The New York Times Co. is engaged in a pitched legal battle with two such “trolls.” One is Helferich Patent Licensing LCC, a Chicago shell firm that claims to own the process for sending links to mobile phones — basically where a company sends a customer a text message. According to the Associated Press, the firm typically demands $750,000 to go away, a fee that it has already collected from dozens of firms like Apple and Disney.

Such demands place companies like the New York Times in a difficult position. The patents in these type of cases are often spurious but it can cost millions to prove that they are, meaning it’s cheaper to  simply pay up. If a company pays, the troll can then use the money to target other companies.

“In some ways, it’s a tax for being on the Internet. Millions and millions of dollars collectively is going out of the pockets of people who earned it to people who, in my opinion, didn’t do anything,” the Times general counsel Kenneth Richieri told the AP.

Right now, the  Times is paying to have the patents at issue re-examined by the US Patent Office. A Times court filing says the office has already succeeded in knocking down two of the patents, including US Patent 7,499,716 (“systems and method for delivering information to a transmitting and receiving device”). The company is asking a federal court in Chicago to suspend the litigation while the rest of the patents are re-examined.

The Times’ second major troll battle is over “autocomplete,” the function that suggests a word when a user types a few letters. A troll, called Boadin Technologies LLC, is stalking the Times, Bloomberg, USA Today and others for using the autocomplete function to propose stock ticker symbols. Court records show the Times is digging in to contest that suit too.

In the larger picture, the troll cases raise questions about the state of America’s innovation policies. While patents are regarded as a spur to invention, they are increasingly also being used simply as fodder for lawsuits by companies that don’t make anything. The problem has been exacerbated by a US patent office that has issued patents for everything from methods of exercising a cat with a laser to swinging on a swing.

In a highly-publicized editorial in the Atlantic last month, the famous judge Richard Posner called for the system to be reformed.

The news comes via Kara Swisher of AllThingsD who reports that the two firms will not only put sheathe their lawyers but also enter a wide-ranging content and advertising partnership.

The report says that the deal has been blessed by both companies’ boards and that no cash will change hands despite Facebook’s having shelled out $550 million to buy a patent portfolio from Microsoft.

The pact resolves a contretemps that began when Yahoo’s former CEO declared that Facebook’s social network was based on Yahoo’s technology and sued over ten patents. The lawsuit enraged many in Silicon Valley who accused Yahoo of fueling the tech sector’s runaway patent litigation, and led Facebook to launch a counter lawsuit.

The controversy began to die down after Thompson was driven out of the company in May after it emerged he had fabricated important parts of his resume.

The partnership appears to be a strategic win for Facebook. The company not only averted prolonged and costly court proceedings but also served notice on other companies that it will hit back hard against future patent lawsuits.

It remains to be seen if the experience will lead Facebook to keep its newly-acquired patent portfolio for defensive purposes or if it will instead use the patents to harass Google and other competitors.

Update: Facebook and Yahoo have finally issued a press release that contains the expected platitudes about integration, working together and so on. Here are quotes from senior executives:

“We are excited to develop a deeper partnership with Facebook, and I’m grateful to Sheryl and her team for working hard together with our team to develop this dynamic agreement. We are looking forward to building on the success we have already seen to provide innovative new products and experiences for both consumers and sponsors,” said Ross Levinsohn, interim CEO of Yahoo!. “Combining the premium content and reach of Yahoo! as the world’s leading digital media company with Facebook provides branded advertisers with unmatched opportunity.”

“I’m pleased that we were able to resolve this in a positive manner and look forward to partnering closely with Ross and the leadership at Yahoo!,” said Sheryl Sandberg, Chief Operating Officer at Facebook. “Yahoo!’s new leaders are driven by a renewed focus on innovation and providing great products to users. Together, we can provide users with engaging social experiences while creating value for marketers.”

(Image by Marcel Jancovic via Shutterstock)

According to Patrick Doody, a former patent examiner and partner at the Pillsbury law firm, the cost of the proceedings is in the tens of millions of dollars and counting.

“As a general rule, even simple patent cases can cost a few million dollars,” said Doody. “This is probably ten times the size of the average patent case. $50 million in legal fees for both sides [is a reasonable guess].”

The figure is not surprising. A new ruling yesterday rejecting Oracle’s patent claims means that more than 1200 documents have now been filed in the case. The case has also involved more than two dozen attorneys from various white shoes firms, including David Boies, a celebrity lawyer who has represented everyone from Al Gore to the NFL. The sides have also paid for public relations initiatives such as Oracle’s controversial decision to hire an ethically-challenged blogger to spin its side of the trial.

A “Near Disaster” or business as usual?

After a jury last week concluded that Google had not infringed on Oracle’s patents, an intellectual property attorney at Stanford told Bloomberg that the case had been a “near disaster” for Oracle. The patent finding came after the jury was unable to decide if Google should be liable for copyright infringement. The judge also cancelled a planned damages phase of the trial.

On its face, the trial does appear to be disaster for Oracle which has now burnt through tens of millions in legal fees with nothing to show for it. But in the bigger picture of Oracle’s strategy, the legal bills may amount to just another cost of doing business.

According to Doody, Oracle is simply pursuing a common strategy in which companies that have passed their innovation phase turn instead to their intellectual property portfolios to make money. In Oracle’s case, the widespread use of Java in the Android smartphone market means the potential pay-off is worth the legal investment.

Doody says that companies in Oracle’s position can do one of two things to chase licensing revenue. They can either pressure small companies to obtain licenses so as to lay the groundwork for asserting patent claims against a big company. Or they can try to spear a giant company in court (in the way that Yahoo is targeting Facebook) which, if successful, makes it easy to pick off smaller players.

“One strategy is to go after small companies first. Or, go after the big guys first, and then [turn to small firms to] load them up and sign them up.”

Oracle clearly appears to be trying the whale strategy. At the moment, it is suing not only Google but SAP and Hewlett-Packard too.

Runaway lawsuits

There may be a perverse logic to Oracle’s lawsuit against Google, and not only from a licensing standpoint. As the case moves up to appeals levels, the company stands a chance of persuading the courts to expand the number of things that can be covered by patents or copyright. If that happens, Oracle would be poised to seek even more licensing revenue.

And appeals seem inevitable. Both companies have suggested that they are far from finished and Doody predicts that Oracle will try and drive the case all the way to the Supreme Court.

If this comes to pass, the estimated $50 million price tag will have only covered the first few games of a 7-game World Series. Renowned software developer Linus Torvalds decried the situation by saying Oracle would “pay lawyers to take it to the next level of idiocy.”

The outsized legal fees in the Oracle case, and in dozens of other smartphone patent cases, raise the question if these trials are the most efficient way to promote innovation. Consider that $50 million could pay the annual salary of 500 Silicon Valley engineers or pay for a new start-up jumpstarter like Y-Combinator or Betaworks.

So far, though, it appears that Oracle CEO Larry Ellison is satisfied with the company’s current strategy. He yesterday portrayed the Google case as a victory for his company.

(Image by Aptyp_koK via Shutterstock)

Aspen resident Jerald Bovino filed a lawsuit in federal court asking Apple and retailer Target to pay royalties for using his technology.

The claim is based on US patent 6,977,809 which describes an “integral case” that attaches to a computer. The patent says the invention is useful for situations like airport X-ray lines.

The iPad Smart Cover, which sells for $39.95, attaches to Apple tablets with a magnet and covers the screen.

The Bovino patent refers to a series of ribs on the case that protect the device:

The iPad smart cover also contains ribs (though this doesn’t mean it is infringing):

The patent was issued in 2005, six years before Apple unveiled the iPad 2 and its cover.

In a coincidence, the Patently Apple blog reported this week that the company  received a design patent for the iPad cover.

Bovino may have his hands full as Apple has many intellectual property veterans in its legal team. The company may claim Bovino’s patent is invalid because it is obvious or not new.

Here’s a copy of the complaint:

iPad Cover Lawsuit Copy

On Monday in Delaware federal court, the parties filed to dismiss a lawsuit which began in 2009 after Discovery claimed that Amazon’s e-readers were using its technology. The terms of such settlements are confidential but it is possible that Amazon decided to pay Discovery in order to eliminate the possibility of an injunction against its Kindle products at a time when the online retailer is marketing them heavily.

Discovery filed for the patent in 1999. It was granted in 2007 and is described as follows:

The invention, electronic book security and copyright protection system, provides for secure distribution of electronic text and graphics to subscribers and secure storage.

Maryland-based Discovery Communications (NSDQ: DISCA) is primarily known for producing TV programming like Animal Planet and the Military Channel. It is not a player in the fast growing e-reader market but, as CNET explained at the time of the lawsuit, Discovery founder John Hendricks is an amateur inventor who tried his hand at new ways of digitizing TV and book content.

Amazon is not out of the patent woods yet, however. Shortly after announcing its much-hyped Kindle Fire, Amazon was sued by a so-called patent troll that claimed the tablet device infringed technology for tapping an icon on a screen. Trolls, known more politely as non-practicing entities, are shell companies that don’t make anything but purchase used patents in order to sue companies in the hopes of extracting a settlement.