Market Passed Them By — So Patent Troll or Try
Older readers may remember “instant cameras” invented and patented by Edwin Land, the founder of Polaroid. They became popular because their film cartridges were packaged with chemicals that developed your photo within about a minute of your snapping it. Today’s digital cameras, of course, let you see your pictures immediately without the need for film at all, let alone special cartridges.
No outmoded instant-camera maker jumped up to sue digital camera makers for patent infringement. That’s because while a device and its mechanisms can be protected by patent, the functional benefit they provide — in this case viewing your photos moments after you take them — cannot. Still, that, in a way, is what a failing company, Dynamics Inc., is attempting to do with its patent claim against Samsung, the world’s leading manufacturer of smartphones.
In 2010, Dynamics invested in the development of a plastic multi-account linked payment card with a programmable magnetic strip. But mobile payment technology evolved quicker, which diverted market interest elsewhere and diminished the prospects that it would be embraced widely.
Dynamics failed to predict the shift away from plastic to digital, phone-based technologies, and its card simply did not pan out. And when it became apparent that smartphone-based payment technologies had passed the company by, it filed patent infringement actions against Samsung, a leading manufacturer in the category. If there was a moment for Dynamics technology, it had passed, at least when it came to their chances of widespread consumer adoption. However, they were not entirely out of ideas for how to monetize the not-so-disruptive technology that time forgot.
Having failed in the marketplace, Dynamics has now decided to pin its hopes on CEO Jeffrey Mullen’s other area of expertise. After earning engineering and business degrees, Mullen became a patent attorney. This is an increasingly common profile for patent trolls. They are formed or led by patent attorneys who can exploit knowledge gained in protecting companies from infringement suits by turning it into litigation dollars. While Dynamics once may have been a bootstrapped entrepreneurial start-up, Dynamics today is nothing but a patent troll.
And as other trolls have recently done, Dynamics is now misusing the International Trade Commission (ITC), not just courts, to pursue litigation in at least one of the companies claimed “240 pending US cases.” The ITC is increasingly becoming a favorite forum of patent trolls, because unlike in court, trolls can seek import bans blocking entire products if the ITC rules that even the product’s least significant feature infringes on the troll’s patent. This potent remedy has far-reaching adverse consequences. Furthermore, ITC bans are far easier to obtain than court injunctions and the process moves faster. But the troll’s real goal isn’t an import ban or an injunction; it’s a payoff, which they usually get, because it’s far less damaging than a protracted lawsuit or the threat of a full product ban. Still, that settlement payment diverts funds from more productive areas of the company, like R&D and employment, and it is typically made up in the form of higher prices for consumers. Everyone loses except the trolls and their attorneys.
Patent trolls are a serious problem for productive U.S. businesses and consumers. Patent rights serve to protect innovators’ property, but trolls use them as a weapon to unfairly extort money from innovators. It’s estimated that trolls file roughly 70% of all patent infringement cases, which increased by more than 500% from 2007 to 2017. Litigating those suits in U.S. courts cost companies as much as $30 billion a year. Related decreases in company value, foregone economic opportunity, and lost innovation possibly amounts to five or even ten times that much.
Dynamics’ rent-seeking actions at the ITC are especially troubling during the coronavirus pandemic. Access to mobile technologies on smartphones and other devices — such as those threatened by Dynamic’s patent infringement suit – is more important than ever for a huge range of Americans — first responders, telehealth professionals and patients, remote education providers and students. Let’s not forget that contactless payments, which sit at the crux of the dispute, limit the risk of virus contagion.
Dynamics’ ITC complaint is an attempt to turn back time and wring money from a technology that never caught on, a self-serving strategy that creates obstacles for both effective contactless payments and the many other uses of mobile devices today. The ITC should see this hijack attempt for what it is and reject Dynamics’ petition as contrary to the public interest. And Dynamics, instead of going down this path, should turn back to fruitful innovation and manufacturing that will help rather than hurt consumers and our fragile economy.
Steven Titch is a policy analyst focusing on telecommunications, Internet and information technology. He is also a policy advisor to The Heartland Institute.