Original “patent troll” may call it quits, says there’s no money in it

RayNiro, one of the lawyers who pioneered the wave of contingent-fee patent litigation, says he's ready to exit the business.

“The stand-alone patent case is dead on arrival, and I don't think we're unique,” Niro told Crain's Chicago Business.

Patent litigation dropped by roughly 20 percent in 2014, and patent lawsuits by "non-practicing entities," also known as patent trolls, dropped by nearly 25 percent. Those trolls filed about 3,700 lawsuits in 2013, and 2,800 in 2014, according to data from RPX's annual report (PDF).

There's still plenty of business left, but it's higher risk, as well. More judges are awarding fees to defendants, following the Supreme Court's decision in the Octane Fitness case last year. Niro and his firm have been ordered to pay fees in a patent suit he brought against HTC on behalf of Intellect Wireless and an inventor. The parties are still litigating over the amount, but HTC is seeking $4.1 million.

The fee order was "a wake-up call," Niro told Crain's. "I can take it once, twice, but am I going to take it three or four times? No. Why should I?"

Original “Troll”

In a sense, Niro is one of the original "patent trolls." He was the lawyer for TechSearch, an entity created by another lawyer, Anthony Brown, that bought up patents and sued prolifically in the late 1990s. Brown targeted more than 100 companies for infringing his patent on a method of transmitting data between computers—a claim so broad, Brown acknowledged that it could be used to sue anyone with a web server.

Niro's business was infuriating to corporations like Intel, whose patent problems were being tended to by its associate general counsel, Peter Detkin. He's one of a small group at Intel who invented the term in 2001, after getting sued for using the term "patent extortionist." In fact, the link in the previous sentence, from legal newspaper The Recorder, may be the earliest example of the term "patent troll" being published.

Mean names didn't make the problem go away, and trolls have flourished since then. Many of the lawyers who couldn't beat 'em, joined 'em—beginning with Detkin, who famously went on to become an executive at Intellectual Ventures, widely considered the largest "patent troll" of them all.

Patent pioneers move on

Niro isn't the only famous patent enforcer who's considering moving on to greener pastures.

Erich Spangenberg, who has been estimated to be the driving force between more than 1,600 patent lawsuits over the years—including several cases that went to trial, like TQP Development v. Newegg—has stepped down as CEO of his patent consultancy IPNav.

The threat of fee awards connected to the Supreme Court's recent Octane Fitness, as well as a constant barrage of inter partes reviews (IPRs) brought by defendants, weighed on his mind.

"You invested up front to buy the patent, did the research and found infringement," Spangenberg explained to Ars in an interview last year, shortly after he made the decision to move on from IPNav. "Over and above that, you go through an IPR and spend another million there, and then you get hit with a $2 million to $3 million fee award. I don't want to be working on cases where that's what I'm worried about."

"The middle market is going to assess what it's doing," he continued. "If you have a patent that reads on ten companies, and your revenue potential is $5 million, in the old days you'd spend $2 million to get there. Today it costs $5 million to $6 million to get there."

To be sure, the business of patent enforcement is still huge. Eclipse IP—whose "inventor" just sued EFF for defamation—has filed more than 100 lawsuits for simple delivery methods and sends small businesses letters suggesting they pay $45,000 for a license.

But serial patent plaintiffs are facing the very real possibility of a patent reform bill passing. ("Accept it and learn to deal with it," was Spagenberg's advice in a year-end blog post of his patent predictions.) The bill would force more transparency and further increase cost-shifting. It would also allow manufacturers to step in to defend their customers more often. None of that bodes well for the massive patent campaigns of recent years.