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Industry News

Defendant's Unconventional Legal Funding Helps Defeat Patent Troll

August 19, 2014
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5min read

On Monday, comedian Adam Carolla settled a long-running patent infringement case filed against him by Personal Audio. The company claimed that Carolla’s successful podcasting network, Ace Broadcasting, infringes upon a patent they own on “episodic content.” The suit was at the center of a high-profile campaign to force sensible patent litigation reform.

Personal Audio is a so-called “patent troll” — an informal term for an entity that exists solely to sue parties that infringe upon patents they own. As we mention in our Beginner’s Guide to Patent Funding, a patent is only worth the time and money the patent holder is willing to spend enforcing it — so a patent owner who does nothing but litigate has significant weight to throw around. Patent trolls are reviled by members of the tech community because their ceaseless litigation, it is said, can stall innovation and cause companies financial and emotional ruin.

Patent litigation is capital-intensive, for all parties involved. It often requires expensive expert witnesses, long trials, and experienced attorneys, with suitably high fees. A patent troll’s main technique is to leverage the expense of patent litigation in order to force a pre-trial settlement from companies. Even when a patent troll loses a case, defendants are often stuck with massive legal bills, not to mention the time wasted in court, so it’s understandable when a defendant takes a pre-trial settlement rather than pursue litigation.

But some, like Carolla and his network, are ready to fight.

Because patent litigation is so expensive, parties involved often seek out alternative forms of patent financing. Like most defendants, Carolla (despite the success of his podcasting network) did not have the funds at hand to mount a patent defense. And since he didn’t have patent insurance — which is taken out by parties who would rather pay a premium in advance than incur all of the costs of any potential patent litigation — he had to figure out a way to raise money, fast. Unfortunately, he couldn’t seek out traditional patent funding — which is typically only available to plaintiffs asserting a patent claim, not defendants defending one — so he had to seek out a different type of defense funding: his fans, and the power of crowdfunding.

While crowdfunding is not a traditional legal funding option, it was nevertheless effective here: in exchange for a variety of perks ranging from limited-edition posters to private tours of Carolla’s studio, podcasting fans donated over $475,000 for the “Save Our Podcasts Legal Defense Fund” on the website FundAnything. Unlike in traditional legal funding, these “funders” had no stake in the outcome of the case, except for their desire to help defeat a patent troll.

With these funds, Carolla’s defense team was able to fight Personal Audio in court — rather than just give into their whims and settle, as so many defendants have done before. Thus, the case became a flagship for the podcasting industry — and for the fight against frivolous patent litigation.

During the proceedings, the defense forced Personal Audio to prove that Carolla had both infringed upon their patent and profited so much from it that he owed them compensation. Personal Audio — who were seemingly not that familiar with the low-profit nature of the business they supposedly own a fundamental patent on — failed at at least the latter requirement: the meager amount of recovery at stake in this suit were not worth the time and cost of their litigation.

In exchange for a dismissal of the suit, Carolla abandoned the greater goal of proving that Personal Audio’s patent is invalid, which is a disappointment to groups like theElectronic Frontier Foundation, who hoped that this high-profile case would help limit the powers of patent trolls for good. The EFF is still involved in a case with Personal Audio, so we expect to hear further developments in the near future.

Beyond just a definite victory, the EFF was also hoping that Carolla would be pursue a fee-shifting arrangement. “Fee-shifting” is when the losing side of a lawsuit is ordered by the court to pay the winning side’s attorney’s fees. This is a relatively new trend in American litigation, reserved generally for the most egregiously frivolous patent lawsuits. One new source of legal funding is actually fee-shifting insurance, in which — in exchange for a premium — legal funders agree to cover any fee-shifting that might occur at the end of a case.

While Carolla’s settlement is not the outright victory many patent-reform advocates hoped for, it nevertheless represents a glimmer of hope for more sensible patent litigation.

At Legal Funding Central, we believe that people who have been truly wronged should be made whole. Pursuant to this belief, we support the limiting of frivolous lawsuits, which cost the justice system time it could otherwise spend helping right true wrongs. Of course, we’re not in a position to say whether Personal Audio is guilty of bringing a frivolous suit, but we do know many cases where patent trolls add costly expense to the legal system. Patent funding is one way to keep the legal system fair and efficient, and while it usually helps the little guy bring a case against those infringing on their patent, here it seems to have helped the other side.

[Image Source / CC: BY-NC-SA]

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