Even as belt-tightening has led the New York Times to close sections and shed reporters, the Gray Lady is spending large sums on legal bills to fight a patent troll that claims to own the rights to sending internet links via text message.
The Times has been fighting the case since 2010, arguing that the patent is unenforceable in part because the mobile phone companies that deliver the text messages have already paid the troll, known as Helferich Patent Licensing LLC, to license it.
Even though a federal court agreed with the New York Times and tossed the claims in 2013, the case sprang back to life last month after an appeals court ruled that the patent claims are not “exhausted.” Now the Times must brace for another round of litigation.
The five-year ordeal illustrates once again the dilemma that companies like the New York Times face when confronted by patent trolls: either pay for a dubious license (in this case for sending a text message), or pay even more to go through a legal meat-grinder.
The New York Times and its lawyers would not disclose how much the company is spending on the Helferich case, but this 2013 chart produced by the American Intellectual Property Law Association shows how much these lawsuits typically cost to defend (NPE stands for non-practicing entity, a synonym for patent troll):
Given the length and complexity of the case — docket filings show Helferich has engaged in repeated procedural jousting, and even sought to obtain sanctions against the Times and its lawyers — it’s likely that the legal bills are already in the millions.
This situation, in turn, points to the economic asymmetry that makes patent trolling so effective in the first place.
“One of the business models many NPEs leverage is offering a settlement that will cost less than at trial,” said Michael Strapp, a patent lawyer at Goodwin Proctor, who has written a guide to defending against patent trolls.
Strapp added that, while there are too many variables to predict the cost of a given case, the process of discovery — in which companies have to turn over evidence in the form of documents and testimony — drives much of the cost. Patent trolls, meanwhile, are shielded from most of these costs since they are basically shell companies with little in the way of assets or discoverable documents.
Helferich’s business model has so far been effective enough to extract reported settlements of $750,000 from the likes of Apple and Disney.
As such, by choosing to fight (in 2012 a Times lawyer, Brian Buroker of Gibson Dunn, likened the demand to a “tax on the internet”), the Times may simply be paying more to prolong its legal misery.
The Times case, however, may provide further momentum for patent reform in Congress, where senators like John Cornyn (R-Tx) and Chuck Schumer (D-NY) have long backed measures to rein in patent trolls, in part by reforming the discovery process that makes it easy for trolls to extract settlements.
The case also comes at a time of growing scholarly evidence that patent trolls don’t result in innovation, as their defenders claim, but instead force productive companies to cut operations and R&D.
A lawyer for Helferich, whose operations appear to consist of no more than law offices in Arizona and Chicago, did not immediately return a request for comment.