United States: Patent Trolls And Transportation Companies

The way transportation and logistics providers conduct business will change for the better with advancing technology. This is particularly the case where optimizing logistics networks helps with the development of efficiencies in their supply chains. However, be forewarned: the TMS, WMS, OMS, RF systems used to meet the needs of transportation and logistics companies are all targets of patent trolls.

HOW PATENT TROLLING WORKS

Patent trolls, or non-practicing entities (NPEs), are companies that obtain rights to patents for the sole purpose of licensing them to others for a profit or threatening litigation if not paid, rather than using the patents to produce their own products or services. These companies often purchase portfolios of electronics-related patents and then sue every user of a product that infringes, or potentially infringes, on their patents. Buying up overly broad and somewhat vague intellectual property (IP) patents, the patent troll bullies unsuspecting companies that use technology potentially governed by these patents into paying to avoid litigation. Patent trolls count on the threat of a potential patent trial or the cost of abandoning technology that has been integrated into the company's business being more expensive than an out-of-court settlement.

Patent trolls review the functionality provided by a technology to determine if it is a candidate. If the functionality falls within the scope of a broad patent, the patent troll has an opening to argue that its patent controls that technology, and the use of that technology by a transportation or logistics company violates the NPE's patent. Before making a purchase, companies should consider the source of the underlying technology for, say, a logistics software program, including the scanner, the RF device or the GPS device. If possible, identify who developed and owns that technology. Transportation or logistics companies that use a website should endeavor to ensure that licenses were purchased for each feature in the website program. Recently, for example, a patent troll sued all users of a website function that was not properly licensed, but which was embedded as part of the product.

DEFEATING THE TROLL

The best way a transportation and logistics provider can protect itself from patent troll license fees, court costs and potential infringement damages is to carefully negotiate the technology agreements that support hardware and software licenses, leases or development for key technology used by these companies, and to engage in strong and complete due diligence before purchasing hardware/software and, in particular, all-in-one products. Due diligence may require some help from those with expertise in this technology. A transportation or logistics company also can protect itself by negotiating favorable provisions in technology purchase agreements or leases, including representations and warranties of ownership of the technology by the provider, as well as by negotiating strong indemnification provisions backstopped by insurance maintained by the seller or lessor of the technology.

Choice of Legal Forum

Limitations on the activities of patent trolls are also being addressed by the United States Supreme Court, the United States Congress and various state legislatures. Recently, the U.S. Supreme Court, in the case of Heartland v. Kraft, restricted where patent lawsuits can be filed. The Court held that patent cases must be filed where the infringement took place or where the defendant has an established business. Until this recent decision, the patent trolls' favorite place to bring suit was in the U.S. District Court for the Eastern District of Texas, a forum that has rules and juries that favor the patent trolls. The Heartland decision is starting to reduce the number of cases filed by patent trolls, who will have to try to enforce their patents in less-favorable jurisdictions. If a transportation company chooses to fight a patent troll's claims, it can now do so in its own backyard, and not in a small Texas town where the odds would be stacked against it.

Heightened Pleadings Standards

On December 1, 2015, the U.S. Supreme Court adopted amendments to the Federal Rules of Civil Procedure passed by Congress requiring heightened pleadings standards for lawsuits filed by patent trolls. Until the amendment, patent trolls could file austere complaints consisting merely of the title of the patent, the patent number and a bare allegation of infringement. Following this amendment, patent trolls have to do more work to file lawsuits against alleged infringers, coming forward with facts at the outset of a lawsuit about the infringement and showing in particular that the claim of infringement is actually "plausible." As a result, the patent trolls will be required to invest additional time and money in conducting investigative work and due diligence prior to filing a lawsuit of direct patent infringement. This small deterrent is expected to make the patent troll think more carefully before engaging in a patent infringement lawsuit.

Another development that aids companies against litigation filed by patent trolls is the U.S. Supreme Court opinions in Octane Fitness, LLC. v. ICON Health & Fitness, Inc. and Highmark Inc. v. Allcare Health Management Systems, Inc. Following these cases, courts reviewing claims that are brought in bad faith or in an abusive manner may more easily require a patent troll to pay the attorneys' fees of their opponents to defend such claims.

SUMMARY

In addition to the courts, state governments are fighting back. As of 2016, 32 states have passed laws aimed at limiting patent trolls' use of demand letters. Typically, these new statutes provide that if a court decides that a patent holder's demand letter is unreasonable, it can impose penalties on the patent troll making the threats.

Notwithstanding the efforts by government and the courts to limit the activities of these patent trolls, the patent trolls continue to file lawsuits against users of their allegedly patented technology. Thus, even though courts and legislatures balance the tactics of the patent trolls, every transportation company needs to be wise and aware of the risks it faces when purchasing or leasing technology. A transportation or logistics company must be aware not only of the technology it purchases but also of the demand letter that arrives in the mail from a patent troll. Seek counsel. A patent lawyer can help you on either front.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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