Abusive patent lawsuits hurting new businesses
In Chicago we're fortunate to have many strong startups, supported by our city's collaborative workspaces like 1871, TechWeek and a supportive city hall. Unfortunately, our startups are also challenged - unjustly - by abusive patent litigation.
Chicago-area startups are being threatened and sued by companies that make nothing and offer no products or services to consumers. Instead these companies, sometimes called patent trolls, hold our economy hostage, sending threatening demand letters and alleging patent infringement where there is none, and demanding unjustified licensing fees as the price of avoiding costly litigation. I know because my company was recently targeted, and I survived due only to sheer obstinacy, naiveté and luck.
Like many entrepreneurs, I started with a simple idea: give people who are tired of waiting in long lines at nightclubs, restaurants, airports or other venues the choice to pay to skip the line. My app, called Jump Rope, is available in all the popular app stores. We incorporated in June 2012 and for several months acted as any startup. We built a prototype to raise capital and sell this creative revenue-generating opportunity to entertainment venues in Chicago and cities nationwide.
Remarkably, soon after we secured investors and launched publicly, Jump Rope was sued for violating a patent that claims ownership over "a method and system for reserving future purchases of goods and services." A local Chicago company claimed to own this "method," though it has no app or feasible implementation technology.
Because I was advised and was confident that Jump Rope did not infringe, I refused the offer of a "modestly priced" license fee and fought back in court. Many business advisers would think me naive. I questioned the economics of litigation versus settlement. Fortunately, the judge ruled in my favor.
The court battle cost more than $100,000 out of my pocket and was only that "cheap" because the judge ruled in near-record time and without hearing from any witnesses or permitting expensive discovery. The judge was so offended by the plaintiff's meritless infringement allegation the company was ordered to pay my legal fees - a sanction that is authorized by our laws but very rarely imposed. Unfortunately, when the plaintiff is a shell company, collecting those fees is nearly impossible.
For this military veteran's hard head, the smoother path would have been to settle and pay - and thereby save tens of thousands of dollars and hundreds of hours that would have been more effectively utilized to build my business. However, I was always taught to fight for those who cannot fight for themselves. This time the fight was for my right, and that of other entrepreneurs, to innovate and create revenue, and eventually jobs.
Illinois Sen. Richard Durbin is a member of the U.S. Senate Judiciary Committee, which has been discussing several proposals to reduce abusive patent litigation. I hope Sen. Durbin will support Chicago's thriving startup community by supporting proposals to make more of these patent system abusers pay victims' legal fees, require patent owners' demand letters and judicial complaints to specify in detail how an infringement is occurring, and give small companies more tools, such as reviews of previously issued bad patents, that help us stay out of court.
The Senate must act quickly to stop abusive patent litigation from undermining Chicago startups and innovators before the consequences become too great. It may be the most important work that Sen. Durbin can do for Illinois businesses.
I don't claim to be an expert in intellectual property litigation, but I hope fixing the patent system will help small companies and put an end to abusive litigation that's crippling our innovative economy.
• Peter Braxton is founder and CEO at Northbrook-based Jump Rope Inc, a partner at Disruptive Technology Partners LLC and co-founder at Square 1 Development LLC.