FOX 5 Investigates: Patent Trolls - FOX13 News, WHBQ FOX 13

FOX 5 Investigates: Patent Trolls

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There's an old story about a troll who lived under a bridge and threatened to gobble up small goats that wanted to cross. Today, there's an entirely new kind of troll threatening to take a bite out of small businesses like Todd Moore's.

"I have the best job in the world," says Moore, a software developer. "I get to wake up with ideas and build products around those ideas."

But for Moore, in order to wake up with those ideas, he had to get a goodnight's sleep first.

"I made the app to help myself sleep,” he says.

His small company, TMSoft, created White Noise. It's an app that made a big bang its first year with nearly one million free downloads.

But White Noise users weren't the only ones interested in the app. A company named Lodsys was interested too, but for a different reason.

"I received a demand letter that I was in violation of one or more patents and that I needed to pay them in order to use these patents," Moore says.

Along with the demand letter, Moore got a stack of the actual patents so he could decipher what his company was in violation of.

"It works just as well as white noise because it puts you to sleep. You don't understand half the stuff they are saying and I'm a software developer," he joked.

At the time, the company didn't sell products and didn't provide a service. It existed solely as a patent acquisition entity.

These so-called patent trolls buy up older patents and then look for businesses they think could be in violation. The trolls tell business owners they need to pay a license fee in order to use the patent. And some send out as many at 17,000 demand letters a day.

In one case, a company called Innovatio demanded payment from coffee shops, restaurants and hotels claiming their use of WiFi violated one or more of its patent.

"The problem is you take a license agreement and you don't get anything,” Moore says. “The only thing you are going to get is that they don't sue you."

Problem No. 1: patents and their language.

"Patents were given out years ago when the technology wasn't very clear,” says Michael Beckermann, president of The Internet Association. “Patents were very broad and patent trolls are able to abuse that and go after tech companies for sure. But they are even going after nonprofits, hospitals, hotels, restaurants."

He says everyone is a target, which leads to Problem No. 2: the cost of defense.

"The cost of litigation is so high, not many businesses have millions of dollars, and that's on the low end, to fight in court,” Beckermann explains. “The patent troll says just settle with us.”

And many companies do just that -- settle.

That brings us to Problem No. 3: greater exposure and more trolls.

"The problem with settling with a troll is that other trolls will take notice and they will line up and knock on your door,” Moore says. “The problem doesn't go away."

And it leads to the last problem. If companies do fight and win, there are no real consequences for the patent troll companies.

"They have no risk and they also have no assets, so I can never get my money back," Moore says.

Beckermann agrees: "These trolls, they have nothing to lose. They’re shell companies, and even if they get fought and they lose, they spend almost no money and there's no recourse."

"It is outrageous,” says Congressman Bob Goodlatte, who is the chairman of the House Judiciary Committee which oversees the patent system. “It's become a multi-billion dollar industry.”

He says the patent troll business model needs to be dismantled. The costs associated with fighting these business bullies hurt owners and consumers.

"One of two things occur: either the price of the product goes up or the product never appears on the market," he says.

Goodlatte says the Innovation Act passed last December is a bipartisan road map to doing just that. And he's putting patent trolls on notice.

"Watch out because this legislation is going to make that a lot harder to do, a lot more expensive to do and those folks are going to be held accountable,” he says. “We want to protect creativity."

"At the end of the day, that's all I want. I just want to build stuff," Moore says.

Patent trolls usually make companies who settle sign agreements that prevent them from speaking about their cases.

The patent troll company that went after Moore's company dismissed their suit after a nonprofit patent reform organization represented him for free.

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