SAN FRANCISCO -- Ford Motor Co. was sued for patent infringement more than a dozen times between 2012 and 2014, but not by jilted suppliers or rival automakers.
It was the “patent trolls.”
These outfits, also known as patent assertion companies, initiate patent cases but don’t sell products of their own. By buying patents and filing lawsuits to allege misuse of intellectual property, they have won billions of dollars in licensing fees and court judgments.
They have been a consistent thorn in the side of technology companies since the dot-com boom of the 1990s. And the auto industry is their newest target.
Like collecting rent
To its practitioners, patent assertion is merely the exercise of a legal right. Patents are an asset, they argue; suing a company over its use of intellectual property is no different from buying a parcel of land and asking the people using it to pay rent.
But patent lawsuits remain extremely frustrating to companies such as Ford. Patent assertion companies filed 107 lawsuits against automakers and suppliers in 2014, up from 17 lawsuits in 2009, according to San Francisco-based RPX Corp., which bills itself as helping corporations fend off trolls.
Now Ford is pushing back. The company told Automotive News that it recently inked a contract with RPX, which has spent nearly $1 billion amassing a portfolio of patents that could otherwise pose a threat to members such as Intel Corp., Microsoft Corp. and Samsung Group.
“We take the protection and licensing of patented innovations very seriously,” a Ford spokesman wrote in an e-mail. “And as many smart businesses are doing, we are taking proactive steps to protect against those seeking patent infringement litigation.”
Automakers may not be willing to spend hundreds of millions of dollars buying patents solely for legal defense. RPX hopes they will instead join Ford in signing up with the firm, whose members pay an average of $1.5 million annually for access to a shared portfolio of patents.
Most of the current portfolio is geared toward information technology, but RPX plans to add automotive patents as well.
“At the end of the day it’s a cost, it’s highly unpredictable, and because it’s highly unpredictable, it’s a lot more of a distraction than it should be,” John Amster, the CEO of RPX, said in an interview Tuesday after revealing the Ford deal on an earnings call.
An expensive proposition
Automakers’ exposure to patent lawsuits could increase in coming years as cars rely more heavily on software. It was historically easier to apply for a patent on software than on a manufacturing process or a physical device, so there are more of these patents to be used as ammunition in a court case, said Robert Resis, a Chicago-based patent attorney at Banner & Witcoff.
But many patents being used to sue automakers come from within the industry.
In one April 2014 case, a patent assertion company called Signal IP Inc. sued Ford along with BMW, Fiat, Honda, Jaguar-Land Rover, Kia, Mazda, Mercedes-Benz, Mitsubishi, Nissan, Porsche, Subaru, Volkswagen and Volvo. It claimed these automakers were violating patents on a wide range of electronic features, from keyless entry to airbag sensors and lane departure warning systems.
The patents in question had been registered in the 1990s and 2000s by Delphi Corp., the former supplier arm of General Motors, and by Delphi’s predecessor, Delco Electronics Corp. How they ended up with Signal IP is unclear, but less than six months before filing the lawsuit, Signal IP bought a group of patents from Delphi for $1.7 million, according to disclosures by its parent company, Marathon Patent Group.
Simply defending against such a lawsuit can cost an automaker millions of dollars. Losing in court can cost significantly more.
In 2011, Hyundai was ordered to pay $11.5 million in damages to a company called Clear With Computers, which claimed Hyundai had violated its patent on a method of designing customized booklets for prospective customers.
A year earlier, Toyota settled with a company called Paice LLC over a claim that the Toyota Prius’ hybrid powertrain violated one of Paice’s patents.
Terms of the settlement weren’t disclosed, but earlier, a court had ordered Toyota to pay a $5 million penalty and $98 in royalties for every hybrid sold. Toyota has sold more than 1.5 million units of the Prius in the U.S. since 2000.
Henry Ford’s fight
Ford has a long history of fighting what it sees as patent abuse.
In 1879, the New York attorney George Selden filed a patent application for a “road engine” based on his idea for an automobile powered by an internal combustion engine. He delayed the application for 16 years by filing revisions and in 1895 secured his patent, though he had never built an automobile.
Backed by a wealthy investor, Selden threatened to sue U.S. automakers.
Most of them, including Packard, Olds and Cadillac, paid royalties rather than go to court. The exception was Henry Ford, who prevailed in court by arguing Selden’s patent was limited to two-stroke engines, not the four-stroke engines in his cars.
“No man has a right to profit by a patent only,” Ford said in 1925, reflecting on the episode. “That produces parasites, men who are willing to lay back on their oars and do nothing. If any reward is due the man whose brain has produced something new and good, he should get enough profits from the manufacture and sale of that thing.”