The real estate industry is becoming more and more dependent on information technology and software to market properties and manage business. The recent increase in patent-infringement claims can drag unsuspecting real estate professionals into expensive and time-consuming litigation, putting all REALTORS^® at risk. Patent litigation reform could help to more narrowly tailor patents and reduce the scope of future infringement lawsuits.

Definitions

A patent is a set of exclusive rights granted by a sovereign state to an inventor or assignee for a limited period of time in exchange for detailed public disclosure of an invention.

Patent infringement is the commission of a prohibited act with respect to a patented invention without permission from the patent holder. Permission typically is granted in the form of a license. The definition of patent infringement may vary by jurisdiction, but it typically includes using or selling the patented invention.

A patent troll, also called a patent assertion entity (PAE), is a person or company who enforces patent rights against accused infringers in an attempt to collect licensing fees, but who does not actually manufacture products or supply services based on the patents. In other words, they make money by bringing patent-infringement lawsuits against a number of targets and typically settle them for nuisance value because the targets cannot afford or do not wish to engage in the litigation necessary to fight them.

Patent trolls usually obtain patents from bankrupt companies, companies that don't intend to act on a technology and individuals without the funds to develop their inventions. The patent system is vulnerable to abuse because technology and software patents are frequently stated in general terms that do not precisely define what is protected. For example, in 2011 one patent troll sent demand letters to thousands of hotels, stores and coffee shops claiming that their use of Wi-Fi infringed upon its patents. Many of the businesses paid settlement fees ranging from $2,300 to $5,000 rather than attempt to sort out what the patents protected and try to fight back. Other trolls have targeted the aggregation of news stories into podcasts, sending photocopies to email, and using online shopping carts on websites. Small businesses, like real estate offices, may receive patent infringement demand letters for using common business technologies like scanner-copiers, dropdown website menus or website mapping features.

2014 Texas Internet search cases

Take, for instance, a recent case that was brought to the National Association of REALTORS^® Legal Action Program. Texas brokerage firms JB Goodwin REALTORS^®, Better Homes and Gardens Real Estate LLC, and Winans Inc. were sued by Property Disclosure Technologies LLC (PDT) for patent infringement. The lawsuit alleged that PDT’s three “Real Estate Disclosure Method” patents cover the software-implemented process of querying databases for properties listed for sale that meet certain user-specified criteria. In other words, the patents attempt to protect the process for performing a Web-based search for real estate listed for sale based on search criteria. The court consolidated this case with a dozen other real estate defendants who were also sued for infringement of the same patents.

The patent troll in this case reportedly purchased the patent from someone else, and now is using it to sue various real estate companies. The software at issue essentially affects any real estate firm with an IDX feed where consumers can search for property based upon various criteria.

This could ultimately impact every real estate broker and MLS system with a website that allows for a search of property based on characteristics inputted into a search tool. 

Two United States Supreme Court cases currently pending may clarify whether process or method patents, similar to the ones claimed by PDT, are patentable subject matter and whether a single party can directly infringe on a patent when it does not complete all the steps for direct infringement. In addition, one of the Texas brokerages is searching for grounds to invalidate the PDT patents in court and via a patent review in the United States Patent Office. Such grounds may include “prior art,” which means in general terms, that information was made public prior to the patent such that the patent on that invention is not valid because it was already known and thus not original. Proof of prior art would kill the PDT patents and cause the court to dismiss the lawsuits against the brokerages. If such proof is not found, though, the federal litigation will continue and additional actions against more brokerages can be anticipated.

Extortion demands

Patent trolls like PDT have increasingly become a financial and legal threat to businesses including individual REALTORS^®, MLSs and REALTOR^® associations because the patent trolls demand payments from end users of common technologies such as office scanners and website search alert functions instead of the developers, manufacturers and service providers of these common technologies. Fighting a patent troll is exceedingly disruptive and can eat up valuable time and hundreds of thousands or even millions of dollars for research and legal fees. 

Patent trolls sometimes use demand letters to unfairly or deceptively target small businesses without the resources to engage in costly patent litigation. The trolls can send thousands of demand letters without regard to whether the targeted companies have actually violated any patents.

The threat is all that matters. The trolls may have no intention of actually filing a lawsuit and may misrepresent or obscure the patents they own, hoping to intimidate a company into paying them in order to settle the alleged patent violation. 

Legislative proposals

Unfortunately, pending federal patent reform legislation was effectively killed for the time being when it was pulled from the Senate Judiciary Committee agenda last May due to political considerations and the upcoming elections. The fight against patent troll abuse has shifted for the meantime to individual states. Eleven states in addition to Wisconsin have passed legislation aimed at curbing demand letter abuse by patent trolls. More information about state demand letter laws can be found at www.patentprogress.org/patent-progress-legislation-guides/patent-progresss-guide-state-patent-legislation.

Wis. Stat. § 100.197 (docs.legis.wisconsin.gov/statutes/statutes/100/197) addresses patent demand letters and provides remedies for violations. The recipient of a demand letter can request specific information from the patent troll and take action if clarification is not received within 30 days. The Wisconsin Attorney General and the Department of Agriculture, Trade and Consumer Protection (DATCP) are authorized to investigate alleged violations of the statute and initiate legal action to enjoin a violation or to compel the person making the demand to provide any missing information. The court may restore any pecuniary losses any person has suffered due to the demand letter and to impose a forfeiture of not more than $50,000 for each violation. 

If you get a demand letter

A demand letter is correspondence that states that you are potentially infringing the claims of a patent and requesting that you pay for a license to use the patented invention. You have several options for responding to a demand letter:

• Contact your attorney for assistance!
• Request more specific evidence as to why the patent owner believes you are using patented technology without a license.
• If the person sending the letter fails to abide by Wis. Stat. § 101.197, a complaint may be filed with the DATCP. The DATCP can investigate and refer the matter to the attorney general for legal action if warranted. To file a complaint online, visit datcp.wi.gov/Consumer/Consumer_Complaints/Online_Complaint_Form/Consumer_Complaint/index.aspx. 
• Elect to not respond to the letter if sent strictly for intimidation. However, doing nothing carries a risk if you are later found liable for infringement. The court may impose treble damages if it finds you acted recklessly.
• Negotiate with the patent owner for a license to use the patent or to obtain an agreement that you do not infringe the patent.
• Explore suing the patent troll if you do not infringe the patent claims or if § 100.197 has been violated. 
• Contact the software vendor or other supplier of the technology and ask for their help. 
• If the letter is deceptive, predatory or in bad faith, file a complaint with the DATCP, the state bar where the attorney who signed the demand letter is licensed to practice, or the Federal Trade Commission at www.ftc.gov. 

Future reforms 

What reforms would best mitigate trolling behaviors? Measures that shift the litigation costs such as causing the demand author to share in the target’s discovery costs would make the disputes less about the costs and more about the merits. If the patent troll is a shell company or uses a broadly stated complaint, the target has to determine who this really is, what the suit is about and what to do about it. This is where legislation such as § 100.197 helps by forcing demands to include more details. When sued based upon the use of another’s technology, it also is better to have measures shifting the focus from the end user to the supplier who better understands and can defend their technology. Regardless of the approach, more reform legislation will undoubtedly be on the horizon next year.

Resources

• Pages 6-9 of the April 2014 Legal Update, “Avoiding Liability for Copyright and Patent Infringements,” at www.wra.org/LU1404.
• United States Patent and Trademark Office demand letter resources at www.uspto.gov/patents/litigation/I_got_a_letter.jsp.

Debbi Conrad is Senior Attorney and Director of Legal Affairs for the WRA.