We Need More Companies To Stand Up To Patent Trolls The Way Newegg Did, But We Can't Rely On Them

from the public-goods dept

We recently wrote about Newegg successfully defeating a rather successful patent troll, in part by taking the line-in-the-sand stance that the company will never settle with patent trolls. Many (probably most) other companies end up doing a cost-benefit analysis and realize that it’s cheaper to just pay up and settle. That, of course, is exactly what patent trolls rely on. That’s why they’re in business. For companies, it’s a rational short-term decision to settle. It may not be quite as rational in the long-term, as agreeing to settle can attract an increasing number of troll suits, while showing a commitment to fighting back may scare them off. Also, fighting patent trolls may lead potential customers to be happier about doing business with you (and, if our comments are any indication, this fight helped keep Newegg customers loyal).

In the end, though, most companies who really stand up to patent trolls do it mainly on principle. They really dislike the fact that trolls are getting away with what they get away with, and so they fight back. We’ve seen the same thing in a few other cases, such as with Drew Curtis and Fark, but it’s still somewhat rare.

Dan O’Connor gives the economic explanation for why what Newegg did was of massive benefit to consumers, but also just not likely to be repeated enough by other companies to make a difference. It’s why we need real reform for the patent system, rather than just waiting for principled companies like Newegg to stand up against bullies. It all comes down to the basic economics:

In economic parlance, busting trolls with bad patents is a “public good.”  In other words, the entire industry benefits when an individual company invalidates a bad patent.  Or, as Dan Ravicher of PUBPAT pointed out in an amicus brief in the pay to delay pharmaceutical antitrust case:

Accused infringers who prove a patent invalid perform an important public service by correcting the PTO’s errors on their own nickel.

Economic theory also tells us that public goods are generally underprovided (by the private market at least) because individual market actors do not reap the full benefit of their investments.  In this instance, Soverain had cases pending against over 30 companies, including such household names as eBay, RadioShack, Nordstrom, Bloomingdales and Walgreens.  Newegg’s stubborn refusal to rollover means that those other companies are also saved the significant time and expense of fighting to knock out Soverain’s patents.

For the most part, I agree with this, though I believe there is some good and important research going on these days that shows that the claims concerning “public goods” aren’t quite as universal as some make them out to be — but that’s often context specific. And, in this context, the traditional definition of public goods does appear to apply. The problem here isn’t just that it’s a public good, but that the cost of producing the public good is greater than the cost of the alternative (a settlement), which may be considered to have similar benefits (being allowed to continue making product). In some other cases, the cost/benefit structure is different with public goods and that raises some interesting challenges. Either way, when it comes to bogus patents, what’s clear is that we can’t just rely on companies to fight back against them. The incentives, unfortunately, often push companies in the other direction.

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Comments on “We Need More Companies To Stand Up To Patent Trolls The Way Newegg Did, But We Can't Rely On Them”

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Anonymous Coward says:

Re: Team up to fight a common enemy?

Yes, this exactly. There might even be a market opportunity here. Provide a membership-based service, with fees based on the size of the company or something like that, that will defend the company in court against patent lawsuits. If a service or industry group of some kind did this, and it reached critical mass, it could make a huge difference.

Jan Bilek (profile) says:

Do not negotiate!

Do not negotiate with terrorists. Simple as that. I am not saying that patent trolls are terrorists. I am just saying the same logic applies here and similar set of incentives – if you ever make deals with terrorists you make terrorism useful and you create an incentive to do terrorist acts. And I say that knowing that sometimes it takes incredible guts not to make a deal with terrorists.

Mr. Applegate says:

Re: Do not negotiate!

“Do not negotiate!”

While I agree 100% with what you are saying, you must remember that not everyone can afford to fight, and even fewer can afford to risk losing.

Change is needed!

I think selling of patents (and copyrights) is kind of crazy and defeats the original intent they were created for. Therefore I think every time a patent or copyright (any IP) is bought it’s value should be halved (either in terms of time or dollar value). That would go a long way toward stopping the trolling behavior, it would also stop the big companies like Microsoft and Apple snapping up every new thing that comes along and locking it away.

In other words the original owner should be able to profit, follow up owners, not so much.

davnel (profile) says:

Actually, Newegg managed to acquire a very valuable benefit from all this: customer loyalty (including me, but then, I’ve been buying from them for years). Other companies could do the same. The immediate cost of litigation and nullification of the bad patents would be regained by applying for legal costs from the loser (as is standard practice, I think) and from increased sales. Customers like the idea that a conpany will fight for them, even if the issue is secondary (prices don’t get increased by troll payments). I see it as a win for firms that will make the time and effort to stop these creeps.

Anymouse says:

The Enemy of my Enemy .....

The Enemy of my Enemy, may not be my friend, and may benefit just as much from seeing me eliminated as my enemy.

Larger companies, those with the bank-roll to settle, may view ‘Trolls’ as a form of competition elimination, and some corporate lawyers may even be ‘cheering on’ or ‘throwing fuel on the fire’ so to speak in some cases.

In Higher Education, many majors have ‘weed out’ courses that are designed to separate the dedicated from the just slightly interested. Viewed from this type of perspective, larger companies seeing smaller companies and start-ups being ‘shaken down’ by trolls as ‘weeding out’ those who are not dedicated or smart enough to survive. I’m not saying that I advocate or approve of this behavior, just that I understand it and recognize why it can be difficult to get any companies to stand up.

Another perspective, I don’t like Joe or Jack, Joe steals money from Jack and they get in a fight beating each other half to death, Joe has the money, but is too weak from fighting Jack. I walk up, take the money from Joe, including Joe’s wallet, and I walk away the winner in a fight I didn’t have to be involved in…. Corporately speaking (not advocating violence or theft, unless you consider the application of lawyers to be these things…)

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