Posted By: Ryan Bethell
Hot off the heels of an $8,000,000 settlement with apple over a patent covering “Downloadable Playlists,” Personal Audio, a digital audio company in Texas, has set its sights on popular podcast producers. Personal Audio has asserted a patent pertaining to cover “how audio files are organized and downloaded on the internet,” over several popular podcasts producers, including Adam Carolla, who owns Carolla Digital, and hosts the most downloaded podcast in the world, The Adam Carolla Show. Not to be intimidated, Carolla is deputizing his listeners to raise social awareness about patent trolls, and is preparing to crowd fund a robust legal defense. Personal Audio’s attorney, Richard Baker says “We’re putting our effort into the larger people because there’s a larger return there,” but will the company ultimately regret their decision to anger some of the loudest and most influential voices in on the internet?
Personal Audio isn’t doing anything drastically different than the other so called “patent trolls” (a term to describe patents holders that litigate on patents that they own but do not use) have been doing since 2002, but jurors and voters may respond more favorably to podcast personalities than they are the corporations that are normally defending these suits. Neel Chatterjee, former counsel for Mark Zuckerberg and Partner in charge of intellectual property at Orrick, Herrington & Sutcliffe, dropped by the Adam Carolla show on November 21 to discuss his thoughts on the case, as well the state of patent litigation generally.
The problem, as Chatterjee described it, stems from bad patent language. The patent trolls “gamed the patent system to get these kind of squishy words,” he told Carolla’s audience of over half a million. The vague language present in the patents applications and in the complaints allows plaintiffs to “take advantage of squishy words and ask you for a lot of money, because you don’t want to deal with the uncertainty and the cost of litigation.” As it stands, it’s nearly always economical for defendants to settle these cases (which may cost upwards of $2.5 million to litigate all the way to trial). Patent trolls know this, and consequently, don’t view litigation as a legitimate downside risk. “[patent trolls] just sue a whole bunch of companies and bank in the fact that a certain number will just pay them to get rid of them.” Chatterjee quipped. As it stands, if the claims by trolls are meritless, companies aren’t assured that they can recover their extensive legal fees after the trial. Further, juries are extremely unreliable. Since patent cases are highly technical, jurors are likely to become confused. To many jurors, the story often unfolds as “this poor inventor tried to make a go of it, and then the big corporations just try to squash the little guy,” even though the inventors are seldom the ones suing.
Many state governments, as well Congress and President Obama have recognized rampant patent litigation as an issue warranting their concern. President Obama issued an executive order to the US Patent and Trademark office on June 4th, ordering them to tighten scrutiny on broadly stated patent claims, and asking that plaintiffs to state in more direct language what a patent covers, and how it is being infringed in their complaints. While the congress decides if and how to best reform patent regulation, states like Vermont have enacted their own regulations (which may be preempted by federal law). In Vermont, defendants may to recover legal fees damages up to $150,000 in when a claim is brought in bad faith. Unfortunately, forum shopping, preemption, other factors (the oddity of having a state court determining whether or not a claim brought in a federal court was in bad faith, for example) prevent state legislation from being an ideal solution.
As it stands, venue selection is one of the most important pieces in patent litigation. In 2012, over a third of all patent litigations took place in the Eastern District of Texas, where Personal Audio is attempting to sue Carolla. Currently, Carolla is presenting a motion to change the venue to California, but a “tradition of going to trial” as Chatterjee put it, makes it exceedingly expensive and unlikely that Texas Judges will to give cases to other forums.
While it is limited in its authority, the Vermont solution does solve one of the key problems with patent regulation: there is currently very little downside risk for the patent trolls and their investors. If -as is the case under Vermont law – a patent troll were liable to for all legal cost plus damages if a court finds the case to be frivolous, we might expect more practitioners to fight the trolls. While there is still risk involved in a jury trial, companies that had a strong belief that the case was frivolous can reasonably expect an economically favorable result. Consider the case where a practitioner could fight a case to trial for $1 million, knowing with 100% certainty that he will prevail. Under existing law, he can fight the case, win, and still be down $1 million. The trolls, knowing this, simply offer to settle or license for less than the cost of litigation, and the rational practitioner will settle. If, however, the practitioner were allowed to recover legal fees and damages, the practitioner would never settle the case. Even though the 100% certainty presumption is probably not realistic, Vermont law gives patent trolls significantly less bargaining leverage, and will eventually lead to fewer of the “shake downs” from frivolous claims. Such a scheme, if adopted nationally, might curb recent spikes in patent litigation from non-practicing entities.
While there is already consciousness on the issue of patent reform among some policy makers and the tech community, the issue is hardly ubiquitous to in our social consciousness. Adam Carolla seeks to create a unified voice of podcasters and fans to help change that. “[patent trolling] is a form of extortion that takes place nationwide, and it takes place all day, every day.” Carolla Says. “It’s exquisitely expensive to fight these people, as you can tell, but we will fight and win a victory for all.” In 2014, Carolla promises to form an alliance with the major podcasters such as Mark Meron, Joe Rogan, Bill Simmons, etc. to and begin crowd funding a legal defense. “I’m sure we don’t have a lot to do with this, but we are somebody whose name they recognize,” Carolla says, “We need to set precedence, or they’ll be going after everyone.” Mr. Carolla isn’t new to the concept of crowd funding either. In July, Carolla launched a fundanything campaign to finance his independent film, “Road Hard.” In only a few months, his fans contributed $1.5 Million for his campaign. While one podcaster may not seem like much for these trolls to worry about, Carolla’s network of close friends (including Late night TV host Jimmy Kimmel, the ubiquitous Dr. Drew, and #1 downloaded sports podcaster Bill Simmons) and dedicated fan base may able to raise social consciousness to the issues in patent regulation in ways politicians and corporations cannot.
It could well be that the nasally drone of a podcast host hero will serve as the rallying cry that unites the nation in reforming patent litigation.