Respond to this Article June 2005

Patent Troll Menace

By Zachary Roth

In the late 1990's, Brandon Shalton, a software developer, innovator, and long-time web enthusiast from Austin, Texas, developed a technology that allowed a user to pick up a telephone and record a message of up to five minutes length. Within 30 seconds, the message would be digitized into streaming audio format, so that it could be played back online. Fledgling web companies to whom Shalton pitched the technology were intrigued. But they were hesitant to pay for it, and, when the Internet bubble burst in April 2000, Shalton was forced to give up on the project.

Two years later, Shalton had a chance conversation with a friend who was about to become a nun. "She was aware of my technology," Shalton recounts in his genial Texas twang. "And she said 'hey listen, churches have money--they're not rich but they have a budget--and pastors love to talk…Why not take your technology and apply it to churches? It's a perfect niche.'"

So Shalton created SpokenMessages.com. He recruited a group of nuns to sell the idea to local religious institutions, and, in the summer of 2003, began testing the service at 20 area churches. The response from pastors was overwhelming. "They loved it," says Shalton. "They said 'this is the greatest thing,' because it [gave them] an easy way of updating their website with their voice." Shalton was ready to go live with his service a month or two later, when he stumbled upon a news article reporting that a company called Acacia Research Corporation, based in Newport Beach, Calif., held a patent that, it claimed, gave it the rights to any streaming audio or video technology over the web. But after reading Acacia's patent and learning about its aggressive tactics, Shalton believed that Acacia's claims were bogus--its "invention" was far from novel: "I've been on the Internet since '89, and I've been downloading audio and video tapes from bulletin boards prior to that," he says. "So I knew that there was prior art [examples of earlier uses of the technology]."

Still, neither Shalton nor his team of sales-nuns had anything like the kind of money needed to challenge the patent in court. In addition, Shalton was concerned that if Acacia chose to come after SpokenMessages.com, it wouldn't be just him that would be held liable -- it would be the churches themselves, as the ultimate users of the service. "That was something I did not want to be causing for other people," he says. So Shalton shut down the site. "I had a meeting with the sisters and I told them what I was doing, and they agreed." And just like that, an innovative, commercially-viable operation, nurtured by an honest, creative, risk-taking entrepreneur--in short, just the kind of project that a well-functioning patent system should encourage and protect--was stopped in its tracks.

Acacia offers few real products or services of its own. Instead, it makes money by "patent trolling" -- acquiring patents, usually by buying smaller licensing companies, then demanding fees from anyone who uses technology that they claim is covered by one of their patents. Knowing how expensive it would be to fight them--the average court challenge to a patent costs around $1 million--Acacia forces the small companies it targets to make a straightforward cost-benefit analysis. And even if a patent does get challenged and ultimately fails to stand up in court, the company keeps the licensing fees from deals it had previously signed with other targets.

Trolling has been causing such concern in the intellectual property community lately that in March the Intellectual Property Owners Association, long known as a strong supporter of the rights of patent holders, devoted a one-day conference to the issue. Smaller, less expert entrepreneurs have also made their mark. In 2003, a former San Diego travel agent named Lawrence Lockwood used a patent he had won for a technical innovation in browser operations to demand licensing fees from mom-and-pop operations across the country (an Indiana chocolate retailer, a New Jersey plumbing supply company, an Oregon clothing store) that did business online. The assertion struck many as preposterous, and after a group of retailers banded together to fight Lockwood, the patent office overturned the patent.

The reason this business is attractive to people such as Lockwood is simple: Trolling makes money. Acacia reported $4,284,000 in revenues from its patent-licensing operation for 2004, around two thirds of which came from its Digital Media Transmission (DMT) patent--the one which had led Shalton to take down SpokenMessages.com. And even though his patent was overturned, Lockwood still got to keep the licensing fees he had extracted from other targets that chose not to fight.

Zachary Roth is a writer in Washington.


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