Beware the Trolls Proliferation of Patents Granted in U.S. Means Lots of 'Intellectual Property Owners' Can Demand Licensing Fees -- or Sue

Article excerpt

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, Fla., 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 related to 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, as well as Pittsburgh Logistics Services, a Beaver County freight company.

Those who have received the letter -- and later been named as defendants in patent-infringement suits -- scoff at the idea of Mr. 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 Mr. 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," Mr. McMahon said -- leading to the obvious conclusion that ArrivalStar has brought in $20 million in licensing fees on the three dozen patents it owns.

Not that ArrivalStar's revenue sources are happy to pay up. Mr. McMahon said his licensing letters typically go ignored until he files a suit in federal court.

"I can't tell you how many people call and say, 'F-you!' " Mr. McMahon said. "I get that four or five times a week."

The arcane -- and emotionally charged -- world of intellectual property disputes grabbed headlines in June, when President Barack Obama lamented the rising number of suits filed by patent trolls, companies that exist to collect licensing fees on inventions registered with the U.S. Patent and Trademark Office.

President 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.

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 says its patents give it the right to a licensing fee.

The suits almost never make it to trial, Mr. 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. …