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United States News Title: Patent trolling' firms sue their way to profits AUSTIN, Texas - While most technology companies make money by developing software, building hardware or providing services, Forgent Networks Inc. has taken a different route: It produces threats and lawsuits that try to cash in on ideas. Forgent and other companies with similar strategies — often called “patent trolling” by critics — amass intellectual property portfolios and file suits against other businesses, accusing them of infringement. With a skeleton crew of 30 employees and the help of a law firm, Forgent has built a business out of suing — or threatening to sue — companies, even though it offers no related products and does no development of the technology itself. Though critics say such tactics curb innovation and drive up costs for consumers, Forgent CEO Dick Snyder insists he’s merely providing maximum value to shareholders. “This country was built on innovation, and in the Constitution there is a provision in there to protect innovation through patenting,” said Snyder, a former executive at Hewlett-Packard Co. and Dell Inc. “It’s the American way, and we’re just doing what we believe is the right thing to gain value from what we own.” For Forgent and other companies, the business model is paying off. In the quarter ended Oct. 31, 80 percent of Forgent’s revenue came from licensing deals on just one digital image patent it obtained years ago in an acquisition. Elsewhere, Research in Motion Ltd., maker of the popular BlackBerry e-mail device, this month settled its long-running patent dispute with NTP Inc. for $612.5 million. The Supreme Court, meanwhile, is expected to consider a patent dispute between eBay Inc. and patent-holder MercExchange this year. Forgent’s biggest earner — generating $108.4 million in settlements and licensing fees in the past three years — has been U.S. Patent No. 4,698,672, issued in 1987 and obtained years ago in an acquisition. At the heart of the so-called 672 patent is something ubiquitous in the technology world: the JPEG format for digital pictures. Though used in countless electronic gadgets and software programs since the 1980s, it wasn’t until two years ago that Forgent sued 44 companies, including some of the high-tech industry’s largest players. It claimed they were using the patented compression technique covered in the 672 without paying a licensing fee. Thirteen companies have settled, including Yahoo! Inc. Over 50 others not involved in Forgent’s lawsuit have agreed to pay unspecified royalties for using the patent, including RIM, and Forgent has notified more than 1,000 other companies they may owe royalties. Though a dollar figure wasn’t disclosed, RIM spokesman Mark Guibert said negotiations with Forgent resulted in a “reasonable agreement.” The trial for the remaining defendants — among them Apple Computer Inc., Dell, Hewlett-Packard, International Business Machines Corp. and Microsoft — is still pending in the U.S. District Court in San Francisco. (MSNBC is a joint venture of Microsoft and NBC.) Dan Venglarik, an intellectual property attorney with Davis Munck Butrus in Dallas who is not involved in the case, said Forgent’s tactics have far-reaching impact. Many smaller companies especially will be more likely to settle than dispute Forgent’s claim because of the high costs of litigation, which could easily top $3 million, he said. “If the numbers make sense, companies are going to be inclined to settle to avoid the risk,” he said. The issue has led some lawmakers to call for changes to the nation’s patent system. Last year’s Patent Reform Act, sponsored by Reps. Lamar Smith, R-Texas, and Howard Berman, D-Calif., includes changes that seek to cut down on lawsuits by people who take out patents on products, methods or ideas just so they can sue a company for infringement if it eventually produces something similar. A draft proposal remains under review by a congressional subcommittee chaired by Smith, a spokeswoman for his office said. Forgent’s legal attacks haven’t come without a fight. The New York-based Public Patent Foundation Inc. recently won a request to have the validity of the 672 reviewed by the U.S. Patent Office, a process that could take years. The group claims Forgent’s patent was incorrectly granted and should be revoked.
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