Trolling for dollars

The Internet is a strange and sometimes dangerous place to do business, a still-developing frontier populated by all manner of unscrupulous individuals and entities bent on bilking a quick buck from unwitting entrepreneurs. Among the rogues’ gallery of hackers and identity thieves lurk lesser-known fraudsters called “patent trolls.”

If you haven’t heard of patent trolls, you’re not alone. Neither had Christian Friedland, founder of Chico-based Build.com, until he received a letter in 2009 charging the home-improvement retailer’s website violated a software patent. The letter was sent by a non-practicing entity—a company that owns patents but doesn’t produce anything. They’re officially known as NPEs but commonly called “trolls.”

“A lot of people are having these problems; they’re just not very public about it,” Friedland explained. “Their initial reaction is fear. If they get a letter from a lawyer or non-practicing entity demanding money or threatening to sue for a patent violation, they just negotiate, settle and try to move on with their lives. They want to put the whole ugly event behind them.”

That’s exactly what Friedland and Build.com initially tried to do. They paid a settlement that included a non-disclosure agreement that disallows him from giving details such as the troll’s name or the amount paid. Immediately after settling, Friedland said Build.com was hit with a wave of actions that hasn’t ebbed since.

“We were hit by so many that we figured doing Internet commerce is so burdened with existing patent art that no one could ever do it successfully, or something was up,” he said.

In total, Build.com has been the target of 18 actions by NPEs charging the company with patent violations, most of which Friedland categorizes as “incredibly overreaching and plain out ridiculous.” He cites an action against his company by Texas-based NPE The Patent Group LLC as a perfect example: It charged that using rotating images on a website is a violation of U.S. patent No. 6603490.

Friedland say trolls range in their level of sophistication and demands from “a letter trying to shake you down for $10,000 from some company you can’t tell is real or not because all they have is a Wordpress blog” to “extremely well-put-together cases.” He finds the latter more dangerous.

“A good strategy,” he said, “even with a bad patent, can be upheld in court and effective for making money for the NPEs.”

A recent Boston University study says about $29 billion is spent annually by businesses on legal fees and settlements. Friedland said dealing with the ongoing claims takes a full-time employee who could be doing something else, and the funds Build.com has to dedicate to battling trolls could better be used to hire five or six more employees for production.

During the first wave of attacks, upon realizing something with the system was amiss, Friedland and company started developing troll defense strategies. First they developed a sort of “sniff test,” analyzing each claim to see if it stood up to simple logic. Then, he started talking about it.

“The first thing most lawyers tell you is to not tell anyone, but we reached out to people who were having the same issues and dealing with it in different ways,” he said. “We’ve been very open, except for the ones we can’t discuss because we had to settle and legally can’t discuss.

“It’s important to reach out to tell your peers, even your competitors. Don’t turtle, be ashamed or build your own fortress. These companies thrive on that secrecy, and spreading the information helps so we don’t all have to negotiate in the dark.”

Friedland also recommended creating a joint defense group with fellow defendants, a tactic Build.com has successfully employed in several cases.

Friedland said he recognizes the importance of patent law, and thinks the NPEs are giving the entire industry a bad name.

“We’re not summarily dismissing patent claims; we’re just finding the majority of claims are broad and arbitrary,” he said. “If you can turn water to wine or lead to gold in a cost-effective way, and you’ve developed an amazing process to do it, then you deserve patent protection.

“But when it gets to these software patents, technology moves so fast that traditional patent law shouldn’t necessarily apply in the same context. I think software patents should be inexpensive and easy to obtain, but have a very short lifespan. You should have two years to capitalize on it. Two years in software is an eternity.”

The first efforts toward patent-law reform started with 2011’s America Invents Act. Friedland said the law has helped, especially by stopping some of the “blanket lawsuits,” referring to a favorite troll tactic of filing against dozens of defendants linked by nothing other than the alleged violation, drastically reducing the troll’s litigation costs.

And how did the NPEs react to the law? The aforementioned Patent Group, for one, used the week between the signing and enactment to file nine separate claims against 140 companies.

“There is no value of creation in what they do,” Freidland said. “There’s no benefit to the economy. People are working hard to build businesses, create products, provide services and employ people. They’re creating nothing.”