CHICAGO – Public transit agencies nationwide are being targeted with questionable lawsuits by so-called patent trolls squeezing settlements out of financially strapped public entities unable to mount legal defenses against claims they are infringing on intellectual property protections, industry representatives said Thursday.
Lawsuits or threats of legal action have been lodged against at least 23 transit providers in some of the nation’s largest cities, including New York, Boston and Chicago. Opponents say the claims are frivolous and are stifling innovation, draining resources and costing taxpayers millions.
“We are seeing this huge onslaught of patent lawsuits,” said James LaRusch, chief counsel for the nonprofit American Public Transportation Association, which has filed a federal lawsuit seeking to protect its hundreds of member agencies.
Critics of the practice deride the firms as “patent trolls” because they appear to do little genuine business or technology development beyond buying up patents and using them to demand licensing fees from other companies.
Known in technical jargon as patent assertion entities, they have also gone after private sector companies but are increasingly targeting public and governmental agencies, including utilities, cities, the U.S. Postal Service and now transit providers. The resulting settlements are draining already depleted public coffers.
That shift is alarming some in Congress, where several pending bills could help limit the damage from frivolous claims. The head of the Federal Trade Commission is seeking an investigation of such firms and their business practices.
“This type of litigation undercuts the purpose of the patent system and exploits the fact that public agencies are at a disadvantage in defending themselves,” said U.S. Rep. Daniel Lipinski of Illinois, the state’s senior member on the House Transportation and Infrastructure Committee.
The Chicago-area Democrat wrote to FTC Chairwoman Edith Ramirez this week to urge her to follow through with an investigation that would determine the scope of such activity and identify which companies are the most prolific filers of such legal claims.
The claims against transit companies have largely challenged the use of GPS-based tracking systems that alert customers to bus and train arrival times at stations and online.
The transit industry association is challenging the validity of the patents cited in the claims, but says many agencies have no choice but to settle to avoid litigation costs that can reach $2 million to $3 million even if they’re successful.
The names of only two companies filing claims have become public, but LaRusch believes there are many others – and many out-of-court settlements – that do not become known publicly because of confidentiality clauses in the deals.
The lawsuit his group filed Tuesday in federal court in Manhattan identifies the two companies as ArrivalStar S.A. in Luxembourg and its affiliate Melvino Technologies Ltd., an offshore firm in the British Virgin Islands.
Dowell Baker, a Lafayette, Ind., law firm that represents the two companies did not respond to a phone message seeking comment Thursday.
One of the law firm’s claim letters, sent to the Toledo Area Regional Transit Authority in February 2012, says it represents a founder of ArrivalStar who invented tracking technology used in public transportation and shipment of cargo and packages.
“ArrivalStar has licensed its technology to over 180 companies,” the claim letter says. “Although many of these licenses were granted in settlement of patent infringement actions filed by ArrivalStar, many resulted from amicable business negotiations.”
LaRusch, of the American Public Transportation Association, disputed the assertion that the companies have developed any technology.
“They don’t develop anything. They don’t produce anything. Their reason for being appears to be simply to file claims against people who go out and create things,” he said.