial system tends to be sympathetic to the patent holder. So companies usually come to the obvious conclusion: it makes more sense to pay than to fight. For its part, the patent troll often prices the licensing fee below the cost of litigation, to encourage such behavior.”

Abuible refuses to settle, spends a million dollars rather than pay the demanded $300,000, only to find out the troll company does not even have legitimate ownership of the patent.

“After a year of legal wrangling, Digeo dropped its price. A clearly frustrated Mr. Blaisdell wrote an astonishing e-mail message in May 2006 to Audible’s internal lawyers, saying he was “perplexed as to why Audible has not taken Digeo up on its offer to settle for $300K.” After all, he pointed out, that was far less than the “high legal fees” Audible was paying. He added, “Surely you understand that the prospect of convincing a Jury that Audible doesn’t infringe or that the Patent is invalid is an expensive one.” Digeo may or may not be a patent troll, but rarely has the economics of patent trolling been so baldly stated.”

“As it turns out, Digeo did not have the complete ownership of the patent that it thought it had. Documents that had been turned over to Digeo when it bought the patent showed that Edward Chang, one of the four co-inventors, had died, and that another — his brother — had assigned the rights to the patent to the company that later sold the `823 to Digeo.”

“Edward Chang, however, was very much alive, and his brother had never assigned the rights to anyone. The documents had been forged — though it’s not yet known by whom. The forgery was discovered by Mr. Kelber, the Audible lawyer. Audible then went to Mr. Chang and got him to sell it a license for $70,000. Last month, when this new evidence was presented, a judge ruled that Digeo was entitled to no monetary damages from Audible.”

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