Tuesday, September 17, 2013, by Matthew Henry
Article One, Section 8 of the United States Constitution states that Congress has the power “to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.” The number of patents awarded in the United States has continued to grow exponentially, with no end in sight.
The rise in patent holding companies and so-called patent trolls has changed the way that many do business. A patent holding company exists solely to license out intellectual property they might have developed or acquired. These companies often acquire patents and other intellectual property and then either license it out or sue those who refuse to do so. Often times the licensing fees are calculated to be just under the cost of litigating the issue.
One such company that has been characterized as a patent troll is Personal Audio. Jim Logan created Personal Audio in the early 1990s. His service allowed people to request certain magazine articles and Personal Audio would send them a cassette tape with those articles being read aloud. Logan applied and was awarded a patent on “[a]n audio program and message distribution system in which a host system organizes and transmits program segments to client subscriber locations.” Apple popularized the “podcasting” format when it added the feature to its iTunes software in 2005. This allowed users to search and download audio files on a number of topics. It has since grown into a large medium for disseminating content. Personal Audio, however, maintains that this system directly violates its patent.
These companies often acquire patents and other intellectual property and then either license it out or sue those who refuse to do so. Often times the licensing fees are calculated to be just under the cost of litigating the issue.
The main issue arises when one looks at when Personal Audio patent was filed: Mar 4, 2009. Personal Audio did not receive its patent from the USPTO until Feb 7, 2012. However, the patent has a priority date of Oct 2, 1996 based upon the fact that it was based upon a previously filed patent by Personal Audio. This has allowed Personal Audio to sue several large podcasting organizations and companies that make hardware that plays podcasts, even though the patent was not filed until after podcasting began to be popularized. Many podcasters have pointed to the vagueness of the patent as well as numerous instances of “prior art.” Groups like the Electronic Frontier Foundation are leading the fight against these vague and problematic patents.
But things are starting to change for companies described as patent trolls. Some are still able to get companies to pay large licensing fees in order to avoid litigation, such as SanDisk most recently. However, politicians are beginning to take notice of the negative effects of this practice on startups and on innovation in general. The FTC has also recently begun an investigation into destructive patent practices. However, for the time being it seems as though this practice will continue until Congress undertakes real and substantial reforms. New entrants into the marketplace face the risk that a patent holding company will either sue or demand licensing fees for seemingly vague patents, thus unnecessarily decreasing the likelihood of success. We have to ask ourselves, is this truly promoting “the progress of science and useful arts?”