Case Study by F8bZ59

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									 Escaping the Snare of the Patent Troll’s Net: What happens when a patent troll
             accuses restaurants and hotels of patent infringement

          The rising tide of patent litigation is now affecting the hospitality industry in surprising and
substantial ways. How? We can list two very real examples: For one, what café or hotel does not offer wi-fi
to customers these days? For another, how many restaurant or retail businesses use search locator
software on their websites to help customers find them? You may yourself have installed a free wi-fi service
for your customers so they can use their laptops and tablets while sitting in your restaurant. Or you may
have a service that provides a search engine on your website to help customers find your location. If so, you
might be surprised to receive a letter in the mail from a company you’ve never heard of, telling you that your
locator service and wi-fi might infringe on their patents. You might be even more surprised when you read
the demand for you to fork over a monthly licensing fee or a substantial lump sum payment, or face a
lawsuit. In that event, you’ve been snared by the net of a patent troll, and you need to develop a strategy to
deal with it.


          What is a patent troll? The very term conjures a Grimm Fairy Tale image of a hunched and hungry
monster who lays in wait under a bridge to catch unsuspecting and innocent passers-by. Indeed, the Grimm
image is often not far from the fact. Typically, a patent troll is a company that purchases patents from
bankrupt entities or other companies that hold patents but no longer actively use them. The patent troll does
not intend to put the inventions claimed in its patents into practice or to make anything. Rather, the troll’s
business model is simply to threaten litigation against potential infringers and to collect royalties they can
extract through such threats. Upon assembling its patent portfolio, the troll will send out demand letters to a
host of businesses, alleging that they may be infringing on the troll’s patents. Often, these demand letters
are short on specifics, make very broad claims, and are accompanied by an offer to reach a “reasonable”
agreement with the business, which typically includes a “reasonable” licensing fee in the form of either
monthly payments or a lump sum amount. In many cases, refusal to pay the licensing fee can result in a
potentially expensive patent infringement lawsuit.


          If you want to know more about patent trolls, you can just ask one of over three hundred retail and
hospitality industry defendants sued by Geotag, Inc., a patent troll company. Some of these defendants
include Starbucks, Barnes and Noble, Best Buy, and McDonald’s, and are scattered throughout the entire
United States. They, like many other patent infringement defendants, have been forced to defend
themselves in the Eastern District of Texas against Geotag’s claim that the store locator services the various
defendants allegedly provide on their respective websites infringe a patent Geotag holds concerning web
search technology. The defendants have been sued despite the fact that most of them buy their locator
search engines from service providers that include, for example, Google and Microsoft. Both Google and
Microsoft have entered the fray by filing a separate declaratory judgment action against Geotag in Delaware
seeking, among other things, to invalidate the patent at issue, but the infringement cases against most of
the original defendants are still pending in the Eastern District of Texas.
          Another example of patent troll litigation against the hospitality industry includes a string of lawsuits
filed by Innovatio IP Ventures, another patent troll company, against multiple defendants including Panera
Bread and Best Western Hotels. Innovatio essentially claims that all businesses providing wireless
networking capability to customers infringe on a series of patents it claims to hold. Innovatio has also been
engaged in a letter-writing campaign, sending threatening letters with demands for quick payment of
licensing fees to many other businesses. Similar to the Geotag pattern, the large providers of the service or
product at issue (in this case Cisco and Motorola) have filed suit against the patent troll in another court
seeking, among other things, to invalidate the patent at issue, but the case against Best Western continues
for now. There are still numerous cases pending against businesses sued by Innovatio.


          How does one respond when caught in the troll’s snare? When a company receives one of these
demand letters, it should make several calls immediately. First, it should call its lawyers, inform them of the
letter, and get them a copy of the letter quickly. Then it should call its insurance providers to notify them of
the claim. If applicable, the company should inform its provider of the allegedly infringing product or service
and seek cooperation from them, and potentially indemnification depending on your vendor contract. With
the assistance of counsel, and perhaps with technical assistance as well and input from your vendor, you
can examine the patent claims and compare them to the product or service you offer to determine whether
you have an argument that you do not infringe. You can also, again with the help of counsel, research what
prior art may exist that could serve to invalidate the patent at issue. You can also review your insurance
policies and your vendor contracts to determine whether you may have a third party source to help pay for
your legal defense. Additionally, you may investigate whether there exists similarly-situated businesses that
may be interested in pooling resources and forming a defense group which could help defray legal and
expert fees and expenses.


         Patent claims can be very expensive, time consuming and fraught with risk. When faced with a
demand, seek counsel and develop a strategy that works for you, considering both your legal and Economic
positions. Then you can move forward in a rational manner and minimize the risk to you and your business.

About the Authors:

Christopher T. Vrountas is a partner at Nelson Kinder + Mosseau PC. He chairs the firm’s Employment Litigation and
Counseling Group as well as the firm’s Food and Hospitality Practice Group and its IP Trial Practice Team. Chris is a
member of the New Hampshire Lodging and Restaurant Association as well as the Academy of Hospitality Industry
Attorneys. He and the firm are “preferred providers” of legal services to the members of the NHLRA. Chris regularly publishes
in the NHLRA’s “The Dish” and edits the firm’s LegalBites blog which can be found at www.nkmlawyers.com/legalbites/
and which covers various legal issues affecting the hospitality industry.

Richard S. Loftus is an associate at Nelson Kinder + Mosseau PC. He works in the areas of commercial, employment,
construction, and IP litigation. He has worked on many complex civil litigation cases in state and federal court, including
arguing successfully before the New Hampshire Supreme Court. He has also worked in complex international litigation.
Before joining the firm, he served as judicial law clerk for the Honorable Andre Gelinas of the Massachusetts Appeals Court.
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