The Magazine

Trolling for Dollars

At times, our intellectual property laws produce results that are patently absurd

Jul 14, 2014, Vol. 19, No. 41 • By JONATHAN V. LAST
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It’s difficult to say which is crazier: the assertion itself or the fact that the U.S. Patent Office bought it.

Logan is unashamed to be seeking restitution for his idea. “I spent $1.6 million of my own money trying to realize our vision of a custom listening experience,” he explained in a question and answer session with the tech site Slashdot. And besides, this isn’t his first rodeo.

Logan is old money, by tech standards: In 1982, he founded a touchscreen company called MicroTouch Systems, which was sold to 3M in 2000 for $160 million. He founded Personal Audio in 1996, and when the tapes-by-mail business failed, he turned to patents. Even though he lives in New Hampshire, he incorporated the company in Beaumont, Texas. Why Beaumont? Because it sits comfortably within the boundaries of Texas’s Eastern District court.

The Eastern District courthouse in Marshall has become the destination of choice for a disproportionately large number of America’s patent infringement suits. The Manhattan Institute’s Ted Frank explains that there are four reasons patent holders seek out the Marshall courthouse: (1) There are only two judges there who handle patent cases. They are known to rarely grant summary judgment, instead pushing parties to jury trials. These judges hear a great many patent cases. For example, last year one of those judges, the Honorable Rodney Gilstrap, presided over nearly 900 patent cases, which was roughly one-sixth of all the cases heard nationally. (2) Local jurors are perceived by attorneys to be particularly friendly toward plaintiffs. (3) The remoteness of the venue—150 miles from Dallas—adds greatly to the costs of litigation. Frank estimates that the location alone adds $10,000, per lawyer, per trip, while the BBC reports that a full legal team, in trial, might have the meter ticking at close to $2 million per day. All of which encourages defendants to settle. And then there’s: (4) The Marshall courthouse has a “rocket docket,” meaning there are local rules that expedite cases, providing another advantage for plaintiffs looking to move swiftly into the expensive, trial phase of litigation.

All of which, incidentally, has made Marshall—population 23,523—something of a boom town, with patent suits being the wellspring of prosperity. For example, in the winter, the Korean electronics giant Samsung—which is often involved in patent disputes as both plaintiff and defendant—sponsors an ice rink in Marshall, across the street from the courthouse. Without impugning the character of the good citizens of Marshall, it’s nonetheless true that they now face a moral hazard when serving as jurors: The wellbeing of the local economy is tied inextricably to the community’s friendliness to plaintiffs in patent litigation.

The Eastern District is where James Logan and Personal Audio fought mighty Apple in 2009, getting an $8 million verdict from the jury. In that case, Personal Audio insisted it had invented the “audio program player including a dynamic program selection controller” and the “audio program distribution and playback system.” The jury agreed. Personal Audio has sued Apple twice more since. And not just Apple. Personal Audio has also sued Amazon, Samsung, XM Radio, and others. As James Logan said, such suits aren’t an ancillary cost of doing business. They’re his entire business model. Which is why people call him a “patent troll.”

"Patent troll” is the vernacular term for what the legal world blandly refers to as a “patent assertion entity.” Trolls are the individuals (or corporations) who seek to use patents purely as revenue-generating mechanisms. For instance, patent trolls will frequently purchase patents from dying corporations during bankruptcy proceedings, and then use them to instigate litigation. Patent trolls are almost always nonpracticing entities—that is to say, they rarely produce or use technology. Rather, they control ideas on which the government has conferred special protections, and these special protections allow them to seek rent from people who do produce and generate economic activity in the real—which is to say, nonlegal—world. 

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