‘Patent Trolls’ vs. Legal Trolls

The problem today is not that so-called “patent trolls” are able to mooch off valid patents; the real problem, writes guest poster Dale Halling, is that “legal trolls” are able to mooch off today’s poorly defined, sloppily written, wrongly conceived and inconsistently enforced law. Fix that, and patents can be defended properly once again.

There has been a lot of media attention about so-called patent trolls.  I am intimately familiar with these issues, but the characterization is incorrect.  There are Legal Trolls, some of whom specialize in patents, but they prey upon the same problems that infect every part of our legal system and so there is nothing unique regarding patents.  As happens so often, the government creates one problem and then people see the symptom and propose more improper government policies, which causes even more problems.

Legal Trolls Gaming the System

I had a small software start-up that was contacted by a Legal Troll.  The troll had selected our company because our website suggested it was in a somewhat similar space to the patents they were attempting to enforce.  I analysed the claims and it was clear the company was not practicing the patented invention.  When I contacted the troll however they were unwilling to review either the case or the claims.  They did not appear to be interested in the truth.  Our company decided it would rather die litigating than take a license they did not require.  We also worried that taking the license would make the company harder to be acquired later.

Another case that illustrates the point happened before the term “troll“was even invented.  A patent counsel for a large Fortune 500 company received a complaint for patent infringement of over 30 patents.  Under the CAFC rules at the time, the company would have had to spend at least $300,000 on opinions simply to respond to the complaint.  A couple of days later the troll offered to settle for about $100,000, knowing full well that both the costs and time constraints made this a great hold-up game.  The company’s patent counsel was so pissed off about this clear extortion that he refused to give in and found there was a cross-licensing agreement that gave his company the right to use the patents.  Nevertheless, this was an attempt to extort the company for a quick Christmas bonus, and all that happened to the troll on this shakedown was they had to eat crow and suck up some minor legal fees.

These situations arose not because of patent laws that protect the legitimate rights of inventors, but because of our overly burdensome federal litigation system—and because Rule 11 sanctions are almost never enforced against legal trolls.  So the reality is that these Legal Trolls have been using both the complexity of the law and the absurdly lenient standard for pleading to extort money from companies since at least the 1970s.  These Legal Trolls use for their purpose medical malpractice law, product liability law, securities laws and virtually every other area of poorly-written law on the books.

In the case of the medical malpractice lawsuits relied on by trolls, 90% of those that go to trial fail—if those being sued ever take it that far. Even at this failure rate, with low costs and enough targets, the odds work in their favour.  In a rational case you would expect about a 50% failure rate, otherwise it should be in the interest of the parties to settle.

Here for example is an article, describing the latest holdup "innovation" by securities plaintiff attorneys: holding up listed companies’ annual meetings with fatuous claims of omitted information and mishandled proxies.

But, the biggest Legal Troll of them all, however, is the government—who uses environmental laws to extort money from companies, OHSA rules to extort money from employers, IRS procedures and the unreadable tax codes to extort money from producers … and many others.

America’s Environmental Protection Agency (EPA) regularly demands people comply with their arbitrary ruling or face bankrupting daily fines.  One example of this, Sackett v. EPA, eventually made it to the Supreme Court.  The EPA has not only given itself the ability to assess this fines separate from a court or a trail, but they have argued successfully that they do not need to get a warrant to investigate a person.  This case is hardly unique.  In fact EPA administrator Al Armendariz admitted the EPA purposely terrorises companies to force compliance among subsequent targets.  He compared it to the Romans, who, when they conquered a village they would crucify five people arbitrarily to ensure compliance from all.

The Securities and Exchange Commission refusal to define the crime of “insider trading” is the perfect example of ill-defined law.  Accusing people of “insider trading” has been the favourite political stepping stone for attorney generals out of New York.  See for examples Rudolf Giuliani and Elliot Spitzer.  How can you be charged with a crime the government won’t define?  How do you know if you violated the law?  How can you even have mens rea—an intent to commit a crime, when you don’t even know for sure what the “crime” is? 

The securities laws are really just politics disguised as law—and on this, see also anti-trust laws, described best in the title of Harold Fleming’s Ten Thousand Commandments: A Story of the Antitrust Laws.

Fixing the Problem

Clearly, we have a problem with legal trolls not with patents.  So how do we fix the problem?  (I will ignore how to fix the abuses of our government—a much bigger problem than this one).  First,we need to clearly define what we mean by Legal Troll.  I would define a Legal Troll as any group that uses the complexity of the legal system to make a profit when they know their case is dubious.  Based on this definition there are two main components:

1. the cost and complexity of the legal system, and
2. baseless lawsuits.

In an attempt to promote justice our legal system reduced the requirements for pleadings, and provided a wide-open ‘discovery’ process.  These are the two main reasons why lawsuits are so expensive.

The requirement for a good faith investigation of the facts before filing a complaint should clearly be made stricter;   it is utopian thinking however to assume that judges are ever going to enforce this.  Making the Rule 11 type sanctions a private right and award, instead of judge-applied, would be a solution here—balancing the risks of filing frivolous lawsuits.  In addition we might want to consider a loser-pays type of rule.

The discovery process itself should also be time limited and page limited.  Discovery should not be used as a fishing expedition. 

Another problem is that we have an overworked Federal Judiciary—in part because we do not have enough federal judges, but mainly because we have had an ‘over-productive’ legislature federalising too many crimes and regulations. 

And on the patent level itself, we really should have judges who have technical backgrounds and who have themselves passed the patent bar. Something too often recognised in the breach than in the observance.

The truth is we do not have Patent Trolls, we have Legal Trolls.  And the biggest Legal Trolls of all, both as causal agents and practitioners, are governments.

Dale Halling is a rarity among bloggers. In addition to his law degree, he hold a BS in Electrical Engineering and an MS in Physics. He is an attorney specialising in intellectual property, and the author of the book “The Decline and Fall of the American Entrepreneur: How Little Known Laws and Regulations are Killing Innovation,” and co-author of the Hank Rangar novels ‘Pendulum of Justice,’ and ‘Trails of Injustice.’