The EFF's "classic" troll wielding a "dangerous" patent has nothing to fear from anti-troll initiatives

No-one could accuse Jim Logan, the founder of NPE Personal Audio, of hiding away. Having been accused by the Electronic Frontier Foundation (EFF) of being in the possession of a “dangerous patent” that is being used to sue “prominent podcasts and podcasters, including How Stuff Works and Adam Carolla, in addition to smaller podcasters working out of their own homes”, Logan went onto the Slashdot website to take part in a Q&A with its readers about Personal Audio and what it is doing. As he no doubt expected, his audience of mainly open source devotees was not exactly enamoured of his explanations.

Like the EFF, it is clear that most Slashdot readers consider Logan’s firm to be “the classic example of a patent troll that neither makes nor sells anything, but uses its patent as a weapon to threaten lawsuits and extort settlement fees”. However, if what the EFF says is accurate, current legislative proposals in front of Congress and recently announced presidential initiatives look like they are going to make very little difference. As far as I can tell, none of them would have much of an effect on the way in which Personal Audio operates.

I met Logan in Boston in June where he was attending the IP Business Congress. I subsequently had the opportunity to speak to him on the phone and to listen to his story. It’s one of an entrepreneur who built a business which made things and employed hundreds of people, and who has had his fair share of failures which have cost him a great deal of money. It’s also one that shows why patents are of such importance to so many early-stage investors.

Logan got his big break in the 1980s. As he explained on Slashdot:

I started my first company in the 80’s, when I was working with a young MIT engineer, Blair Evans, to develop the first analog capacitive touch screen. Were we struggling to make it work when we got a letter in the mail from an inventor in Maryland, Bill Pepper, who was literally working out of his garage. He had been working with Bob Moog, inventor of the world’s first electronic synthesizer, on a touch sensitive piano and from that research had gotten several patents on a touch tablets.

Bill had tried unsuccessfully to license these patents to several large companies (“Call me back when there’s a market”, they said) when he heard about our attempts to make a capacitive touch screen. We realized Bill had the solution we were looking for and we promptly signed an exclusive license for his patents. MicroTouch went on to become the world’s largest touch screen company, selling the precursor to today’s projected capacitive touch screen found on all smart phones. When I left MicroTouch to start Personal Audio in 1996, we employed 500 people making touch screens in Massachusetts. Without those patents, we would never have gotten the company off the ground.

Personal Audio began as a business focusing on personalising MP3 player downloads from the internet. But although a prototype was built and Logan got some backing things did not work out. The project was abandoned and he moved on to other things, losing $1.6 million of his own money along the way. Having learned of the importance of IP through his MicroTouch experience, though, Logan made sure that he held onto the patents that Personal Audio had been granted. In 2008 that decision paid very big dividends when his patent attorney alerted him to their possible infringement by Apple. As a result, Personal Audio approached Apple to try to do a deal but got nowhere, so Logan launched legal action. The case went before a jury and Personal Audio won – leading to a settlement. Further agreements were then secured with the likes of Samsung, LG, RIM, Amazon and HTC.

At the same time as all this was happening, Personal Audio was prosecuting a continuation patent application with a priority date of 1996. The firm’s original patents had been filed with very detailed specifications which have since been cited hundreds of times in other applications. The continuation patent issued in 2012 and it is this which has allowed Personal Audio to target the podcasters, as well as broadcast companies such as CBS, NBC and the Discovery Channel. In total, said Logan, over 75 letters have been sent out to potential infringers.

Obviously, the story is more detailed than the above, but space limitations only allow for an overview. To my mind, though, what has been outlined does show a few things:

• If Personal Audio is a “classic” troll that means that the proposed SHIELD Act would be largely ineffective. One of the types of entity excluded from its provisions is “the original inventor”; the legislation explains that “such party is the inventor, a joint inventor, or in the case of a patent filed by and awarded to an assignee of the original inventor or joint inventor, the original assignee of the patent”. Personal Audio is the original inventor of the patents it owns.

• Increased transparency is also being mooted as a way to stop trolls. But Personal Audio is perfectly clear about what it is and who owns it; so new rules on that front will change nothing.

• Another criticism of trolls is that they seek to assert low quality patents. But the original Personal Audio patents have been through the court process and have been pitted against the might of Apple, which – presumably – threw everything it could at seeking to show they should not have been granted. Apple lost and many other companies subsequently took licences. It is open to the likes of NBC and CBS, neither of which are exactly short of money, to challenge the continuation patent Personal Audio now owns. This is the only way its quality can be truly determined. And, of course, the same applies to all patents granted in the US, whoever owns them.

• Loser pays has been touted as a possible troll deterrent. Logan took Apple to court with no certainty that he was going to win, but with the conviction that Personal Audio had a compelling case. It seems unlikely to me that someone who believes in the justice of their cause would not bother taking action on the basis that they might lose.

The particularly controversial issue in the Personal Audio story is that continuation patent. But nothing currently before Congress would have prevented that being applied for or granted. What Logan did is an option for any entity that meets the filing criteria. In fact, there is an argument for saying that it would have been negligent of Logan not to seek that protection; to have ignored the opportunity would have been failing to maximise the value of what Personal Audio owns. More to the point, though, it is hard to envisage any kind of legislation relating to continuation patents that could target supposed trolls without damaging the rights of other entirely blameless individuals and entities.

For me the Personal Audio story is just another example of why a great deal of care is needed when debating trolls/NPEs/PAEs. Although it is tempting to see them as all the same, they are not. Personal Audio was founded by someone intent on building a business like the very successful one he had previously built on the back of patents. It did not work out and Logan lost a lot of money. In the end, though, the patents he was granted allowed him to make good on his investment; so demonstrating that every now and again they can turn out to be excellent insurance policies – something that helps to explain why patent ownership is so important to entities that offer early-stage, tech-based businesses financial backing.

Logan told me he still dreams of creating another MicroTouch – a technology company that will build things and provide employment to hundreds of people. The money that Personal Audio generates from its patents could help him to do this. It’s difficult to believe that the US president and assorted members of Congress would really want to stop him.