In a complaint filed in Vermont’s Superior Court, the state accuses MPHJ Technology — which operates 40 shell companies through a UPS store in Delaware  – of violating consumer protection law by demanding small businesses buy a license or face a patent lawsuit.

“Hopefully would-be patent trolls will see this and realize that if you want to prey on Vermont businesses large and small they’re going to have a fight on their hands,” Attorney General, William Sorrell, said by phone on Wednesday.

The patents in question date from the year 2001 and involve technology for scanning documents and attaching them to an email. Despite being around for more than a decade, no one tried to enforce the patents until 2012 when an attorney from Texas — a notorious troll forum — named Jay Mac Rust began brandishing them.

The Vermont complaint explains that Mr. Rust and his friends have been sending letters to hundreds of businesses in Vermont, including non-profit groups that help the disabled, and telling them to pay $900-$1200 per employee or face a federal lawsuit.

Patent trials are one of the most expensive forms of litigation and are an ordeal for even big companies — let alone a small shop in the Green Mountains. Worse, the defendants are out of luck even if they win since the shells that sue them don’t have any assets.

According to Sorrell, “patent trolling is a national problem” and the trolls have been harassing Vermont’s tech sector, as well as small business and non-profits, for years.

Vermont’s lawsuit, which demands the troll pay $10,000 for each letter it sent out, is based on consumer protection laws that forbid deceitful communications. The state’s governor this week also signed a new anti-troll law that Sorrell describes as “another arrow in the quiver.”

The suit will almost surely raise constitutional issues concerning state power and patents but, for now, businesses will welcome a big new ally in the fight against patent trolls; others include Google and patent scholars like Mark Lemley and Brian Love. It will be interesting to see if states with big tech centers, like California and Massachusetts, ask to intervene or file suits of their own. You can read the complaint yourself here:

Vermont v MPHJ Technologies Complaint

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The patents in the U.S. suit (CNET located a copy of the court documents) mostly originated from IBM – two cover the reservation of system resources for assuring quality of service, and one deals with assigning connection capacity in a multi-tiered data-processing network. A fourth patent, which was originally obtained by Fujitsu, also covers a “gateway for internet telephone”.

All pretty broad and, according to Google, infringed by BT’s wholesale quality of service products and OneVoice unified communications system. Google is asking the U.S. courts to order BT to stop infringing and to pay Google damages.

The British suit is more mysterious. While some overnight reports suggested that BT had not yet been served with that suit, the company told me this morning that this has indeed happened. Beyond that, it refused to comment on the specifics. It’s worth reminding ourselves here that the British patent system is quite different from that of the U.S. – it is far trickier there to patent “business methods” — so it would be a mistake to assume a direct correlation between the two cases.

However, I did get some interesting information from a source within BT: firstly, that the company sees this as “predictable” retaliation for BT’s lawsuit against Google (filed more than a year ago), but also that that 2011 case is going to mediation this coming July. In my own analysis, this makes it possible that Google’s suit against BT is intended as leverage for that meeting.

Google itself has said in a statement that it “always [sees] litigation as a last resort” and is defending itself against both the 2011 suit and BT’s “arming [of] patent trolls”, which a source said was a reference to a little-reported case last year involving a non-practising entity (NPE) called Suffolk Technologies. Suffolk sued Google and AOL using a BT patent, and BT had apparently sold that patent to Suffolk on the condition that it would get a cut of any proceeds from resulting lawsuits.

This story was clarified at 9:40 a.m. PT after suggesting that Google was referring to Steelhead as the patent troll in its statement. New information suggests the company is referring to Suffolk Technologies. In the Steelhead case, BT has always been adamant that it receives no share of any lawsuit proceeds.

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According to the new survey conducted by Chetan Sharma Consulting, mobile payments and commerce will not only get big but they’ll be powered largely by the old-school financial companies. The survey’s participants appear to have arrived at the conclusion that the carriers, Google and even trendy new startups like Square had their chance to jumpstart mobile payments and largely blew it. Now Visa, the banks and more established online payment companies like PayPal will clean up their mess.

When polled, 50 percent of Sharma’s panel identified financial institutions and PayPal as the companies most likely to dominate the m-commerce/payments market. And they expected the overall mobile commerce and retail market to become huge. Almost 60 percent of those polled expect m-commerce to surpass e-commerce by 2016 in North America, with Asia and Europe shortly behind.

Sharma asked his panel a host of questions about all aspects of the mobile industry. Here are some of the most interesting tidbits:

The headline of 2012 was supposed to be the saga of Apple vs. Google fighting it over the smartphone OS, but the big battle turned out to be between Apple and Android proxy Samsung. The courtroom brawl between the two mobile titans was the biggest drama of last year, according to the survey, but respondents expect Google to enter the fray directly in 2013.

Google has for years been perceived as the most open player in mobility, and though that reputation has dipped slightly in the last three years, it’s still well ahead of any other wireless industry company or group in the eyes of Sharma’s survey participants. What’s particularly interesting is that Apple’s already poor reputation for openness fell to an all time low this year. Even the carriers — which traditionally are the most closed of any group — scored higher than the iPhone maker.

Apple may have donned the black hat when it comes perceptions of openness, but that has no impact on how its peers view its prospects for success. When asked who the four most important players in mobile are, nearly 100 percent of respondents both named Apple and Google in their picks. Samsung was named by about 75 percent of the survey, while just over 35 percent of the panel named a major global carrier.

The panel also expects Apple and Google’s respective strengths in smartphones to carry over to the tablet — a segment Apple currently dominates. Some 65 percent or respondents believe Android will dominate in tablet unit shipments, but an even greater number believe Apple will keep its lead in total tablet revenues due to its higher device prices.

In 2012, Apple’s new iPad and iPhone were the most compelling mobile gadgets of the year, but expectations are high that Samsung will best its long-time rival in terms of product innovation this year. After the success of the Nexus 7, a good portion of respondents expect Google to come up with another desirable gadget in 2013. There also appears to be some anticipation of an Amazon smartphone.

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The patents in question, which were issued in 2001 and 2002, relate to techniques of using noise signals to more accurately record data sequences. (You can see the two patents here and here).

The jury verdict, one of the largest such patent rulings in history, is obviously a setback for Bermuda-based Marvell, which is using ARM-based chips to challenge Intel for a share of the enterprise data market. Its share price fell about 10 percent on Wednesday.

The jury also ruled that Marvell violated the patents intentionally, which means Carnegie Mellon can ask the judge to triple the initial $1.17 billion verdict. Marvell, however, will almost certainly appeal the ruling. Court records show that earlier this month the company demanded a mistrial, though the reason for that is unclear. Whatever the outcome, the current $1.17 billion is unlikely to stand as is.

The judge has already asked the parties to set out a schedule that will see them filing follow-up motions into the spring. In the meantime, it is also possible the sides will discuss a licensing deal to end the court proceedings, which could go on for years.

You can see the jury verdict for yourself here:

Carnegie Mellon v Marvell

(Image by Denis Belyaevskiy via Shutterstock)

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The New York Times Co. is engaged in a pitched legal battle with two such “trolls.” One is Helferich Patent Licensing LCC, a Chicago shell firm that claims to own the process for sending links to mobile phones — basically where a company sends a customer a text message. According to the Associated Press, the firm typically demands $750,000 to go away, a fee that it has already collected from dozens of firms like Apple and Disney.

Such demands place companies like the New York Times in a difficult position. The patents in these type of cases are often spurious but it can cost millions to prove that they are, meaning it’s cheaper to  simply pay up. If a company pays, the troll can then use the money to target other companies.

“In some ways, it’s a tax for being on the Internet. Millions and millions of dollars collectively is going out of the pockets of people who earned it to people who, in my opinion, didn’t do anything,” the Times general counsel Kenneth Richieri told the AP.

Right now, the  Times is paying to have the patents at issue re-examined by the US Patent Office. A Times court filing says the office has already succeeded in knocking down two of the patents, including US Patent 7,499,716 (“systems and method for delivering information to a transmitting and receiving device”). The company is asking a federal court in Chicago to suspend the litigation while the rest of the patents are re-examined.

The Times’ second major troll battle is over “autocomplete,” the function that suggests a word when a user types a few letters. A troll, called Boadin Technologies LLC, is stalking the Times, Bloomberg, USA Today and others for using the autocomplete function to propose stock ticker symbols. Court records show the Times is digging in to contest that suit too.

In the larger picture, the troll cases raise questions about the state of America’s innovation policies. While patents are regarded as a spur to invention, they are increasingly also being used simply as fodder for lawsuits by companies that don’t make anything. The problem has been exacerbated by a US patent office that has issued patents for everything from methods of exercising a cat with a laser to swinging on a swing.

In a highly-publicized editorial in the Atlantic last month, the famous judge Richard Posner called for the system to be reformed.

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In a blog post, Robert Scoble said while Samsung will take a big PR hit and lose $1 billion, it was worth it to copy Apple because it vaulted the company ahead of other smartphone rivals. Samsung also sells an array of products that Apple doesn’t and setting up the comparison with Apple worked out well for the entire company, Scoble said.

“It only cost $1 billion to become the #2 most profitable mobile company. Remember how much Microsoft paid for Skype? $8 billion. So, for 1/8th of a Skype Samsung took RIM’s place and kicked HTC’s behind…I bet that RIM wishes it had copied the iPhone a lot sooner than it did. So does Nokia, I bet. Samsung is a much healthier company than any of those BECAUSE it copied the iPhone,” he wrote.

Analyst Jeremiah Owyang, of Altimeter Group, agreed saying Samsung still comes out ahead despite the potential ban on sales and punishment. He said Samsung does $1 billion in revenue every 2.4 days.

“The PR upside is that now people associate Samsung’s phone at the same competitive set as Apple’s. I just did a Google search for “Apple phone” and there are multiple Samsung links on the second half of the page. PR win: Any phone Samsung launches will be super hyped — and compared to Apple,” he wrote.

Reuters also highlighted some of the potential upside for Samsung in the verdict, saying it could actually help cement Samsung’s place atop the  global smartphone market. As a “fast executioner”, Samsung should be able to churn out new devices that don’t infringe on Apple patents and avoid any potential ban. And if Apple is able to get Samsung to pay $10 per device and force other smartphone makers to do the same, Samsung is still better positioned than others to absorb the cost.

Samsung still faces the stigma of being a copy cat and there is the looming threat that the damages could be tripled because of willful infringement. But it might have been worth it if Samsung’s brand gets elevated to Apple’s level, said Reuters.

“If anything, the blaze of publicity from the high-profile, high-stakes U.S. litigation has made Samsung’s brand more recognizable…Despite, or because of, the publicity from the U.S. case, and more than a dozen pending cases elsewhere around the globe, the Samsung brand has gained recognition — as an equal to Apple rather than merely a supplier,” Reuters said.

I think it’s too early to declare Samsung a clear “winner” in this case. A lot will depend on how the damages pile up, whether it can appeal and potentially secure a licensing deal and how much future devices are impacted. Being branded a patent infringer is not something you want to brag about. So Samsung may not emerge a real winner, but the argument can be made it would accept the “loser” tag in exchange for keeping its place atop the smartphone market.

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Why does Samsung owe $1 billion in the first place?

After a month long trial in San Jose, a jury found Friday that Samsung’s phones and tablets infringed on various Apple patents related to the iPhone and iPad. The jury said the various infringements added up to $1.05 billion.

So what is this about tripling damages?

If a jury finds that someone willfully infringed on a patent, the Patent Act says ”the court may increase the damages up to three times the amount found or assessed.” (emphasis ours) Guess what? The jury found that Samsung’s actions were willful. This means that Apple can now go to Judge Lucy Koh and ask her to triple the figure. But that doesn’t mean she has to do it.

Can Judge Koh do anything for Samsung?

Yes, the judge has the power to lower the damages if she finds that no “rational jury” could have awarded such an amount. This has occurred in previous tech cases. Koh can also overrule the jury’s findings that Apple’s patents are valid in the first place.

But what about the products that Samsung is still selling? Can Apple put a stop to that?

This is where it gets interesting. Since some of Samsung’s products are still on the market, Apple is coming back to court next month to ask Judge Koh to issue an injunction to ban them. But this appears unlikely due to a 2008 Supreme Court decision that made injunctions far less common.

Apple, however, can also ask for ongoing damages since Samsung is still selling the offending products.

This will end up on appeal, right?

Yes, almost certainly. But not right away. First Samsung will take a crack at knocking down some of the jury’s findings before Judge Koh. They will ask for a “judgment not withstanding verdict” — asking Koh to substitute her conclusion for that of the jury. But again, she will only do so if she believes a “rational jury” couldn’t have made such decisions in the first place.

Could this happen? According to Professor Sarah Burstein, a patent authority at the University of Oklahoma, Judge Koh is unlikely to disturb the jury’s finding. Burstein predicts that Samsung will try to raise “lots of nit-picking stuff about the evidence,” but that Koh won’t bite.

Once Koh replies to requests for a “judgment not withstanding verdict,” then the final verdict will be entered and the parties can appeal to the Federal Circuit in Washington, DC.

Anything else I should know?

The most important thing to take away is that this is far from settled. According to Burstein, the Federal Circuit has been very active in reviewing district courts, especially when it comes to damages.

“Whatever happens in the coming days, for now you have to just pencil in the damages,” she said.

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What exactly is going on today?

After almost a month long trial, this is the finale for Apple and Samsung lawyers. Each side will sum up for the jury why their opponent ripped off their technology, and why the other sides’ patents are not valid. The judge will then give instructions to the jury and tell them to complete a 22-page form that will provide the answers.

The form makes an IRS look simple by comparison. It requires the jury to say if a dozen or so Samsung-related products like the Droid phone and Galaxy tablets violate patents for the iPhone and the iPad. Likewise, jurors will have to say whether Apple’s products infringed the Samsung gadgets. If the jurors find infringement, they will also have to decide if the copycat did it on purpose and how much they should pay. And there is more. They will also have to plumb other arcane corners of intellectual property law like “trade dress” and “prior art.”

To get a flavor of what the jury will face, here are sample questions from the proposed jury form:

What will the jury do then?

Possibly as soon as today, the nine jurors will march off to the jury room to hash things out. Typically, they begin by electing a foreman although there is no requirement for them to do so. (Alas, there is no “hipster juror” like the one who provided laughs in a recent New York trial.)

Will they just dive right in or take a straw poll first?

According to Brad Lyerla, a senior patent attorney with Jenner & Block, the first thing most juries do is take a straw poll about the verdict. Lyerla says jury research shows that the outcome of this initial poll will almost always reflect the final verdict — even if that straw poll produces a tight 5-4 vote. What this means is that a majority of the jurors will have already made up their minds and will eventually persuade the others to join them.

Does the jury have to be unanimous?

In this court, yes.

What if they can’t reach a consensus?

If they can’t agree on anything, that means a mistrial and back to square one. But there are dozens of issues to decide in this case and the jury will almost certainly come to a decision on most or all of them. Those decisions will stand and a failure to reach agreement on some questions will not derail the whole case.

How long will it take the jury to reach a decision?

“There are many claims and different issues of law. This is not an up-or-down, yes or no type of verdict. It will be a matter of days. It won’t be less than a day,” said Peter Toren, a veteran IP litigator with Weisbrod, Matheis & Copley.

Will there be any clues ahead of time?

“The jury room is sacrosanct,” said Lyerla. Lawyers might hear rumors from a bailiff that the jurors were yelling but otherwise the process is secret. The jury may also send out a question to the judge. “People like to read those questions like the entrails of a goat.”

Does the jury get to leave? 

If Judge Lucy Koh orders them to remain in the courthouse, the court will pick up the tab for a lunch order. “One day it’s pizza day, or hamburgers or sandwiches .. It’s not lavish,” said Lyerla. “It’s like an office setting where you’re having a meeting at lunch time.”

Is it the end when the jury finally issues a verdict?

It’s the end for the jurors but, for Apple and Samsung, it’s more like the end of the beginning. Both Toren and Lyerla say the companies will likely ask for a “judgment not withstanding verdict,” a request for Judge Koh to replace the jury’s conclusion with one of her own. She can do this if she concludes no “rational jury” would have come to a particular decision. Once the final verdicts are entered, the companies can then appeal. “This could go on for a year,” said Lyerla.

(Images by Everett Collection and Alita Bobrov via Shutterstock)

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Federal Circuit Judge Timothy Dyk this week blasted a lower court for hitting a defendant with nearly a million dollars in costs and fees over a spurious patent. Dyk said the patent should have been found obvious in the first place or else struck down by the lower court:

But no such thing. The parties have spent hundreds of thousand of dollars and several years litigating this issue, and are invited by us to have another go of it in a second trial. Such wasteful litigation does not serve the interests of the inventorship community, nor does it fulfill the purposes of the patent system.

Dyk’s words come months after a famous judge called the patent system “dysfunctional,” and during a week that Apple and Samsung are engaged in an intellectual property free-for-all before a California jury.

The decision of Dyk and the Federal Circuit, which hears all patent appeals, comes in response to a complaint that the company Bodem had infringed a method for frothing milk:

Dyk wrote that “the idea of frothing cold milk by the use of aeration rather than steam is not new” and joined two other appeals court judges in telling the lower court to try again.

The case shows how courts continue to wrestle with the concept of obviousness. But this case at least turned on an actual product used by rival companies.

This Bodum case is not part of the multi-billion dollar patent troll industry launched by Intellectual Ventures and others. The troll model relies on acquiring old patents and then creating shell companies to sue firms that actually produce things. In many cases, the patents appear to be of dubious merit and based on concepts like owning GPS or emoticons.

Patently-O has a detailed report on the Bodum case here. The Federal Circuit ruling is here.

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In an interview with tech site Geekwire, Myhrvold said, “I think we do a whole lot more good for the world than GigaOm does. How big is their malaria research project? How much effort do they put into polio?”

He goes on to suggest that companies, and Silicon Valley in particular, spend too much effort on making new gadgets for people who don’t need really them. We should focus instead, he says, on developing technology for the world’s poor and points to Intellectual Venture’s “laser device that shoots mosquitos out of the sky.”

What to make of all this? Well, the sentiment is certainly a noble one. The problem, though, is that Myhrvold is utterly unfit to espouse it. As we’ve stated before, no amount of philanthropy can undo the incredible ruin his company has unleashed on innovation through unfettered patent trolling. Lest you doubt, consider the following:

New research shows that Intellectual Ventures is tied to at least 1,300 shell companies whose sole purpose is to coerce real companies into buying patent license that they don’t want or need. Those who resist the “patent trolls” are dragged into nightmarish lawsuits.

Think about what this means in practice. It means thousands of entrepreneurs must divert revenue from development and technology to pay Mr. Myhrvold’s licensing tax or else brace for millions in legal fees. Worse, patent trolls are targeting some of the most promising young start-ups in the country like hand-craft site Etsy. Now, instead of hiring workers and bolstering the economy, Etsy and others must put aside money to pay the likes of Mr. Myhrvold instead.

And for what? Intellectual Ventures styles itself as a hotbed of inventive wizardry but precious few devices have come out of its lab and into the world. (Just when is that mosquito-zapping marvel going into production by the way?) The most tangible thing Mr. Myhrvold has done to date is to offer a new way to cook a hamburger. And even though it has siphoned billions from productive companies, Intellectual Ventures has even proved a rotten deal for its own reluctant investors.

To be clear, GigaOM commends Intellectual Ventures for any efforts it undertakes to fight malaria and polio. Our complaint is instead with its decision to game the country’s dysfunctional patent system. The company’s lawsuits are smothering technology development of all sorts (not just gadgets) and until Intellectual Ventures calls a halt to this, its “VP of Global Good” is no more than the feel-good face of a parasitic empire.

(Image by Henrik Larrson via Shutterstock)

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