Hard work and ingenuity are supposed to pay off. It’s the American way. We respect it and celebrate it, but it is meant to pay off for the people who had the ideas and did the hard work to create a useful product or technological innovation.
Unfortunately, some people are looking to shortcut hard work and innovation and have found ways to make money off the hard work of others by doing little more than threatening litigation.
In recent years, a number of businesses and individuals commonly known as “patent trolls” have purchased large numbers of obscure and dormant patents and are leveraging them in a legal strategy to extort money from law-abiding businesses. In many cases, these patents are long out of date or relate to products or technologies that the organizations don’t even use.
Credit unions and other smaller financial institutions are particularly popular targets of the patent trolls. Credit unions, which are nonprofit cooperatives, use their earnings to offer members better loan rates, higher deposit rates and lower fees. Credit unions continue to play a key role in helping consumers through financial challenges. When credit unions and other institutions are forced into frivolous legal actions, it’s consumers who suffer.
Over the past decade, credit unions have reported a dramatic increase in the number of demand letters that they have received from these “patent trolls” or by their more formal name – nonpracticing entities. Often they target patents related to the technology that drive our ATMs and then blanket the industry with demand letters seeking licensing fees.
The fact that these demands are generally erroneous does not limit their profitability, because settling the claim, no matter how spurious, often makes better sense than fighting it.
The cost of defending against a patent claim is unusually high. Credit unions and other small businesses victimized by the trolls often feel compelled to pay the fees rather than engage in lengthy and costly defense of their rights. How costly? The filing fees at the Patent and Trademark Office for the process to challenge this sort of claim start at $30,000.