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Forwarders find patent pit perilous

By Adina Solomon on September 30, 2013

U.S. President Barack Obama and Brandon Fried are worried about the same problem.

“This has been a frustrating experience for me personally,” Fried, executive director of the U.S. Airforwarders Association, says. “Over a five-year period, in fits and starts, I’ve had members come to me, usually completely panicked.”

In the past five years, 20 freight forwarders have reported problems with non-practicing entities (NPEs) to Fried, who writes a monthly column for Air Cargo World. That accounts for about 5 percent of Airforwarder Association members.

But what are NPEs? Depending on whom you ask, they are either monsters, using the system for their own gain or just doing their job.

Sometimes, these companies are called “patent assertion entities.” Much of the time, the most eye-popping of the names emerges in conversation – “patent trolls.”

These companies, whatever they are known as, hold multiple patents in the U.S. Patent and Trademark Office. They do not use the patents to manufacture products; rather, they assert them by contacting and sometimes suing companies that they feel use their patents without permission.

These NPEs have primarily focused on technology companies, but some have been suing freight forwarders for presumably violating a patent on track and trace software.

The U.S. government is scrambling to find a way to curb what they call patent trolls. Even Obama has taken notice of NPEs.

What has become known as the patent troll phenomenon takes place almost exclusively in the U.S. because of the country’s patent system. But nobody seems to agree on what this phenomenon is – or if it even exists.

Sealing fate

A freight forwarder’s first contact with a NPE is a letter from a lawyer, informing the forwarder that it is violating a patent owned by the company the lawyer represents, Fried says.

For the forwarder to hire a lawyer to investigate if there is patent violation, it usually costs about US$150,000. That’s when Fried receives a phone call from the forwarder.

“[The forwarder says,] ‘I don’t think we’re violating the claim. It’s just something we’ve always done on our website, and our lawyers think we have a good case, but it’s going to cost us $150,000,’” he says.

The forwarder then settles with the NPE rather than pay a lawyer to fight the lawsuit. Fried says the settlement is usually US$30,000, which gives the forwarder the right to use the patent but forces it to not disclose information about the case.

“I have this situation where the member will say to me, ‘I can’t talk to you anymore about it. I can only tell it was one of the worst things we’ve ever gone through, and they extorted the money from us,’” Fried says.

He says he has tried to convince members not to settle – to fight the lawsuit – but with no success.

“You’re faced with a huge legal bill or an offer to settle at one-fifth, and they have to make a business decision,” Fried says. “Usually the business decision is to go with the settlement because they don’t want to lose or pay the legal defense bills.”

Just like the company it’s suing, a NPE also doesn’t want to end up in court, Robert Fletcher, president of Intellectual Property Insurance Services Corporation, says.

“Many times, a troll is much more interested in getting into a lawsuit and getting a relatively modest – and I say modest might be $2-or-3-or-400,000 payment – and moving onto the next victim as opposed to litigating all the way to a decision,” Fletcher says.

One NPE that has sued freight forwarders and airlines is ArrivalStar. The company got its beginnings when a Florida man named Martin Kelly Jones registered patents in 1993 for “an advance notification system and method” that “notifies passengers of the impending arrival of a transportation vehicle, for example, a school bus, at a particular vehicle stop.”

Jones eventually founded ArrivalStar, which is registered in Luxembourg.

Anthony Dowell is a patent attorney in Indianapolis who has represented ArrivalStar since 2008. He says he is one of multiple attorneys who represent the company.

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