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This is really easy for patent trolls to get around - patent trolls (NPEs) are typically shell companies that have no assets that can be seized (aside from the

This is really easy for patent trolls to get around - patent trolls (NPEs) are typically shell companies that have no assets that can be seized (aside from the patent itself).

pronoiac 14y ago
Won't that mean that if they lose a case, they shut down?
- chimeracoder 14y ago
  So they spin up a new one. Shell companies are like EC2 instances - cheap and disposable.
- cosmie 14y ago
  It means the troll's shell company, whose only asset is the now-useless patent, is shut down. The parent company isn't touched, nor the thousands of other subsidiaries owned by said parent company.
  - DannyBee 14y ago
    Deliberately underfunding an LLC is not something that is going to be looked upon kindly, particularly if it's purpose is exactly to get around the law. Any judge worth his salt would either sanction the hell out of the lawyers involved, or let you go after the parents.
    - damoncali 14y ago
      That's the rub - what is underfunding? Should you have to plan to lose lawsuits?
      - DannyBee 14y ago
        Yes, you should have to plan what your exposure is when you lose lawsuits. Normal businesses already do, and warn about it in SEC filings.
    - jrs235 14y ago
      As I mentioned in another reply: How could the judicial system incorporate rules to pierce the corporate veil in such situations and therefore expose the shell company creator(s)? Would something like this help? And what are the cons?
Bill_Dimm 14y ago
Couldn't the judge require the patent troll to put money into escrow to cover their opponent's estimated legal expenses (otherwise not allow the case to proceed)?
- neotek 14y ago
  Because you don't limit access to the courts based on how much money someone has. That's insane.
  - akavlie 14y ago
    Ironically, that's exactly what happens now -- defendants usually don't have access to the courts, because they don't have millions to defend themselves.
  - scott_s 14y ago
    Not for everyone, but for those judged to be non-practicing entities.
  - rayiner 14y ago
    We do it for shareholder derivatives suits, and in several other contexts. For B2B lawsuits it's not a big deal.
lancefisher 14y ago
This is a really good step though. If paying legal fees becomes a problem for NPEs, then perhaps the next step is to require NPEs to post a bond before going to trial.
milfot 14y ago
What (good) purpose do shell companies serve? LLC is limits liability doesn't it? Its not no liability. Surely a more effective and wide ranging measure would be to enforce limits on the limitations. If no one wants to take some small amount of responsibility for a company, that company has no business existing.
- damoncali 14y ago
  They're not really shells. They're very small companies created to limit the exposure of the owners to liability. This is not weird or abnormal in business. Real estate guys use separate entities for their projects all the time. If one gets in trouble, it leaves the others intact. That is the whole point of limited liability.
  - GFischer 14y ago
    Real estate guys shouldn't be doing it either. A coworker had his house destroyed by errors on an adjacent building site, and he faces the real risk of the real estate guys declaring a loss on this one and moving on to the next "shell company".
    - damoncali 14y ago
      Thnk about that for a moment, because it's not even possible. How are you going to finance a second building when the first one has the ability to suck up all the cash flow? No bank would do it. No equity partners would do it. Throwing out limited liability is a huge deal.
      - GFischer 14y ago
        Courts should have the option of making directors or whatever personally liable in the case of gross negligence (like cratering an adjacent building). Either that, or mandatory insurance for these cases. It's just unfair that someone is made homeless and faces the threat of being left out in the cold while the persons responsible are raking massive profits elsewhere. It's not a faceless meteorite crash, it was gross negligence. I can't find the news in English, but: http://www.lr21.com.uy/comunidad/430518-derrumbe-de-edificio-conmociono-parque-batlle-no-hubo-lesionados http://www.lr21.com.uy/comunidad/430518-derrumbe-de-edificio... In the case of patent trolls, "piercing the veil" is also complicated. There's also the common practice of naming a figurehead as the person responsible for a company, while the real owners don't figure in the legal documents (we call them "testaferros" over here). I don't know what the solution is (I wish I did), but the current system doesn't seem to be working out well.
JumpCrisscross 14y ago
The shell would have to post a bond when it is deemed to be a non-practising entity, i.e. not subsection (d) compliant. "Any party that fails to meet a condition under subsection (a)(3) shall be required to post a bond in an amount determined by the court to cover the recovery of full costs." [1] The subsection (a)(3) reference points to the subsection (d) exemptions for original inventors, parties which have made "substantial investment" in exploiting the patent through "production or sale of an item covered by the patent", universities, and technology transfer organisations "whose primary purpose is to facilitate the commercialisation of technology developed by one or more institutions of higher education". [1] http://cdn.arstechnica.net/wp-content/uploads/2013/02/SHIELD-Act-113th-final.pdf http://cdn.arstechnica.net/wp-content/uploads/2013/02/SHIELD... § 285 subsection (b)
jrs235 14y ago
How could the judicial system incorporate rules to pierce the corporate veil in such situations and therefore expose the shell company creator(s)? Would something like this help? And what are the cons?

This is really easy for patent trolls to get around - patent trolls (NPEs) are typically shell companies that have no assets that can be seized (aside from the patent itself).

pronoiac 14y ago

Won't that mean that if they lose a case, they shut down?

chimeracoder 14y ago
So they spin up a new one. Shell companies are like EC2 instances - cheap and disposable.
cosmie 14y ago
It means the troll's shell company, whose only asset is the now-useless patent, is shut down. The parent company isn't touched, nor the thousands of other subsidiaries owned by said parent company.
- DannyBee 14y ago
  Deliberately underfunding an LLC is not something that is going to be looked upon kindly, particularly if it's purpose is exactly to get around the law. Any judge worth his salt would either sanction the hell out of the lawyers involved, or let you go after the parents.
  - damoncali 14y ago
    That's the rub - what is underfunding? Should you have to plan to lose lawsuits?
    - DannyBee 14y ago
      Yes, you should have to plan what your exposure is when you lose lawsuits. Normal businesses already do, and warn about it in SEC filings.
  - jrs235 14y ago
    As I mentioned in another reply: How could the judicial system incorporate rules to pierce the corporate veil in such situations and therefore expose the shell company creator(s)? Would something like this help? And what are the cons?

Bill_Dimm 14y ago

Couldn't the judge require the patent troll to put money into escrow to cover their opponent's estimated legal expenses (otherwise not allow the case to proceed)?

neotek 14y ago
Because you don't limit access to the courts based on how much money someone has. That's insane.
- akavlie 14y ago
  Ironically, that's exactly what happens now -- defendants usually don't have access to the courts, because they don't have millions to defend themselves.
- scott_s 14y ago
  Not for everyone, but for those judged to be non-practicing entities.
- rayiner 14y ago
  We do it for shareholder derivatives suits, and in several other contexts. For B2B lawsuits it's not a big deal.

lancefisher 14y ago

This is a really good step though. If paying legal fees becomes a problem for NPEs, then perhaps the next step is to require NPEs to post a bond before going to trial.

milfot 14y ago

What (good) purpose do shell companies serve? LLC is limits liability doesn't it? Its not no liability. Surely a more effective and wide ranging measure would be to enforce limits on the limitations. If no one wants to take some small amount of responsibility for a company, that company has no business existing.

damoncali 14y ago
They're not really shells. They're very small companies created to limit the exposure of the owners to liability. This is not weird or abnormal in business. Real estate guys use separate entities for their projects all the time. If one gets in trouble, it leaves the others intact. That is the whole point of limited liability.
- GFischer 14y ago
  Real estate guys shouldn't be doing it either. A coworker had his house destroyed by errors on an adjacent building site, and he faces the real risk of the real estate guys declaring a loss on this one and moving on to the next "shell company".
  - damoncali 14y ago
    Thnk about that for a moment, because it's not even possible. How are you going to finance a second building when the first one has the ability to suck up all the cash flow? No bank would do it. No equity partners would do it. Throwing out limited liability is a huge deal.
    - GFischer 14y ago
      Courts should have the option of making directors or whatever personally liable in the case of gross negligence (like cratering an adjacent building). Either that, or mandatory insurance for these cases. It's just unfair that someone is made homeless and faces the threat of being left out in the cold while the persons responsible are raking massive profits elsewhere. It's not a faceless meteorite crash, it was gross negligence. I can't find the news in English, but: http://www.lr21.com.uy/comunidad/430518-derrumbe-de-edificio-conmociono-parque-batlle-no-hubo-lesionados http://www.lr21.com.uy/comunidad/430518-derrumbe-de-edificio... In the case of patent trolls, "piercing the veil" is also complicated. There's also the common practice of naming a figurehead as the person responsible for a company, while the real owners don't figure in the legal documents (we call them "testaferros" over here). I don't know what the solution is (I wish I did), but the current system doesn't seem to be working out well.

JumpCrisscross 14y ago

The shell would have to post a bond when it is deemed to be a non-practising entity, i.e. not subsection (d) compliant. "Any party that fails to meet a condition under subsection (a)(3) shall be required to post a bond in an amount determined by the court to cover the recovery of full costs." [1] The subsection (a)(3) reference points to the subsection (d) exemptions for original inventors, parties which have made "substantial investment" in exploiting the patent through "production or sale of an item covered by the patent", universities, and technology transfer organisations "whose primary purpose is to facilitate the commercialisation of technology developed by one or more institutions of higher education". [1] http://cdn.arstechnica.net/wp-content/uploads/2013/02/SHIELD-Act-113th-final.pdf http://cdn.arstechnica.net/wp-content/uploads/2013/02/SHIELD... § 285 subsection (b)

jrs235 14y ago

How could the judicial system incorporate rules to pierce the corporate veil in such situations and therefore expose the shell company creator(s)? Would something like this help? And what are the cons?