Companies sidestep courts to combat patent claims

WASHINGTON – Rackspace Hosting lawyer Van Lindberg is fed up with what he considers dubious patent-infringement lawsuits — like when licensing company Rotatable Technologies demanded $75,000 to settle a February case.

Many companies negotiate to pay the company to go away, since it's cheaper than what may become a lengthy court battle.

Instead, Lindberg - using a procedure called inter partes review created by the 2011 America Invents Act - petitioned the U.S. Patent and Trademark Office for a new examination of the computer-image display patent. If Rackspace persuades the agency the patent never should have been issued, the suit will be dismissed.

"We said no thanks" to Rotatable's demand, said Lindberg, head of the intellectual property section of the San Antonio-based Web computing services provider. Rackspace decided "to stand up and not be pushed around."

Rotatable says in court documents its patent is valid. Its lawyer, Austin Hansley in Dallas, didn't return calls.

Companies including Google, NetApp and Oracle see the review as a way to fend off royalty demands by patent-assertion entities, sometimes derided as trolls. They like the process for the reasons patent-licensing firms don't: They offer quicker rulings at less cost than litigation and shift the burden of proof to patent owners.

"We are looking at the most cost-effective way of dealing with dubious suits," said Doug Luftman, chief intellectual property counsel of NetApp, a Sunnyvale, Calif., data- storage company.

At least 592 petitions have been filed since reviews began a year ago, exceeding the 520 the agency expected. Costs run as much as $300,000, less than half of the minimum $650,000 for a court challenge.

Patent owners win more than half of trials, while the median damage award for patent-licensing companies in 2012 was $11.2 million, a PricewaterhouseCoopers LLP study found.

Under the new patent law, the Alexandria, Va.-based patent office set up processes to look at some finance-related business methods and to streamline the older procedure for anyone challenging a patent's validity.

Decisions on whether a patent is valid or not are required within 12 months. Patent re-examinations under the old rules ordinarily can take years.

Scott Cole of the law firm McKool Smith in Austin, Texas, says the agency's rules can work against patent owners, whom he often represents.

"The odds of winning a validity challenge are orders of magnitude higher than in other current forums," Cole said. The patent office "wants to be heavily involved in assessing validity of their patents because they get political criticism when they issue a bad patent. It takes the heat off."

Nothing prevents multiple review requests for the same patent, so challengers can "come back and try to win again on the same arguments or different arguments," Cole said.