Why Rackspace Stood Up To Software Patent Trolls

‘Patent monetisation’ firms, better known under the nickname ‘patent troll’, have been plaguing the IT industry for years. A few of these organisations really help innovators to benefit from their work. The rest use legal loopholes and flaws in the US patent legislation to literally extort money from businesses both big and small.

Finally, Rackspace decided it had enough. Last week, Alan Schoenbaum, senior VP, general counsel and the leader of the global legal team at Rackspace, declared an all-out war on these organisations, starting with IP Nav, which he called “the most notorious patent troll in America”.

TechWeekEurope asked Schoenbaum to explain just how much damage patent trolls are doing, and what the industry can do to stop them.

How a patent troll works

Rackspace, the US hosting and cloud computing specialist and one of the founding fathers of the OpenStack project, gets accused of patent infringement “every couple of months”.

Schoenbaum has been working at Rackspace for seven years, and had to battle patent trolls right from his first days there. However, he says that over the last three years, patent monetisation companies have stepped up their game, and have become much more of a problem: “Growing numbers of patent trolls have figured out they can engage in this legal extortion, to make fairly easy money. It has become an epidemic.”

Schoenbaum explains that the US patent system was created at the same time as the rest of the country’s legal system. There’s even a clause in the US constitution which enables the congress to “promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”

For a long time, this clause has served its purpose. But things started going wrong with the arrival of the digital age, when “business method” patents –  or software patents – came into force in the US.

“We have seen proliferation of these patents, tens of thousands of them issued every year. Most of them are broad and inscrutable – even scientists and lawyers sometimes struggle to understand what they mean. It takes a specialised patent lawyer to do that, and that’s part of the problem,” Schoenbaum told TechWeekEurope.

“During the early years of the Internet, a lot of companies decided they want to create as many patents as they possibly could. They did just that, and a lot of these patents are based on old computer technology, given a bit of a polish. The US patent office was overwhelmed with applications, and there was a pre-disposition to go ahead and grant a patent.”

These patents can rarely stand up in court. However, that doesn’t prevent certain companies from using them to bring about lawsuits, since for patent trolls, winning a case is never the main objective.

“Over here, unlike in the UK, the defendant has to pay court costs regardless of the outcome. These can reach millions of dollars – justice is expensive in the United States. So this is what the patent troll does: he files a lawsuit, and then tries to settle for a fraction of what it would cost for the defendant to actually participate in the case. It boils down to simple extortion,” explains Schoenbaum.

“The defence lawyer tells me: ‘Gosh, Alan, we can settle this case for $200,000 and it will cost you $2 million to defend yourself. Shouldn’t we just settle?’”

Until recently, the answer to this question would be “yes”. But last week, Schoenbaum decided that enough is enough. The last straw manifested itself when IP Nav broke an agreement with Rackspace in which it promised not to sue the hosting company until all negotiations between them were over. After Parallel Iron, an agent of IP Nav, ignored the agreement and accused Rackspace of infringing on three patents related to the Hadoop Distributed File System, they countersued.

It’s time to take a stand

“My attitude has changed over the last few months, and I’m not inclined to settle cases any longer. We have to take a stand, we have to fight, because the current situation is not good for the technology sector, it’s not good for the community, not good for innovation,” says Schoenbaum.

But even if companies like Rackspace, Google and NetApp decide to give trolls a taste of their own medicine, the cause of the problem remains enshrined in the law.

“The US patent system is broken, and it needs help. There was an important law passed at the end of 2011, the America Invents Act, but more needs to be done. The chairman of the House Judiciary Committee, Bob Goodlatte, said he’s going to make patent litigation reform an important part of his agenda.”

Even President Obama has recently said the government needed to introduce “smarter  patent laws” while speaking to entrepreneurs in a in a Google+ hangout.

Despite the support of politicians, the change will not come easy. “We expect it to be hotly contested: there are a lot of interests that would like to keep the status quo, many big companies that don’t believe that there’s a fundamental problem,” warns the legal expert.

“Rackspace is fighting not just for itself, but also for the Open Source community. Open Source software is particularly vulnerable to patent trolls, because everything we do is out in the open. They can scrutinise our code and try to find features they can use against us. There are literally hundreds of men and women that develop Hadoop, and we want to defend their work,” he added.

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