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'Patent Trolls' Threaten Tech Community's Future, Ald. Smith Says

By Paul Biasco | April 22, 2014 7:33am
 Entrepreneur Peter Braxton, left, listens to Ald. Michele Smith (43rd) moderate a roundtable discussion on "patent troll" reform legislation last week at Orbitz headquarters.
Entrepreneur Peter Braxton, left, listens to Ald. Michele Smith (43rd) moderate a roundtable discussion on "patent troll" reform legislation last week at Orbitz headquarters.
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DNAinfo/Paul Biasco

WEST LOOP — Chicago's booming tech sector has gained national attention this year, and Ald. Michele Smith (43rd) is working to protect startups and small businesses from patent trolls.

Smith, who was the head of Navistar's intellectual property department before being elected alderman, hosted elected officials, business owners and victims of patent trolls for a roundtable Friday to drum up support for Congressional action against patent trolls.

"Here we are trying to promote Chicago as one of the most tech-friendly cities in the United States, a lot of people put a lot of resources into it and the resources that are put into it are really hampered," Smith said.

Paul Biasco discusses how patent trolls are affecting local businesses:

The discussion focused on the negative impact of patent trolls, described as shell companies that hold portfolios of patents without innovating or inventing, and sue those companies that do.

Chicago entrepreneur Peter Braxton who developed an app called Jump Rope, gave a first-hand account of battling a patent troll for 2½ years.

Braxton's app lets users who are tired of waiting in long lines at nightclubs, museums or restaurants cut the line for a fee.

A few months after launching the app in 2012, Braxton was sued by a company that claimed to own a patent over "a method and system to reserving future purchases of goods and services."

Braxton knew he was in for a lengthy and costly legal battle, and returned all of the capital he had raised.

"Nobody here of my friends and family wanted to buy a lawsuit," he said. "They wanted to buy a business model. They wanted to buy a management team. They wanted to invest in a company."

Last week Braxton won an appeal in the suit against his app, but lost more than two years of time to build his once-promising company.

During the fight Braxton, a former Air Force pilot and later a banker with Credit Suisse, nearly went broke.

"It is absolutely destructive and detrimental to the growth of an innovative company," Braxton said.

It's not only startups facing the issues, according to Aaron Goodman, litigation and intellectual property counsel for Chicago-based Orbitz.

Goodman said the company is consistently facing anywhere from five to more than a dozen cases at any one time and employees are shying away from engaging with the city's tech community because of it.

Orbitz employees are worried to go out and speak about what they are doing with the company because they fear they may make themselves a bigger target for patent trolls.

"There is a concern by our employees that they may say or do something that might be used against us or taken out of context and used against us in a patent case," Goodman said.

A patent scholar at the discussion cited a statistic that of all businesses filing patent suits in 2012, 56 percent were patent aggregators and patent holding companies.

"A troll is an opportunist," said Matthew Sag, a law professor at Loyola University Chicago.

Sag said patent trolls have been high on the agenda of intellectual policy makers and academics for more than a decade, but the problem persists.

Patents "need to be a tool for people to defend the real research investment they have made, not a tool to tax startups and to tax new entrants and to shake down existing players in an industry," Sag said.

Patent reform legislation is expected to be voted on when the U.S. Senate reconvenes the week of April 28.

Representatives from Sen. Dick Durbin's and Sen. Mark Kirk's offices participated in the roundtable, as well as representatives from the offices of Illinois Attorney General Lisa Madigan and U.S. Reps. Tammy Duckworth, Robin Kelly, Brad Schneider and Mike Quigley.

At the state level, patent reform legislation was approved by the state House earlier this month. 

State Sen. David Biss (D-Evanston) attended the roundtable and voiced his support for state legislation that would at the least "place another brick in the wall toward building a real solution at the federal level."

“Chicago’s reputation and its future for being a center for high tech is really threatened if we don’t solve this problem," Smith said.