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Financial Organizations Unite to Combat Patent Trolls

By Roy W. Urrico

Screen Shot 2014-02-13 at 2.06.19 PMIt is not often that CUNA, NAFCU, the ICBA and the ABA unite to support a cause. Nevertheless, the four organizations—along with the American Insurance Association, The Clearing House, Financial Services Roundtable, NACHA, and The National Association of Mutual Insurance Companies signed letters calling on Congress to pass legislation that combats patent abuse. Demand letters from so-called “patent trolls” signify a great and growing threat to financial service organizations and other end-users of technology.

A patent assertion entity (PAE), aka patent troll, is an entity (person or company) that instigates a patent rights case against accused infringers in an effort to accrue licensing fees. The accuser does not create products or provide services based upon the patents in question. The modus operandi remains pretty much the same. PAEs acquire patents and then use them to initiate lawsuits against infringing companies, hold the patent without planning to utilize the idea in an attempt to freeze other companies’ productivity, or engage in financial rent-seeking. A PAE’s main objective is to use patents to extort payments from others.

PAEs have become a big business. Since 2005, the number of defendants sued by PAEs has quadrupled. According to reports, in 2012, PAEs sued almost 7,000 defendants and sent thousands more threat letters. PAEs filed more than half of all patent lawsuits in 2012.

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