JAWS Ask "What do Netflix, Kiwi Innovators and a Small Town in Texas Have in Common?"

James & Wells are New Zealand intellectual property experts, and recently experienced the following interesting scenario. In reply to the above question, the short answer is patent trolls. The long answer is that using cloud computing to do business may get you sued by patent trolls in the District Court for the Eastern District of Texas.

Patent troll is a pejorative term given to individuals or companies whose primary activity is to assert or threaten to assert patent rights in court against other companies. This is often through hard ball tactics. The sole reason for the operation of these companies is to make a living by negotiating settlements and licensing deals.

Over the past few years, cloud computing has become a fertile hunting ground for patent trolls, and is currently a booming industry and this is why patent trolls are becoming rampant. Cloud computing also relies a lot on open source software, and the patents for business methods or software can be very wide in scope; the inconsistency in the United States Patents Office’s approach to patent eligibility for business methods and software and that of the US courts has also created uncertainty and caused questionable patents to be granted over the years.

A client of James & Wells, who offers cloud-based software services in the US was recently sued  for patent infringement. The plaintiff was a notorious patent troll. James & Wells’ client was one of several software companies that were being sued simultaneously. The plaintiff also had initiated around a dozen similar law suits against other software companies in recent years.

After a preliminary assessment, James & Wells were confident that there was no infringement. However, when they requested assistance from one of their associate firms in the US to represent their client, they gave it straight to them and their client. To their US associates, this was nothing new or surprising and in fact was something they treated as business as usual. James & Wells’ client was lucky and thanks to great work from their US associates, the case was settled for US$15,000. Legal costs are likely to have cost at least the same amount too.

With the above in mind, it is easy to see how patent trolling has been described as extortion and the best evidence that pure evil does exist in the world. Fortunately, in New Zealand, our legal system makes it is financially unviable for patent trolls to operate. For businesses in the US however, patent trolls have become part of the cost of doing business.

Risks can be reduced by seeking competent professional advice proactively. This puts Kiwi innovators in a much safer position when they are informed of such risks before entering the US Market, so for more information please go to http://www.jaws.co.nz .