Companies' aversion to courts a boon for 'patent trolls'
BOCA RATON, Fla. — When it's time to pay the troll toll, the bill arrives in the form of a letter filled with polite-but-firm language and loaded with references to patent numbers.
The invoice has been sent on hundreds of occasions by ArrivalStar, a company once based in Delray Beach, but now incorporated in the tax haven of Luxembourg. The letter describes ArrivalStar head Martin Kelly Jones as an inventor who deserves his due as owner of nearly three dozen patents on technology for tracking vehicles and packages.
“Mr. Jones conceived his inventions in 1985 when he observed a young girl waiting at a school bus stop on a rainy, foggy Atlanta morning,” the letter says.
Versions of ArrivalStar's smooth-yet-threatening document have arrived at hundreds of headquarters, including the offices of American Airlines, The Gap, even the Port Authority of New York and New Jersey.
Those who've received the letter — and later were named as defendants in patent-infringement suits — scoff at the idea of Jones as an innovator whose vision and acumen have greased the cogs of global supply chains and online retailing. Instead, they paint him with uncharitable terms — “shakedown artist,” “cockroach” and, most commonly, “patent troll.”
For Jones, the insults are part of doing business. His Boca Raton attorney, Bill McMahon, said ArrivalStar has agreed to licensing deals with more than 500 companies in recent years. The average fee is “south of $40,000,” McMahon said — leading to the obvious conclusion that ArrivalStar has raked in $20 million in licensing fees on the three dozen patents it owns.
Not that ArrivalStar's revenue sources are happy to pay up. McMahon said his licensing letters typically go ignored until he files a suit in federal court.
ArrivalStar isn't the only patent troll, but it offers insight into a shadowy industry.
First comes the demand letter. In it, ArrivalStar offers the accused scofflaw an opportunity to “amicably resolve” the matter “under highly favorable terms” — by paying a licensing fee of perhaps $150,000. Companies that ignore the letter risk being named as a defendant in a lawsuit.
In the past three years, ArrivalStar has filed 201 patent infringement suits in federal court in South Florida, targeting such household names as New Balance, Nike and Nordstrom.
In each of those three suits, ArrivalStar cited the consumer brands' use of advance shipping notices and order confirmation emails sent to customers. ArrivalStar said its patents give it the right to a licensing fee.
The suits rarely make it to trial, McMahon said. Instead, they're settled quickly, for an undisclosed sum.
That secrecy is an important part of ArrivalStar's strategy, said Daniel Nazer, staff attorney at the Electronic Frontier Foundation in San Francisco. The specter of a hefty settlement can pressure companies to settle.
“Patent trolls like to operate in the shadows and use uncertainty as a weapon,” Nazer said.
McMahon counters that the fee is reasonable.
“We keep them very moderate and affordable,” he said. “There's no need for us to try to get rich off any single case, because there are 600 other targets for us.”
McMahon said Jones attempted to run a company based on his innovations but failed during the dot-com meltdown. Jones then switched his strategy to licensing his inventions, an approach the attorney calls legitimate.
“If someone is stealing or using the technology without paying, they have to pay,” McMahon said. “We can't just give people passes.”
Robert Thornburg, a Miami patent attorney representing Scanwell Logistics, which was sued in July by ArrivalStar, isn't so sure.
“The whole business model is, ‘Let's make money off of litigation,'” Thornburg said.
Simply mounting a response to a patent infringement suit can cost about $100,000, attorneys say. Taking a case to trial can rack up $1 million in legal fees. Given those scary numbers, a five-figure settlement seems like a good deal.
Jones made a similar argument in a rare public statement in 2003, issued when ArrivalStar filed a patent infringement suit against 14 companies, including American Airlines, American Express, Continental Airlines, Delta Airlines and the city of Atlanta.
“Naturally, we prefer to avoid litigation, but many defendants were unresponsive to overtures to discuss either the relevance of the patents for their businesses or our offer of a license on reasonable terms,” Jones said in a news release about the suit.
The arcane — and emotionally charged — world of intellectual property disputes grabbed headlines in June, when President Obama lamented the rising number of suits filed by patent trolls, which are companies that exist to collect licensing fees on inventions registered with the U.S. Patent and Trademark Office. Obama announced several executive orders “to protect innovators from frivolous litigation.”
Unlike billion-dollar patent battles between Apple and Samsung, or between the makers of brand-name drugs and generic versions, these lower-stakes troll tolls are collected not on a piece of crucial insider knowledge but on some easily overlooked invention.
In one example, a shell company threatened to sue 8,000 coffee shops, hotels and retailers for patent infringement because they had set up Wi-Fi networks for their customers.