According to a recent study by UC Hastings’ Professor Robin Feldman, non-practicing entities (or patent trolls or NPEs) file 40% of all patent infringement cases, a number that increased from 22% in 2007 to 40% in 2011.  This statistic does not even tell the whole story and may even understate the effect of non-practicing entities.  For example, the number does not account for the percentage of non-practicing entities threats that lead to settlements outside of court. In addition, patent litigation has increased overall, which means the number of non-practicing entities may have increased much more than the numbers suggest.  While non-practicing entities usually focus on bigger corporations due to deep pockets, these numbers suggest that non-practicing entities may now have an eye on start-ups and smaller businesses that are not as established but have raised substantial revenue.

There are many common techniques used by companies to protect themselves from competitors which are not effective against non-practicing entities.  After all, many non-practicing entities sue on bogus claims and fail to do pre-filing investigations.  They may file suit merely because your business uses a single term in advertising your product, which happens to be mentioned on a patent owned by the non-practicing entities.

Nevertheless, some companies may minimize and limit their exposure to non-practicing entities.  For example, businesses can routinely monitor new patents and published patent applications.  Some businesses do a clearance search for patents or pending patent applications that may cover important features of a product.  These searches would usually occur prior to initial development or commercial introduction.  In addition, it may possible to design a product around the claims of past patents.  If there is a pending application that may be problematic, one can file a protest to alert the United States Patent and Trademark Office of any prior art.

If there are any patents that arguably overlaps with the proposed product, businesses can attempt to buy those patents before they are sold to non-practicing entities.  Sometimes the patents are held by individual inventors who may be willing to sell the patent at a low price.  This strategy, called defensive patent aggregation, is a practice used by some companies that purchase patents or patent rights from patent owners so that the patents do not end up in the hands of non-practicing entities or other entities that can assert those rights.

If a new product involves areas where patents rights may be unclear (i.e. Software or business methods), patent infringement insurance may be possible to help reduce the risk.  Conversely, some businesses merely take the risk and opt for early settlement once sued.

This article is the second part of a continuing series.  The first part can be found here.

End-user licensing agreements (also called EULAs) are a type of software licensing contract between the owner of the software and the purchaser or user of the software.  Under the first sale doctrine, owners of software must “license” as opposed to “sell” software in order for them to maintain their ownership rights over the software.  As a result, these EULAs define ways in which the copy of the software may be used.

We have all seen these.  EULAs pop up as dense portions of legalese prior to the installation of any software.  Users have to scroll through the agreement and finally click on an “I Agree” button.  By now, such agreements are ubiquitous in the software and consumer electronics industry.  Millions of users are clicking buttons that purportedly bind them to agreements that they have likely never read.

EULAS come in various types, the most common being either a shrink-wrap or click-wrap agreement.  Shrink-wrap licenses refer to software agreements enclosed within a tangible software package or box that is inaccessible to the customer until after purchase.  Click-wrap licenses refer to contracts that are presented to the user during the installation procedure.  The user has the choice to accept or reject the agreement in order to install it.

EULAs often contain similar terms, such as ownership rights over the intellectual property, license grants, warranties, indemnities, term and termination, and various miscellaneous clauses.  The EULA may also contain extensive liability limitations to protect the owner and hold them harmless to the extent that the software causes any damage to user’s computer or from improper use.  The miscellaneous provisions often include clauses relating to applicable law, venue restrictions, arbitration, or successors.  Many key phrases in the agreements are often bolded, underlined, or in all caps.

Whether these licenses are legally binding differs between jurisdictions, though many courts have held such licenses to be enforceable.  The enforceability depends on several factors, such as the terms of the contract, the laws of the state, fairness, or whether the contract is considered unconscionable as an adhesion contract.  While there certainly is controversy over the use of EULAs, courts have not made generalized decisions regarding the enforceability of such contracts.

Are you one of those people who become extremely irritated when you receive marketing calls for different products?  Well, in our world of smartphones, alongside your home phone, you may have received, or will soon receive, texts soliciting your personal information.

SFGate recently covered a story where people such as Lesley-Ann Thompson received a text from Best Buy, stating that “she had won a $1,000 gift card!”  In reality, Best Buy had nothing to do with this text.  It was simply a part of some major fraud scheme where people would receive such a text, open the attached link and/or call the number included in the message, and hopefully divulge their pertinent financial information.  Scammers would then be able to access these individuals’ bank accounts, and steal their money.  Scammers often use computers to generate cell phone numbers, and then send out these texts by thousands, hoping that at least a few people will respond.  Sadly, many do respond and fall prey to these scammers.

Unfortunately, scamming via texts has become a huge industry.  Ferris Research has reported that in 2011, there were approximately 4.5 billion texts sent out with the intent to scam!  This figure is not only large, but extremely disappointing.  What is not surprising though is the fact that sending texts to scam, or “text spamming,” as it is nicknamed, is illegal.

Although mobile phone companies are trying to prevent these scam texts via internal security measures and asking customers to report scam texts, such preventative measures are not proving to be effective.  What is needed is the cooperation and awareness of consumers.

What may also prove to be effective is to bring these matters to the attention of the law.  Under the 2003 Can Spam Act and the Telephone Consumer Protection Act, mobile spamming is illegal.

The 2003 Can Spam Act (CSA)
The CSA coverall all electronic messages sent for the purpose of commercial advertisement or promotion of a commercial product or service.  Naturally, texts and e-mails are included.  The CSA establishes requirements for such electronic messages and gives recipients the right to stop the sender from sending them the messages.  Further, harsh penalties for violations are established.  Some of the requirements for electronic messages include not using false or misleading header information, not using deceptive subject lines, identifying a message as an ad if it is so, providing relevant contact information and providing recipients with the option of “opting out” of receiving further electronic messages.  Violators have been penalized up to the amount of $16,000, making non-compliance extremely costly!

The Telephone Consumer Protection Act (TCPA)
Congress passed the TCPA in 1991 due to consumers becoming agitated over unsolicited telephone marketing calls.  In June of 2003, the TCPA was amended to include the “National Do-Not-Call List.”  On this list, both an individual’s home and cell phone number can be entered, in order to prohibit solicitors from calling them on their home or cell phones.in, ensuring that solicitors will be prohibited from calling.  Violators are to encounter severe monetary penalties.

What Can You Do?
Both the CSA and TCPA allow for mobile phone users to report any spammers, who due to their spam-disseminating actions are violating the law.  Any individual who is frustrated with such spammers can file a complaint with the Federal Communications Commission (FCC).  The FCC requires a vast array of specific information in order to file a complaint.  Further, the process requires many steps, time, and a lot of patient.  Therefore, individuals are now seeking the aid of attorneys in order to file such complaints with the FCC.  Filing complaints raises awareness, which in turn brings about regulatory action.
Overall, it is best to educate yourself about the law, be astute about the texts you are receiving, and report any improper actions so that text spamming can one day be put to an end.

This will be the first post of several posts regarding patent litigation defense against non-practicing entities.  This post focuses on understanding non-practicing entities and how they work.

In the last decade, the uncertainties in various patent laws (such as reasonable royalties in patent damages) have led to the rise of a new participant in the patent marketplace, the so-called non-practicing entities (NPEs) or patent trolls. NPEs are not originators or users of patents. Instead, they buy patents from inventors, often individuals or small businesses, and wait for others to infringe their patents. They selectively acquire patents (often in computers, electronics, business methods, or software fields) that are likely to lead to successful litigation outcomes and high licensing fees.  Leanly staffed, NPEs employ mostly attorneys and only a few engineers who examine prior art. After identifying a potential infringing use, NPEs file a patent infringement suit against the accused infringer. Because it costs millions of dollars to defend against a patent litigation suit (in part due to uncertain patent damage standards), most infringers are incentivized to settle or agree to a licensing agreement. The lucrative NPE business model is to acquire, detect, sue, license, and profit.

The negative impact of NPEs on patent damage awards has increased considerably in recent years. From 1995 to 2001, the median damages award for NPEs was only about $5 million, which was about the same as for practicing entities. The median award is now $12 million for NPEs, but only $3.4 million for practicing entities. In addition, in the past seven years, the numbers of defendants sued for patent infringement has nearly doubled (from 5,000 in 2000 to 9,000 in 2007).

The rise of NPEs has been accompanied by an increase in the number of jury trials and an increase in reasonable royalty awards. In the 1980s, juries decided only 14 percent of cases with patent damages awards; in the 1990s, juries decided 24 percent of cases. In the past decade, juries decided 51 percent of cases. It is no surprise that NPEs prefer juries, where plaintiff success rates are much higher compared to bench trials. In addition, NPEs cannot claim lost profits as a measure of damages. They do not provide products or services, so they have no established royalty rates and no profits to lose. As a result, NPEs must sue for reasonable royalties, leading to an increase in the use of this standard. A recent study showed that reasonable royalties have been the predominant measure of patent damages awards.

Some commentators have noted that NPEs are not all bad.  The goal should not be to not to drastically eliminate or weaken the power of NPEs, but to ensure that they are accurately compensated.  NPEs may actually play an important role in the innovation economy by acting as intermediaries between promising independent inventors and users of technology.

Recent patent legislation (i.e. America Invents Act) and other Federal Circuit rulings have made it harder for NPEs.  Still, NPEs have drastically increased the costs of patent litigation for both large and small businesses alike.

In recent en banc Federal Circuit decisions (Akamai Tech. v. Limelight Networks; Mckesson Tech. v. Epic Systems), the court appeared to make minor changes to the previous law for inducement in patent infringement cases. In particular, the court rejects the prior rule that inducement requires a party to prove that a single actor directly infringed a patent. Instead, the underlying direct infringement (in method patent claims) may still lead to inducement as long as all of the steps of the method were actually performed. Basically, parties no longer have to prove that all the steps were committed by one entity.

Under 35 U.S.C § 271(b), “[w]hoever actively induces infringement of a patent shall be liable as an infringer.” Prior to these cases, the Federal Circuit had repeated emphasized that inducement requires 1) knowledge and 2) actual direct infringement. This case was different because the accused infringer allegedly knowingly encouraged several different parties to perform different steps of a patented method. Now, the new rule requires 1) knowledge, 2) induced performance of the steps of the methods, and 3) actual performance of those steps. As a corollary, the accused infringer will be liable if it induces performance of some steps while performing the rest of the steps himself.

As many commentators have noted, this decision is narrow but closes a loophole in patent infringement, especially for companies that knowingly take advantage of a patented invention in order to avoid paying licensing fees. The opinion was limited to the allegations of inducement and the court did not address issues related to joint direct patent infringement.

Buying a franchise business is not like buying or starting a normal small business.  There are different risks, different opportunities, and different commitments.  You have to investigate the franchise opportunity, put together a business plan, negotiate a fair franchise agreement, and conduct much due diligence.  On the other hand, existing businesses and prospective franchisors, whether young, growing, or mature, face difficult problems as well.  Franchisors need to adopt systematic methods, resolve problems with franchisees, and manage risk across widely dispersed operations.  Regardless of whether you are a franchisee or franchisor, you need to comply with franchise laws and work with franchising agreements.

Many states have enacted statutes and regulations governing the sale of franchises, and the Federal Trade Commission (“FTC”) has adopted regulations as well.  The current franchise industry is subject to complex rules that include the FTC rules, multiple state statutes regarding the sale of franchises and similar business opportunities, and industry specific regulations.  In addition, the franchise industry is subject to a host of other bodies of substantive law, such as intellectual property, trade regulation, commercial leasing, employment, and other contractual matters

As always, it is important to pay attention to both federal and state laws, which work together to regulate franchise relationships and franchise sales..