Industry Focus

Lack of Ethics is a Problem

• By Ralph C. Jensen
• Jan 01, 2017

The pharmaceutical industry is a business exposed to many unique risks. Attaining capital, investing in intensive research and development, the uncertainty of FDA approval and the constant shroud of legislative risks are merely some of the many significant challenges that innovative pharmaceutical companies regularly face.

One of the fastest growing threats for these companies, however, is the threat of infringement lawsuits brought by patent trolls.

Also referred to as a “non-practicing entity,” a patent troll is a person or company that owns one or more patents but typically does not itself market any products or services covered by these patents and instead attempts to enforce these patents against accused infringers, often far beyond the patent’s actual value or contribution to the technological field. In doing so, the patent troll typically attempts to extort a quick settlement from an accused infringer, knowing that most accused infringers would rather quickly pay a small settlement rather than spend significant time and money litigating a patent infringement case. Voilà, now we understand the business of patent trolling.

Pharmaceutical companies have long dealt with patent trolls, but now the security industry is being forced to deal with them, as well. Patent trolls are playing a vicious game that affects the manufacturer, the installer/integrator and the end user.

After spending a significant amount of time researching and interviewing, I found a patent troll, Hawk Technology Systems that is consistently filing the lawsuits. Don’t be deceived, as I was at first; this is only a legal entity that is filing legal lawsuits. They are not in the electronics business, only in the lawsuit business.

Here is how the patent troll business has worked for Hawk: A couple of individuals familiar with patents focused on an older patent, bought the rights to it, and then went to the U.S. Patent and Trademark Office and filed an application to get the older patent reissued. Once the patent was reissued, Hawk started looking around to see who might be using security systems allegedly covered by the patent, and Hawk then began filing lawsuits, claiming infringement.

The reissue claims they are defending, Hawk’s reissued patent purports to cover a “PC-based system for monitoring and storing representative images from video cameras that may be used for security or other monitoring applications. Camera inputs from digital or analog sources are individually and independently digitized and displayed, and may be stored in digital form on various recording media. Provisions are included for adding detection or alarm systems which will automatically alter image size, sampling rate and/or frame rate of an individual input source, or activate other physical responses. In addition to security system monitoring, further applications of the invention are disclosed for process monitoring in manufacturing environments and also for applications in videoconferencing.”

Hawk currently has more than 210 lawsuits pending. I have tried in vain to reach Hawk’s principal Marc Schulman regarding these cases. I have left messages pleading for a return phone call, but I have received no response. Schulman claims to be the legal consultant for his partner Barry H. Schwab, who in turn claims to be an inventor of Hawk’s Reissued Patent #RE43462.

According to attorney Justin Hasford, who is a partner at the law firm Finnegan Henderson Farabow Garrett & Dunner LLP in Washington, D.C., specializing in patent infringement litigation, patent trolls typically sue end users of technology. They file lawsuits only in hopes that the defendant will settle quickly, long before trial.

“A quick settlement avoids the risk that the patent ultimately will be found by a court or the Patent Office to cover subject matter that already was out there in the prior art and thus never should have been issued in the first place,” said Hasford, who has successfully defended the pharmaceutical industry. “The plaintiff sees this as something that can be monetized, particularly with a quick settlement.”

If a company were to defend themselves against the troll, it likely would wind up in a federal court far from home. Hawk, for example, is located in South Florida and has brought various suits in the U.S. District Court for the Southern District of Florida. Many defendants prefer settlement over protracted litigation. If Hawk settles for a mere $10,000 per defendant, Hawk takes home a healthy $2 million plus. Reports have suggested that this industry is worth more than $4.5 million annually to the trolls.

The smaller end user typically does not have the resources to engage in protracted patent litigation. After several filings and legal wrangling between the attorneys, including attorney’s fees to defend themselves, an invoice of nearly a half million dollars is likely to hit a CEO’s desk.

That is money that could be used for research and development, paying new employees or just plain upgrading and updating their business model. No wonder an end user is quick to reach a settlement and put the troll back under a bridge, where it belongs.

Don Erickson, CEO of the Security Industry Association, said in an online posting on Security Today, Dec. 18, 2015, “Most manufacturers would also agree that patent Trolls who prey upon the ingenuity of security technology suppliers is a threat worthy of legislative action by the states, Congress and the courts.”

As a child, I learned the story of Three Billy Goats who, as end users, had to cross a bridge, placed over a cascading waterfall. Under the bridge was a troll. The troll neither invented nor built the bridge. It just claimed ownership by being mean. In the end, the troll never succeeded and, in fact, took the wrath of the biggest billy goat.

Go back, troll, under your bridge.

This article originally appeared in the January 2017 issue of Security Today.