Companies who viciously litigate patents, known as patent trolls, often extract easy money by bullying startups and small businesses. In most instances, this tactic would have worked for Personal Audio. However, they evidently didn’t know what they were getting into when they brought a patent suit against best-selling author and comedian Adam Carolla…
After a year of patent litigation concerning Mr. Carolla’s popular podcast, Personal Audio offered to dismiss its lawsuit, citing business reasons. However, Mr. Carolla rejected the walk-away offer, which was conditioned on terms not publicly disclosed, vowing to continue the fight to either invalidate the patent or obtain a favorable judgment, limiting Personal Audio’s ability to assert its patent against podcasters in the future.
The litigation centers on a patent held by Personal Audio, purportedly covering “episodic content,” which was filed in 2009 to update a 1996 patent relating to the production of audiocassettes of magazine and news content distributed through the mail. Personal Audio claims that its patent applies to podcasting. Mr. Carolla has sought review to invalidate the patent.
Rather than give in to Personal Audio’s demands, Mr. Carolla used his podcast to unite fans and other podcasters against Personal Audio. Mr. Carolla sought contributions to his company’s Save Our Podcasts Legal Defense Fund through the crowd funding website FundAnything. The crowd funding campaign currently has over 12,000 supporters and has raised nearly half a million dollars.
Patent lawsuits are expensive to defend. Many startups and small businesses do not have the time or resources to engage in a lengthy court battle, regardless of the merits of the case. This has spawned a lucrative cottage industry where companies, referred to as “patent assertion entities” (a.k.a. “patent trolls”), acquire patents with the primary intent of suing or extracting licensing fees from alleged infringers. Patent trolls seek out vulnerable targets and threaten legal action or sue in the hopes of obtaining a quick settlement. Personal Audio, which produces no product or services, fits the definition of a patent troll.
Through crowd funding, Mr. Carolla has been able to fight back against the tactics used by patent trolls. Many startups and small businesses are already familiar with crowd funding. While they may not have a built-in community of fans and podcasters ready to rally to their defense, like Mr. Carolla, crowd funding may give them the ability to defend against patent suits, where they would otherwise be forced to settle early. The crowd funding platform may also weaken the patent troll’s leverage and cause them to think twice before filing suit.
Of course, before companies start crowd funding their legal fees, they should consider whether taking money from third parties would impact their ability to make decisions in their case. For example, Mr. Carolla, by earning the support of other podcasters, may feel obligated to fight not only for his company’s interests, but on behalf of other podcasts as well. Companies should also consult with their attorneys about structuring the fund so that it does not violate rules of professional conduct regarding attorney trust accounts or the payment of attorney fees by third parties.