Their View: Patent trolls threaten small businesses

By Scott Joslove

Our legal system is increasingly being manipulated to allow entities to threaten and bring frivolous lawsuits against legitimate businesses throughout Texas and the United States.  We are seeing a huge increase in such suits in which a dubious claim is made that a business is using wireless technology in violation of a patent that had been purchased by a third party.   

Even with congressional passage of a patent reform bill in 2011, the U.S. lodging industry and other business sectors are still seeing an uptick in the number of abusive patent infringement cases.  A number of hotels in Texas and across the U.S. have recently been sued by patent holders, alleging the hotels are infringing on the plaintiffs' patents by operating Wi-Fi equipment.  These lodging properties have done nothing more than operate equipment purchased from retailers.

The reality is that the third parties claiming these patents often have a questionable if not completely fraudulent claim regarding the application of their patents.  But to litigate the validity of a patent can cost hundreds of thousands or even millions of dollars, and the business being sued has to choose whether to agree to pay a $5,000 (or larger) shakedown amount or find the means to defend itself in a very costly patent infringement case.

The shakedown process over questionable patents has become so widespread that the business community has sought additional relief from Congress in the form of The Innovation Act, a bill introduced by House Judiciary Committee Chairman Bob Goodlatte (R-Va.).  The success of this bill is of great concern to hotels in this state, as it should be nationally for any small business that purchases and uses wireless technology.  Congressman Goodlatte’s bill offers protection from frivolous, predatory tactics of these organizations that are now known as “patent assertion entities” or “patent trolls.”

Patent trolls have become notorious for use of their alleged patents as a means of seeking quick financial compensation through abusive lawsuits against end users.  The businesses being sued usually obtained the wireless technology through legitimate companies that offer these services.   But the patent trolls do not sue the larger business entities manufacturing the wireless equipment for a violation of an alleged patent.  Instead they primarily sue more vulnerable targets: the smaller businesses that are the end users of the technology.

In the case of the lodging industry, nearly 55 percent of our operators are small businesses, with facilities offering 75 rooms or less.  These smaller “mom and pop” properties do not have the financial resources to fight these lawsuits in the courts, and in most instances find it necessary to simply pay the settlement amount to the alleged patent holder and put an end to the legal action.  Here in Texas, more than 100 hotels have been targeted by patent trolls in just the past year, and that number is growing.

There also are significant repercussions of patent troll activity on the national economy.  Since 2011, the number of these lawsuits has tripled for all types of smaller businesses.  The cost to our economy is $80 billion each year – equal to more than 40 percent of the entire Texas state budget for 2014-2015.

The Texas Hotel & Lodging Association has taken a lead role in the national legislative fight, together with the American Hotel & Lodging Association and other partner state associations across the country.  We have been working directly with policymakers on Capitol Hill to try to protect hotels and the national business sector from these predatory practices.  The U.S. House of Representatives will vote on The Innovation Act.  The success of this bill is of great concern to hotels and other businesses that purchase and use wireless technology, and the financial security of all businesses and relief from unreasonable predatory lawsuits is at stake.

Joslove is president and CEO of the Texas Hotel & Lodging Association.