The trolls are back in town. Not the ugly-but-somehow-cuddly Disney trolls that break into song at the drop of a music cue. The only thing these trolls break into is your wallet.

And they’re at right now.

“Patent trolls cost the American economy tens of billions of dollars a year,” according to Lee Cheng, the Chief Legal Officer of Newegg.com, the multi-billion dollar online retailer.

In deep, dark woods, that look strangely like bars in upscale hotels, these trolls buy improperly issued patents and patents that were never used to build products. Thanks to loopholes in patent law, those patents are all the trolls need to extort money from businesses.

“One troll claimed it held the patent on scanners,” Cheng told me, “and they would threaten small businesses with legal action that would run into millions, if not tens of millions, of dollars. But they’d settle for $1000 for each employee using a scanner.”

Like Disney, patent trolls appreciate the importance of a happy ending…even if they differ on the details.

When companies refuse to deal, the trolls toss happiness under the bus. “Trolls take these completely useless patents and use them to file lawsuits against companies that are offering real products and services,” Cheng said.

These suits are calamities on a cartoon scale. They can cost between one- and six-million dollars to defend, with no guarantee of a successful outcome.

That might make for a good courtroom thriller, if these cases were played out on the screen with fake movie cash. Instead the dollars are real and the location is the United States District Court in the Eastern District of Texas, a slice of the state often recognized as a westernmost extension of the Deep South.

It’s also a venue that bends over backward to favor plaintiffs in patent lawsuits.

It’s in East Texas that the trolls invoke their powerful magic with the incantation U-S-P-T-O…U-S-P-T-O.

Patents, the legal right to exploit ownership of an invention, are issued by the USPTO, the United States Patent and Trademark Office.
Faced with an increasing flood of applications, and a cultural bias toward approving patents as an indicator of America’s innovative strength, there’s an increasing flood of patents coming out of the USPTO that should never have made it past the Beltway.

Cheng concluded that capitulating to these trolls’ demands would result in a weakened tech economy and he convinced other Newegg executives the company needed to take a stand.

He began scrawling “Sue Us” on trolls’ lawsuits. The trolls were happy to oblige. And, one by one, they lost their suits.

In one case, their Armani suits.

“We were sued by Sovereign Software, a troll claiming it owned patents covering online shopping carts,” Cheng said.

A patent on an online shopping cart? There’s a fantasy even Disney couldn’t dream up. Of course, it’s not as creative as the troll that claimed the rights to the search box.

(Yes, seriously. A patent on the search box.)

But, as a popular screenwriting guru once insisted, there are 32,767 plots in the world. It seems only fair to give the trolls two of them.

“Newegg was successful not because of the shopping cart,” Cheng continued, “yet Sovereign claimed that, years after Newegg was launched, we owed them one percent of our revenue, because we couldn’t have succeeded without them.”

In true Disney fashion, Newegg lost at trial, leaving Cheng battered, bruised, and defeated. Until he appealed the verdict.

“The Federal Circuit Court of Appeals invalidated all of Sovereign’s patents,” he said.

That twist was not in Sovereign’s copy of the script.

“Sovereign tried to save themselves by appealing to the Supreme Court. The Supreme Court told them too bad. Your patents are invalid,” Cheng said.

Aside from taking Newegg off the legal hook, the ruling neutered Sovereign’s business. The patents that were worthless in products were worthless in court as well.

Today, trolls give Newegg a wide berth when picking their lawsuit targets.

Unfortunately, far more companies choose to pay the trolls than defend themselves. The payments these companies make, often called the toll of the troll, show up in the increased prices we pay for technology products—and then again in lost jobs and lost economic potential when companies have to scale back their operations to recoup their settlements.

Perhaps that’s why Cheng is adamant about closing the loopholes through which the tolls flow. “People should be, and can be, calling their Congressmen and Senators to urge them to pass meaningful patent reform legislation,” Cheng said.

And why not? It’s a troll-free call.

Courtesy of Lee Cheng