The patent reform bill that made many retailers hopeful for serious curtailment of frivolous lawsuits filed by so-called patent trolls was recently removed from Senate consideration. And retailers are less than happy about it, but interestingly, so are economists, at least according to this article that breaks down some of the costs to retailers defending patent suits. The latest batch of patent suits filed by a company called eDekka and are being heard in the U.S. District Court of Texas, where patent lawyers in Texas are watching case after case dismissed by Judge Rodney Gilstrap.
Thirty patent cases filed by eDekka in 2013 have been dismissed by Gilstrap so far. Some of these included infringement claims against Avon Inc., Apple Inc., Sierra Trading Post Inc., Crtuchfield Corporation and Coldwater Creek, among others. Judge Gilstrap still has to hear more than 100 cases against other retailers including B&H Photo Corporation, Barneys New York Inc., Coach Inc., Dillard’s Inc., Gilt Groupe Inc., Kohl’s Corporation, J.C. Penney Inc., Macy’s Inc., Liberty Interactive Corporation, Nordstrom Inc., Saks Inc., Tiffany & Co. and Zale Corporation. If it’s hard to see what these retailers have in common, you’re not alone. Gilstrap has heard arguments by several patent lawyers in Texas representing the defendants, and the main charges center around online software infringement.
Claiming that each retailer has derived “substantial revenue from their online shopping cart function,” eDekka is just hoping to settle. Which can be quite lucrative for the plaintiff, regardless of whether they “win” a case or not. Most patent trolls, which operate very similarly to eDekka in bringing an onslaught of suits against hundreds of corporations, are happy to settle for monetary damages that they pocket from their days in court. But patent lawyers in Texas, for example, where eDekka’s cases are being heard, don’t come cheap, and retailers suffer more costs than just those awarded in the settlement.
One analyst calls the entire process “wasteful,” denouncing it as misusing our judicial system and detracting from the American economy. “Each company has to spend a minimum of $10,000 in legal fees initially for a case evaluation. That’s just over 20 hours of lawyer time for a big firm which charges an average of $500 an hour.” For the more than 100 suits that eDekka has filed so far, that’s over $1 million “that could be going to job creation or innovation instead of being spent on legal fees to evaluate the case,” analyst Levy criticizes.
The National Retail Federation estimates that retailers face costs of approximately $2 million to adjudicate each case, costing the U.S. economy $30 billion a year. Which are several of the reasons why “the NRF and other retail advocates have been calling upon Congress for urgent patent reform to prevent frivolous patent lawsuits.” And while patent lawyers in Texas are happy enough to represent retailer defendants, it may be, in the end, the consumer who suffers. If retailers have to raise prices to afford ongoing patent litigation, it may in our everyday best interests to advocate the same reform that would bring an end to using the U.S. justice system as a mechanism of patent trolls’ profit.