My Encounter With a Patent Troll – eCommerceFuel

Andrew Youderian • May 24, 2012

Few things get your attention like the threat of being sued, especially when you’re a small company. So you can imagine my reaction when I received a threatening letter from a company called Kelora presenting two choices: pay a $10,000 annual patent licensing fee within the month or face a lawsuit.

You might think I’d stolen a proprietary algorithm or illegally incorporated commercial source code into my website. Not quite. My “patent violation” consisted of using the popular Magento eCommerce software and, more specifically, its layered navigation function, which allows visitors to filter products using criteria like price, brand and color.

That’s right! The same functionality that’s been widely used for years by giants such as Amazon, Newegg, Zappos and other eCommerce stalwarts, whom Kelora was suing as well. It was suing everyone and anyone in hopes of extorting generating licensing fees. It was a textbook patent troll case.

My wife, who is a legal journalist, looked into the pending case (Kelora vs. the eCommerce World) and discovered that Kelora had been dealt a few recent setbacks and a major ruling was due shortly. She was hopeful Kelora’s claim would be thrown out, so I let the $10,000 “deadline” pass without reply.

And then, this Monday a federal judge in California found Kelora’s patent invalid and subsequently dismissed its infringement claims against eCommerce merchants. VICTORY! For details and context on the ruling, please see this eCommerceFuel exclusive story.

So what did I learn from the whole encounter?

Don’t Be Intimidated by Patent Trolls

Kelora sued all the big boys (Amazon, Microsoft, Newegg, etc.) in hopes of hitting the jackpot, but got very little money because the giants had the legal resources to fight back. Most of Kelora’s money came from bullying small companies into licensing agreements. I’ve excerpted some of the scare-tactic language from the letter I received:

Trolls know that small companies are intimated by the mere threat of a lawsuit, because they don’t have the money and/or time to get involved with a legal fight. So they send out as many threatening letters as possible, hoping to scare smaller merchants into a settlement. It’s just like playground bullying, except with a lot more at stake.

The best thing to do? Ignore trolls. Contacting them – even to tell them you’ll never pay up – simply registers as a bite on one of the many lines they’ve thrown into the water. If they want to bully you, make them do it through the most expensive and inconvenient avenue possible: the court system.

That said, if you are contacted about a patent violation, I highly recommend hiring a lawyer to look things over. The last thing you want is to ignore a legitimate infringement claim or legal issue.

Never Feed a Troll

Unfortunately, Kelora successfully bullied a number of merchants into licensing agreements before its amended patent was ruled invalid. Although these merchants likely have the legal right to pursue a refund, there’s the chance all Kelora’s money will go to repaying the legal fees of all the entities it sued.

The lesson? Unless you’re advised to by your attorney – or ordered to by a judge – don’t pay a patent troll! Your money may disappear forever, and you’re emboldening the troll with success. Like the wildlife at Yellowstone, you should never feed a troll.

Make Sure You’re Protected

If you’re operating a business, especially online, you’re a potential target for patent trolls. And while the Kelora case was thrown out, trolls do succeed, which is why we continue to see more and more of them. That’s why it’s crucial to be legally protected with some kind of corporate structure. For most small businesses, this means creating a limited liability company. An LLC costs about $150 up-front and around $25 per year – a small price to protect your personal assets and family from unscrupulous trolls and other liabilities.

Assuming Kelora had won, the only assets it could go after would be those owned by my LLC. Hypothetically, it could bankrupt my business, but my home and personal savings would be safe. If you do business online – of any kind – I strongly encourage you to protect yourself with incorporation. It’s cheap. It’s easy. There’s no reason not to do it.

Finally, Make Some Noise

The world of software patents is controversial. Many people (myself included) believe that software patents are too broadly issued, leading to stifled innovation, excessive legal costs and an unnecessary arms race as tech companies stockpile patents for defensive purposes. Most people agree: The laws around software patents desperately need to be reformed.

The Electronic Frontier Foundation created a great info graphic summarizing the current landscape:

While congress recently passed the America Invents Act, it failed to address the most problematic issues, especially those related to software patents. For anything to really change, we need to pressure those in power to take real action.

Contact your representatives and let them know you consider their stance on patent reform a crucial issue. Back companies with progressive stances on patents, such as Twitter with its Innovator’s Patent Agreement. Or get involved with the Electronic Frontier Foundation’s Patent Busting Project, which helps challenge bogus patents.

If enough of us speak out, we can rid ourselves of patent trolls for good.

What Do You Think?

Have you been targeted by patent trolls? Know of other organizations fighting for patent reform? Let me know in the comments below!

Disclaimer: I am not an attorney, nor am I offering legal advice with this post. I am simply sharing lessons from a personal experience. If you find yourself in a similar situation, you should consult an attorney.  

Troll photo by Kevin Dooley

Post by Andrew Youderian

Andrew is the founder of eCommerceFuel and has been building eCommerce businesses ever since gleefully leaving the corporate world in 2008.  Join him and 1,000+ vetted 7- and 8-figure store owners inside the eCommerceFuel Community.