Raleigh, N.C. — North Carolina lawmakers are drafting legislation to combat patent trolls, shell companies that attempt to win quick settlements from businesses by threatening patent infringement lawsuits.
"Patent suits are extremely expensive," said John Boswell, the chief legal officer for Cary-based software maker SAS.
Speaking to the Joint Legislation Economic Development and Global Engagement Oversight Committee Thursday, Boswell gave lawmakers an example of one case that SAS had recently defended. It cost the company $8 million in legal fees and research to defend the case, which it ultimately won. A federal court awarded SAS $200,000 in the case.
The kicker: the company that had brought the patent suit against SAS had only $300 in the bank.
"Companies all across North Carolina, large and small, are being abused by patent trolls. We see claims being made against coffee shops, retailers. Every bank that has an ATM machine is being sued," Boswell said.
Patent trolls are sometimes called NPEs or "non-practicing entities." Most often, they are limited liability companies that don't make anything themselves or provide any services. Rather, they buy patents from companies that have gone bankrupt, and they make money by getting other businesses to pay licensing fees for the use of those patents.
Clearly, patent troll is a derogatory term, but it is one widely used by those who write about this category of business. Many companies choose to settle cases regardless of the merits because they are so expensive to defend. Of patent troll cases that do go to court, Boswell said, 90 percent are settled in favor of the targeted company.
For those companies like SAS, the problem is a patent troll has very little at risk and won't have to make good when ordered to pay restitution.
The bill being considered by North Carolina lawmakers would allow state courts to look behind the shell of patent LLCs and collect judgments against the individuals behind the company. The measure was included in the committee's official recommendations to the 2014 General Assembly session, which begins in May.
Similar legislation is being considered in more than 20 other states. There is also a federal bill, but it is tied up in a gridlocked Congress.
"If the federal government had acted on this issue, we wouldn't have to be taking action at the state level," said Rep. Tom Murry, R-Wake, one of the committee's chairmen.