Patent trolls and service providers do battle in the cloud

A judges gavel on a circuit board.

IaaS provider Rackspace has pledged to share complete technical information about all its prior products with the US Patent & Trademark Office (PTO), including documents previously considered confidential.

This is the latest strike the company has made against so-called patent trolls – organisations that allegedly acquire old intellectual property assets cheaply for commonly-used technologies to sue other organisations to make money rather than create new technologies.

According to many tech giants and, increasingly, US government departments, patent trolls - or patent assertion entities (PAE), as they are also known - are stifling innovation and causing firms to fork out unnecessary – and normally quite sizeable – amounts or money.

Patent trolling is not a new practice – the term was coined in the late 1990s by Peter Detkin, then legal counsel for Intel. However, target companies have often settled out of court as the cost of the legal process is usually greater than pursuing a private settlement.

But the costs have started to mount up. A study from the University of Boston, entitled Direct Costs from NPE Disputes, estimates direct accrued costs resulting from this kind of patent action totalled $29 billion in 2011.

Enterprises also ended up paying the largest quantities individually, although SMBs were found to bear the brunt of the burden, collectively.

Consequently, in recent years, things have begun to change. The giants have finally been woken, and they’re hitting back.

The ways they are doing so vary, but the most common is deciding to have the case heard in court.

This is the approach Google took in January this year when it faced off with Intellectual Ventures (IV), one of the top five patent owners in the US and whose revenue is derived mainly from pursuing alleged infringements. This was, coincidentally, co-founded by Detkin.

IV alleged Google’s Motorola Mobility unit had infringed on three patents relating to smartphone technology, including Google Play. It was the first case to go to court in the whole of the company’s 14-year history and ultimately ended in a mistrial, which IV’s counsel described as “an occasional fact of life ... [but] disappointing”.

Motorola, on the other hand, said it still believed “[the] lawsuit was based on overbroad patent claims meant to tax innovation”.

But some organisations, like Rackspace, have decided to go on the offensive.

A company named Parallel Iron started proceedings against Rackspace and 11 other companies at the end of March 2013, claiming the defendants had infringed three patents covering the use of the open source Hadoop Distributed File System (HDFS).

Rackspace claims Parallel Iron and its agent IP Navigation Gour (IPNav), which represented Parallel Iron in court in 2010 while trying to keep the latter company’s identity a secret, are two of the most notorious patent trolls in America.

In April 2013, in response to Parallel Iron's HDFS action, Rackspace countersued Parallel Iron and IP Navigation Group (IPNav).

“We aren’t going to take it,” said Alan Schoenbaum, special counsel to Rackspace, at the time.

“We have sued ... Parallel Iron in federal court in San Antonio, Texas, where our headquarters is located. We are asking the court to award Rackspace damages for breach of contract, and to enter a declaratory judgment that Rackspace does not infringe Parallel Iron’s patents,” he added.

For its part, IPNav claimed Rackspace and its lawyers were seeking publicity they could use to “fire up Congress and further weaken the [US] patent system”.

“There is a 'victim' here, but it is not Rackspace—it is the inventor who waited for over 26 months while Rackspace and its mega-firm lawyers dragged out negotiations,” the company said.

A decision has not yet been made in the case.

As IPNav alluded to, there are ongoing discussions in the US government that could lead to a change in the law that would favour practicing businesses that are using technology over PAEs.

In February, the Obama administration announced a series of executive actions that would reduce the number of ‘bad’ patents being issued by the PTO, i.e. ones that are vague or not genuinely novel.

This is why Rackspace has opened up all its technical information to the PTO, which Politico reported is working with the private sector to make it easier to work out if a patent is truly novel or not.

The PTO also said it would offer patent examiners more training in “fast changing technological fields”.

Penny Pritzker, the US commerce secretary, said: “Overall the goal of these actions is clear: to encourage innovation, not litigation.

“Americans want to focus our time and resources on growth and hiring, not wasting money in our courtrooms.”

What will happen, both in the case of Rackspace vs Parallel Iron and IPNav and with regard to US patet legislation, remains uncertain.

However, 2014 could very likely be the turning point when it comes to big business and the trolls.

Jane McCallion
Managing Editor

Jane McCallion is ITPro's Managing Editor, specializing in data centers and enterprise IT infrastructure. Before becoming Managing Editor, she held the role of Deputy Editor and, prior to that, Features Editor, managing a pool of freelance and internal writers, while continuing to specialize in enterprise IT infrastructure, and business strategy.

Prior to joining ITPro, Jane was a freelance business journalist writing as both Jane McCallion and Jane Bordenave for titles such as European CEO, World Finance, and Business Excellence Magazine.