7 ms·

If they're a shell company, I wonder if they'll actually end up paying the fee or just declare bankruptcy and start another shell company. Can the owners be mad

If they're a shell company, I wonder if they'll actually end up paying the fee or just declare bankruptcy and start another shell company. Can the owners be made to pay the fee?

drzaiusapelord 11y ago
Only certain things can pierce the corporate shield, like unpaid workers comp. Legal fees, thankfully, don't. Of course patent trolling always becomes a discussion of corporate shielding instead of the conversation we need to have: a radical reform of the patent system and a re-thinking of what should be patentable, especially in the software world. This conversation always gets derailed by the tort reform crowd on the right or the anti-corporate shield crowd on the left. Those are just symptoms to a larger problem and both of those things (torts, shields) exist for valid reasons. Fix patents instead.
- toomuchtodo 11y ago
  We can fix rentiers and less than savory Texas attorneys at the same time.
  - drzaiusapelord 11y ago
    Do you really want to be on the hook for legal fees? You start company x. Company y, a larger wealthier foe, pummels you in court over questionable claims, say another broad and abstract patent. You lose, get a judgement and have to pay legal fees. Your company folds. Company y then requests your corporate shield be taken down. Now you personally have to pay his $5 million in legal fees which are now on you. You lose your house, you get your wages garnished forever, etc. You want this?
    - cturner 11y ago
      It's a great system in commonwealth countries. It discourages litigation from larger companies precisely because the judge has discretion to award costs. In some cases the judge can even award in favour of the plaintiff, and then award costs against them as well. Yes - you should want this.
    - bradleyjg 11y ago
      Under the American rule (as opposed to the English rule) loser pays is very rare. Specifically for patents the law only authorizes them in "exceptional cases". In this case they were ordered for filing numerous frivolous lawsuits. Nothing in the scenario you outlined suggests anything exceptional. Defendants are allowed to defend themselves. If a court finds a defendant meets this high burden as to the plaintiff's actions, then yes I think the real parties in interest behind the corporate veil should be on the hook. What's the alternative? That defendants who were the victims of frivolous lawsuits have to pay hundreds of thousands of dollars out of their own pockets? Who knows what assets had to be sold to raise that money or whose livelihood was destroyed? How is that an equitable outcome?
    - zanny 11y ago
      We also do not want what we have now - where you can sue with impunity as a patent troll as a means for profit. Because you cannot hold individuals liable for their businesses, people can exploit that loophole for profit. But what you touch on is a more fundamental issue that the "justice" system in the US is more often than not a competition between who has the most money on hand, and as a means for lawyers to profit generously, rather than anything righteous or just.
      - WalterBright 11y ago
        There is no better system, as long as two people have different opinions on what is righteous or just.
      - ThrustVectoring 11y ago
        There's another angle to attack that particular problem - sanctioning the attorneys that bring and threaten frivolous patent lawsuits.
    - junto 11y ago
      It would be nice if it only applies to scummy patent holding shell companies though!
- DenisM 11y ago
  One way to deal with the shell problem us to require a bond to be posted, that's forfeit if the lawsuit is found without merit. An insurance company then can pick the risk and set the premium according to their assessment whether the lawsuit has been filed in bad faith. The court will have to work extra hard to make the distinction, but that might be the acceptable compromise in dealing with shell companies.
  - tomlongson 11y ago
    Would that mean every business would need to have a bond, or just in the case of litigation?
    - DenisM 11y ago
      Only for litigation they initiate.
- bryanlarsen 11y ago
  If the corporation was created for "wrongful conduct" to avoid legal fees, the court can and will pierce the corporate shield. But you're right, piercing the corporate shield is difficult. IANAL, just a wikipedia reading engineer. https://en.wikipedia.org/wiki/Piercing_the_corporate_veil#United_States https://en.wikipedia.org/wiki/Piercing_the_corporate_veil#Un...
  - monochromatic 11y ago
    How is it wrongful conduct to use a corporate structure to limit liability? That is exactly what corporations are for.
    - sqeaky 11y ago
      You can't limit the liability on penalties for breaking laws. Some laws are clear and unambiguous, for example no one uses a corporation to shield themselves from a murder investigation. Others laws can be fuzzier, like the laws that separate harassment and real intellectual property lawsuits.
      - deleted 11y ago
        [deleted]
- MichaelBurge 11y ago
  I'm in favor of a strong legal shield. A business started in good-faith with some legal uncertainty that loses a lawsuit shouldn't cause its owners to have their wages garnished for the rest of their lives. Shell companies whose sole purpose is to shield the owners from lawsuits that they're planning to make seem like a different matter, though. It would be dangerous to limit them while preserving the usefulness of the first case, but I was mainly asking if there was already something in the law for this. It sounds like there isn't?
- WalterBright 11y ago
  The patent wars are hardly a recent phenomenon. They go back to tremendous and crippling fights over the telegraph, telephone, auto, movies, radio, television and airplanes. It's a bit hard to see how patents promoted anything - they mostly seemed to retard progress. The airplane patent wars were so bad that aircraft development shifted overseas out of reach of US patent courts. The movie industry packed up and left for Hollywood to evade patent courts. Industry progress on the TV happened only when the patents expired. And on and on.
  - throwawaykf05 11y ago
    Pretty sure this is the 3rd time we've had this exchange :-) but... it is a myth that the Wright patent held back the US airplane industry, as demonstrated by industrial data from the period: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2355673 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2355673 As for the movie industry moving to Hollywood, it's not like they were building competing or advancing technology that was blocked by patents: they were just consumers that straight-up refused to pay for the technology they took advantage of. > Industry progress on the TV happened only when the patents expired. Hmm, hadn't heard of this. Source?
    - WalterBright 11y ago
      I read the paper, thanks. It is mostly concerned with events from 1916 on. The Wrights had earlier demanded and gotten 20% royalties, and had a history of liberally and repeatedly suing other aircraft manufacturers. It is also pretty clear, despite the paper's claims, that the leaders in manufacturing and innovation were in Europe. Note also that current patent litigation hasn't exactly retarded the computer industry, but it has imposed huge costs on it, and it's hard to see any evidence that such patents have promoted the arts and sciences in any way.
      - throwawaykf05 11y ago
        > The Wrights had earlier demanded and gotten 20% royalties, and had a history of liberally and repeatedly suing other aircraft manufacturers. Because all the manufacturers were using the technology they had invented, the very technology that made controlled heavier-than-air flight possible at a time when people were starting to doubt that it was possible. Many chose to fight the patent, but courts time and again found it to be valid and infringed. The Wrights may have gotten a bad rap for being litigious, but only because many like Curtiss tied them up in court for years to avoid paying royalties on technology they clearly owed. > It is also pretty clear, despite the paper's claims, that the leaders in manufacturing and innovation were in Europe. Not so sure about that. Most historical accounts still show America as being more innovative than Europe. Things like the seaplane were invented by Curtis in America. >... hard to see any evidence that such patents have promoted the arts and sciences in any way. There are a number of studies showing how patents help the arts and sciences. For instances, there are studies showing a direct increase in r&d expenditures and increase in strength of IP laws. Patents have been shown to increase the chance of finding from VCs and other sources. This has also been shown to apply to the tech and computer industries. It may be hard to see because few think of the huge role money plays in the vast majority of innovation.
- chris_wot 11y ago
  Here's an idea: undertake tort reform, don't allow corporate shields to exist that allow for shell companies like this one, and fix the very broken patent system. I'm certain that all three things can be done in parallel.
brentm 11y ago
My exact thoughts. One would think rule number one in the patent troll manual is to limit your own downside by doing everything through a shell company.
finstell 11y ago
I am just so sick of it. Just make them pay the toll for once, for god sake. How is this damn different than any other criminal offence. We just need a good example of crashing a patent troll. Somebody should crush them, crush them so hard. Then, maybe we can have a chance to end this maddness.
MrQuincle 11y ago
This can be prevented by setting conditions for suing: * The entity suing should set aside a budget in case they are gonna lose. If the "presumption of innocence" is extended to the case of patent infringement this would be not such an awkward demand towards the plaintiff. * This fee should not just be to cover lawyer costs of the defendants. If a company is wrongfully sued, it's 1.) a type of defamation, 2.) incurring internal costs regarding time/resources to set up the defense apart from just the third-party lawyer costs, 3.) incurring immaterial costs regarding the sued party who are forced to worry about matters that have nothing to do with running their business. It can be seen as a legal DDOS attack of that business, 4.) incurring future costs w.r.t. setting up defenses against these practices. You don't need to buy locks if there are no burglars. (I personally file patents as a defensive action and it would be great if sharks like these pay for that, because they are the reason I've to do so).
- justinlardinois 11y ago
  Presumption of innocence is only a thing for criminal cases. Civil cases use the balance of probabilities. To win there, you don't have to prove your case beyond a reasonable doubt, just that your version of events is more likely to be true than than your opponent's, however slightly. Requiring plaintiffs to maintain a budget to pay fees would shut a lot of people out of the legal system, like individuals, for example. It would make it easy for large companies to violate the rights of IP holders. And if a lawsuit really defames a defendant, after winning they can always turn around and file a defamation lawsuit.
  - MrQuincle 11y ago
    "Ei incumbit probatio qui." I know it's not the case for civilian law in the US. I was only pointing out strategies for change. Your point about plaintiffs with small budgets is an interesting one. Do you have examples of a David (individual) successfully suing Goliath over patents? Burdening the system with more lawsuits isn't necessary if you immediately get a yellow card when committing a schwalbe. :-)
    - 11y ago

If they're a shell company, I wonder if they'll actually end up paying the fee or just declare bankruptcy and start another shell company. Can the owners be made to pay the fee?

drzaiusapelord 11y ago

Only certain things can pierce the corporate shield, like unpaid workers comp. Legal fees, thankfully, don't. Of course patent trolling always becomes a discussion of corporate shielding instead of the conversation we need to have: a radical reform of the patent system and a re-thinking of what should be patentable, especially in the software world. This conversation always gets derailed by the tort reform crowd on the right or the anti-corporate shield crowd on the left. Those are just symptoms to a larger problem and both of those things (torts, shields) exist for valid reasons. Fix patents instead.

toomuchtodo 11y ago
We can fix rentiers and less than savory Texas attorneys at the same time.
- drzaiusapelord 11y ago
  Do you really want to be on the hook for legal fees? You start company x. Company y, a larger wealthier foe, pummels you in court over questionable claims, say another broad and abstract patent. You lose, get a judgement and have to pay legal fees. Your company folds. Company y then requests your corporate shield be taken down. Now you personally have to pay his $5 million in legal fees which are now on you. You lose your house, you get your wages garnished forever, etc. You want this?
  - cturner 11y ago
    It's a great system in commonwealth countries. It discourages litigation from larger companies precisely because the judge has discretion to award costs. In some cases the judge can even award in favour of the plaintiff, and then award costs against them as well. Yes - you should want this.
  - bradleyjg 11y ago
    Under the American rule (as opposed to the English rule) loser pays is very rare. Specifically for patents the law only authorizes them in "exceptional cases". In this case they were ordered for filing numerous frivolous lawsuits. Nothing in the scenario you outlined suggests anything exceptional. Defendants are allowed to defend themselves. If a court finds a defendant meets this high burden as to the plaintiff's actions, then yes I think the real parties in interest behind the corporate veil should be on the hook. What's the alternative? That defendants who were the victims of frivolous lawsuits have to pay hundreds of thousands of dollars out of their own pockets? Who knows what assets had to be sold to raise that money or whose livelihood was destroyed? How is that an equitable outcome?
  - zanny 11y ago
    We also do not want what we have now - where you can sue with impunity as a patent troll as a means for profit. Because you cannot hold individuals liable for their businesses, people can exploit that loophole for profit. But what you touch on is a more fundamental issue that the "justice" system in the US is more often than not a competition between who has the most money on hand, and as a means for lawyers to profit generously, rather than anything righteous or just.
    - WalterBright 11y ago
      There is no better system, as long as two people have different opinions on what is righteous or just.
    - ThrustVectoring 11y ago
      There's another angle to attack that particular problem - sanctioning the attorneys that bring and threaten frivolous patent lawsuits.
  - junto 11y ago
    It would be nice if it only applies to scummy patent holding shell companies though!
DenisM 11y ago
One way to deal with the shell problem us to require a bond to be posted, that's forfeit if the lawsuit is found without merit. An insurance company then can pick the risk and set the premium according to their assessment whether the lawsuit has been filed in bad faith. The court will have to work extra hard to make the distinction, but that might be the acceptable compromise in dealing with shell companies.
- tomlongson 11y ago
  Would that mean every business would need to have a bond, or just in the case of litigation?
  - DenisM 11y ago
    Only for litigation they initiate.
bryanlarsen 11y ago
If the corporation was created for "wrongful conduct" to avoid legal fees, the court can and will pierce the corporate shield. But you're right, piercing the corporate shield is difficult. IANAL, just a wikipedia reading engineer. https://en.wikipedia.org/wiki/Piercing_the_corporate_veil#United_States https://en.wikipedia.org/wiki/Piercing_the_corporate_veil#Un...
- monochromatic 11y ago
  How is it wrongful conduct to use a corporate structure to limit liability? That is exactly what corporations are for.
  - sqeaky 11y ago
    You can't limit the liability on penalties for breaking laws. Some laws are clear and unambiguous, for example no one uses a corporation to shield themselves from a murder investigation. Others laws can be fuzzier, like the laws that separate harassment and real intellectual property lawsuits.
    - deleted 11y ago
      [deleted]
MichaelBurge 11y ago
I'm in favor of a strong legal shield. A business started in good-faith with some legal uncertainty that loses a lawsuit shouldn't cause its owners to have their wages garnished for the rest of their lives. Shell companies whose sole purpose is to shield the owners from lawsuits that they're planning to make seem like a different matter, though. It would be dangerous to limit them while preserving the usefulness of the first case, but I was mainly asking if there was already something in the law for this. It sounds like there isn't?
WalterBright 11y ago
The patent wars are hardly a recent phenomenon. They go back to tremendous and crippling fights over the telegraph, telephone, auto, movies, radio, television and airplanes. It's a bit hard to see how patents promoted anything - they mostly seemed to retard progress. The airplane patent wars were so bad that aircraft development shifted overseas out of reach of US patent courts. The movie industry packed up and left for Hollywood to evade patent courts. Industry progress on the TV happened only when the patents expired. And on and on.
- throwawaykf05 11y ago
  Pretty sure this is the 3rd time we've had this exchange :-) but... it is a myth that the Wright patent held back the US airplane industry, as demonstrated by industrial data from the period: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2355673 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2355673 As for the movie industry moving to Hollywood, it's not like they were building competing or advancing technology that was blocked by patents: they were just consumers that straight-up refused to pay for the technology they took advantage of. > Industry progress on the TV happened only when the patents expired. Hmm, hadn't heard of this. Source?
  - WalterBright 11y ago
    I read the paper, thanks. It is mostly concerned with events from 1916 on. The Wrights had earlier demanded and gotten 20% royalties, and had a history of liberally and repeatedly suing other aircraft manufacturers. It is also pretty clear, despite the paper's claims, that the leaders in manufacturing and innovation were in Europe. Note also that current patent litigation hasn't exactly retarded the computer industry, but it has imposed huge costs on it, and it's hard to see any evidence that such patents have promoted the arts and sciences in any way.
    - throwawaykf05 11y ago
      > The Wrights had earlier demanded and gotten 20% royalties, and had a history of liberally and repeatedly suing other aircraft manufacturers. Because all the manufacturers were using the technology they had invented, the very technology that made controlled heavier-than-air flight possible at a time when people were starting to doubt that it was possible. Many chose to fight the patent, but courts time and again found it to be valid and infringed. The Wrights may have gotten a bad rap for being litigious, but only because many like Curtiss tied them up in court for years to avoid paying royalties on technology they clearly owed. > It is also pretty clear, despite the paper's claims, that the leaders in manufacturing and innovation were in Europe. Not so sure about that. Most historical accounts still show America as being more innovative than Europe. Things like the seaplane were invented by Curtis in America. >... hard to see any evidence that such patents have promoted the arts and sciences in any way. There are a number of studies showing how patents help the arts and sciences. For instances, there are studies showing a direct increase in r&d expenditures and increase in strength of IP laws. Patents have been shown to increase the chance of finding from VCs and other sources. This has also been shown to apply to the tech and computer industries. It may be hard to see because few think of the huge role money plays in the vast majority of innovation.
chris_wot 11y ago
Here's an idea: undertake tort reform, don't allow corporate shields to exist that allow for shell companies like this one, and fix the very broken patent system. I'm certain that all three things can be done in parallel.

brentm 11y ago

My exact thoughts. One would think rule number one in the patent troll manual is to limit your own downside by doing everything through a shell company.

finstell 11y ago

I am just so sick of it. Just make them pay the toll for once, for god sake. How is this damn different than any other criminal offence. We just need a good example of crashing a patent troll. Somebody should crush them, crush them so hard. Then, maybe we can have a chance to end this maddness.

MrQuincle 11y ago

This can be prevented by setting conditions for suing: * The entity suing should set aside a budget in case they are gonna lose. If the "presumption of innocence" is extended to the case of patent infringement this would be not such an awkward demand towards the plaintiff. * This fee should not just be to cover lawyer costs of the defendants. If a company is wrongfully sued, it's 1.) a type of defamation, 2.) incurring internal costs regarding time/resources to set up the defense apart from just the third-party lawyer costs, 3.) incurring immaterial costs regarding the sued party who are forced to worry about matters that have nothing to do with running their business. It can be seen as a legal DDOS attack of that business, 4.) incurring future costs w.r.t. setting up defenses against these practices. You don't need to buy locks if there are no burglars. (I personally file patents as a defensive action and it would be great if sharks like these pay for that, because they are the reason I've to do so).

justinlardinois 11y ago
Presumption of innocence is only a thing for criminal cases. Civil cases use the balance of probabilities. To win there, you don't have to prove your case beyond a reasonable doubt, just that your version of events is more likely to be true than than your opponent's, however slightly. Requiring plaintiffs to maintain a budget to pay fees would shut a lot of people out of the legal system, like individuals, for example. It would make it easy for large companies to violate the rights of IP holders. And if a lawsuit really defames a defendant, after winning they can always turn around and file a defamation lawsuit.
- MrQuincle 11y ago
  "Ei incumbit probatio qui." I know it's not the case for civilian law in the US. I was only pointing out strategies for change. Your point about plaintiffs with small budgets is an interesting one. Do you have examples of a David (individual) successfully suing Goliath over patents? Burdening the system with more lawsuits isn't necessary if you immediately get a yellow card when committing a schwalbe. :-)
  - 11y ago