This year’s fight for the tech industry: Patent trolls

Life360 co-founder Alex Haro and his business partner were notified they had violated a patented technology days after raising $50 million for their mobile app. The ensuing legal battle cost them $1.5 million.

The same week that Alex Haro and Chris Hulls raised $50 million for their mobile app, Life360, the business partners got a letter. It said they had three days to pay licensing fees to a company they had never heard of because their app violated its patented technology.

Haro and Hulls traced the company, Advanced Ground Information Systems, to a coastal home in Jupiter, Fla., with a phone number that initially went to an anonymous voicemail. They couldn’t find any employees on LinkedIn. To Haro, it was “a punch in the gut,” he said.

On the other side of that letter was Malcolm “Cap” Beyer Jr., a 76-year-old who had filed patents a decade ago on cellphone mapping. He said his attorney told him that he had a strong case against the startup, even though the general technology had been widely used for years. Beyer insists the mobile app’s $50 million in fundraising had nothing to do with it.

In the end, a jury sided with Life360 on all counts, but not be- fore Haro and Hulls shelled out nearly $1.5 million in legal fees.

House lawmakers on Tuesday said they will push legislation this year that would make it tougher for people like Beyer to claim patent infringement, and put them on the hook for legal costs if they lose. The bill is a top lobbying priority for the tech industry, which says it repeatedly fends off frivolous lawsuits because of poorly written software patents and laws that favor patent holders.

“Our goal is to prevent individuals from taking advantage of gaps in the system to engage in litigation extortion,” said Rep. Bob Goodlatte, R-Va., chairman of the House Judiciary Committee.

But lawmakers have stumbled over the issue before, which doesn’t fall neatly along party lines. America’s drugmakers, universities and trial lawyers claim that patents are the lifeblood of American invention and that the current bill goes too far. After sailing through the House in late 2013, Goodlatte’s “Innovation Act” was never taken up in the Senate last year.

“Patent trolls” generally refer to businesses that buy up patents, particularly in technical areas like computer chips or cloud computing, with the sole intention of filing lawsuits or demanding licensing fees from tech companies. Not wanting to pay for a protracted legal fight, the defendants settle even if they think they’d win.

“It’s like a legal version of a mob protection racket,” said Noah Theran, a spokesman for the Internet Association, a coalition of Web-based companies. “The tactics are different, but the end result is a good, old-fashioned shakedown.”

Keven Kramer, Yahoo’s deputy legal counsel, estimated that the company has spent $100 million fighting bogus patent lawsuits since 2007. “That’s money we could use elsewhere on research and development, people, jobs,” he said.

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Beyer said in a phone interview earlier this month that he’s a defense contractor with more than a dozen employees, not “some vile animal that’s filing lawsuits” for sport.

“We are simply just trying to enforce our patent,” he said.

Beyer’s lawyer, Mark Hanne-mann, denied any suggestion that the law firm used Beyer’s patents to try to coerce Life360 into a large, quick settlement. He said the company had sought only $3 million in damages, “which is not a large amount in a patent case.” He also alluded to possibly appealing the case, saying, “there is, potentially, a long way to go in the process.”

“Mr. Beyer made these inventions years ago and has built AGIS, his third technology company, around them,” Hannemann wrote. “The reason we have a patent system is so inventors like Mr. Beyer can protect their inventions.”

Enter Congress. Goodlatte’s bill would toughen requirements when filing patent challenges in court, such as limiting the amount of documentation that can be demanded before a judge makes an initial ruling. The bill also could make plaintiffs liable for legal bills of the defendants if a claim is considered “unreasonable.”