Patent Troll Values Its Entire Portfolio At $2, Goes Bankrupt (arstechnica.com)

mspohr shares a report from Ars Technica: In September 2018, Shipping & Transit LLC (formerly known as ArrivalStar) filed for Chapter 7 bankruptcy -- voluntary liquidation -- but no one seems to have noticed until the Electronic Frontier Foundation pointed it out on October 31. The company claimed that it held the patent on vehicle tracking and related alerts. But about 15 months ago, judges began to rule against Shipping & Transit for the first time. That seems to have put a damper on its entire business model.

Now, according to Shipping & Transit LLC's federal bankruptcy filings, its global patent holdings (34 in the United States and 29 elsewhere) are worth a whopping $2. Meanwhile, it owes more than $423,000 to numerous creditors, including banks, law firms, and something called the "West African Investment Trust," based in Geneva, Switzerland.

Comments

in order

[guygo]

I believe and "Womp Womp" is in order?

I know the solution

[93 Escort Wagon]

They should just compile a giant, overpriced set of cookbooks. Then everyone is sure to forget they’re actually scumbags!

This isn't over

[Opportunist]

One patent troll gone. Good riddance. How many more to go?

The problem with patent trolls is that you cannot win against them. If you lose, you pay a fortune. If you win, they have no assets, go poof and tomorrow you have the next patent troll come into existence, with the same shysters, the same office and a new "creative" name.

And as long as this is legal, it will continue.

Re:This isn't over

[sheramil]

One patent troll gone. Good riddance. How many more to go?

The problem with patent trolls is that you cannot win against them.

As for assets, how many people work for this company, and (Zim voice) do they have all of their organs?

Re:This isn't over

[DewDude]

I think part of the solution is that patents shouldn't be transferable...at all...ever. The problem is these guys just buy up "useless" patents...usually cheap...and just sue like crazy. They never actually contributed *anything* to the development of the technology...not to mention the original guys who came up with it probably never got compensated as they were probably employees and the patent went to the company.

If you prohibit patents from changing hands to entities that have nothing to do with them...then stuff like this for the most part will stop. You won't have guys buying a bankrupt company's IP at auction and then just suing everyone because "they own the patent".

If the company goes under...then the patent should expire. Letting assholes buy it for a couple bucks at a liquidation and then start suing everyone isn't what the patent system was designed for.

Re:This isn't over

[Opportunist]

There are simpler constructs for that, venture capitalism for example. There is no reason the patents have to change hands if you just want to prop up a company 'til they can reap the fruits from those patents.

make em public

[dicobalt]

Sometimes patents should just be made available for everyone. This is one of those times.

Re:make em public

[Immerman]

Why would they do that though?

I suspect valuing the patents at $2 is prelude to the CEO starting a new LLC to buy them and keep doing the same thing without all those old debts hanging over their head. Standard corporate shell game - our company imploded, so we're going to buy all the assets at fire-sale prices and start a new company doing the exact same thing but with a different sign over the door. Have fun trying to squeeze that money we owed you out of our old corporate charter!

Re:make em public

[Cytotoxic]

Exactly my first reaction.

Re:make em public

[Methuseus]

I think OP is saying the government should basically invalidate the patents or open them to anybody, not that the company should. I could be wrong.

Re:make em public

[SCVonSteroids]

That sounds ridiculous, but, wouldn't some other acting party also be able to say they want to buy these up?
Wouldn't that in turn kick off a bidding war? I don't know. The way you explain it sounds so broken as to not even be true. But then again...

Re:make em public

[HornWumpus]

Private has nothing to do with it.

The bankruptcy liquidation is supervised by a receiver. They can't just do what you claim. The creditors could just choose to take the assets, but not the current scumbags.

Re:make em public

[Comrade Ogilvy]

Indeed.

While in bankruptcy, refusing a higher offer for the patent portfolio would open up the corporate officers to be help personally liable for failure to uphold their fiduciary duty to their creditors. In theory this can be applied to a company in less dire straits, too, but suits on this point are rare.

I do suspect the $2 valuation is a gambit to shuffle to portfolio over to a fresh new patent troll business. It is such a nonsensically low value, it would be hard to believe that it makes sense for even garbage patents.

Re:make em public

[HiThere]

While true, you might look into what happened during the SCO bankruptcy. (It's in the GrokLaw history, and should still be on line.)

Re:make em public

[Bert64]

If they're declared bankrupt they should report to whoever their creditors are, who should then decide what gets done with any assets they have.

Re:make em public

[HornWumpus]

Patents average 10k$ to secure.

But a worthless patent has a _negative_ value. It's a money pit that only shysters like.

Re:make em public

[HornWumpus]

SCO was kind of unique. Their shysters had agreed to represent them to the bitter end for a big block of stock.

The Nazgul actively prevented SCO from going bankrupt, just so they could play with SCO's shysters, like a cat 'playing' with a half dead mouse. Good fun for all.

What did SCO own at the end? Some office furniture and the right to sell a dead OS (but not the copyright)?

Re:make em public

[Immerman]

Now, if you're talking a negative value to society - I would agree wholeheartedly.

But if you're the owner? Little perhaps, but as long as it sits untouched in your portfolio it costs you nothing. And any patent not yet actually found completely invalid has a litigation cost associated with doing so. That gives you bargaining power - whether in the threat of a defensive countersuit against an aggresive competitor, or as a troll for some easy cash.

Doesn't matter if it would stand up to any challenge - much of the point of a modern patent portfolio is to have a lot of little soldiers standing ready to be thrown into battle. It doesn't even matter if most of them would end up falling on their own swords, they still look ominous standing in the field. And they serve as a distraction as well, providing some camouflage for the genuine threats - forcing the opposition to waste resources considering every patent in the field for possible relevance and validity.

Almost certainly not what was envisioned when they set up the system - but that's rather ballooned out of all control since they stopped requiring the president to personally sign each patent awarded. I often think perhaps we should reinstate that requirement - if it's not an innovative enough invention to be worth be two seconds of the President's time, then maybe it's really not innovative enough to give you exclusive control over everyone who wants to use it in the next many years.

Fools and their money

[darthsilun]

Meanwhile, it owes more than $423,000 to numerous creditors, including banks, law firms, and something called the "West African Investment Trust," based in Geneva, Switzerland.

I don't feel the least bit sorry for any of them.

Re:Fools and their money

[darthsilun]

Er, you lost me there.

Only $2?

[Anonymous Coward]

How could 63 patents be worth only $2? I'd give them $100 right now to buy 63 patents, even knowing full well they are junk patents and really worth anything legally.

Re:Only $2?

[91degrees]

Yes. It's worth it to another patent troll at least. Find an infringer for any of them, and they'll probably agree to buy the patent outright for more than that.

Re:Only $2?

[Pimpy]

The value of the patent is only a small factor in the overall price of managing an IP portfolio. For each of these you will still need to pay recurring maintenance fees, which are priced at the size of the filing entity, rather than the size of the current owner (the economics would be quite different if the patent trolls could get away with paying the heavily discounted micro entity fees). Given that most patent trolls leverage IP that they don't need to pay a premium on in the first place, most of these are already past the 7.5 year window ($3600 per patent) and will incur high costs at the 11.5 year one ($7400). So even if you were to acquire these at $2 for the lot, you would still end up owing close to $500k in maintenance fees in a very short period of time, which you would need some way to cover (e.g. through licensing fees) for the business model to work - not to mention the cash you would need for protracted legal fees working up to a license agreement.

Portfolio is worth $2?

[darthsilun]

Great. I'm a buyer at that price, and I'll happily put them into one of the patent trusts.
Where do I have to talk to?

Re:Portfolio is worth $2?

[misnohmer]

I'm outbidding you by 50%, offering $3...;-)

Re: Portfolio is worth $2?

[Anonymous Coward]

They probably transfered them to another company for $2 and will start again

Re:Portfolio is worth $2?

[Anonymous Coward]

I'll bid about Tree Fiddy.

Re:Portfolio is worth $2?

[bobbied]

Great. I'm a buyer at that price, and I'll happily put them into one of the patent trusts. Where do I have to talk to?

And now we know how patent trolls get started... :)

Just my thought as well

[SuperKendall]

Judge: "Ok, the patents are worth $2. I have just purchased them; here's a $5 bill, please provide change.".

Four. Four big trolls

[raymorris]

> How many more to go?

Four.

Three or four companies file half of *all* patent suits. The total number of patent suits includes all of the legitimate business disputes, so probably 90% of the trolling is those few companies.

To pretty much solve trolling, one only needs to study the business model of those few companies and figure out how to disrupt it, how to make it not profitable.

You hear about lots of different companies being victims of trolling, and different patents being trolled, so it seems like a large issue. It's the same plaintiffs over and over though.

Re:Four. Four big trolls

[dAzED1]

"how to make it not profitable" - we could yell at them in restaurants, I hear that is terrifying and is as bad as being sent a bomb.

Re:Four. Four big trolls

[SlaveToTheGrind]

Three or four companies file half of *all* patent suits.

Names, please? Remember this is all public information, so it's easy enough to cite (and/or verify).

They should check previous claims

[gerald.edward.butler]

Someone should check previous claims they made to investors and the courts prior regarding the value of their portfolio and charge them with fraud if they don't line up.

Re:They should check previous claims

[Sique]

They could still claim they thought that the patents were worth more, until they lost some court cases proving them wrong. Then any fraud claim is dubious at least, because apparently, they acted in good faith.

Re:They should check previous claims

[gerald.edward.butler]

True, but, it would be interesting to start making them justify their claims. For example, you can't just say anything to investors without justification and not have it be considered fraud. For example, what if they're are e-mails where they talk amongst themselves that the patents probably aren't worth anything near what they're pitching to investors, but, as long as they can keep the game going and keep more investors coming in, they can have a Ponzi scheme that appears to have legitimacy. It would be good to subpoena all records and look for that sort of shenanigans.

Re:They should check previous claims

[Sique]

The problem is that fraud is a crime. If you want to argue fraud, you are no longer in civil law, you are in criminal law. Thus, they have the advantage of being innocent until proven guilty. So it's not their task to prove they acted in good faith. You would have to prove that they acted fraudulently, which is a much higher hurdle. You would have to come up with a smoking gun like an e-mail, where one tells the other that he knows the patents are worth less than they claim or something similar.

Re:They should check previous claims

[Sique]

It took years. Enron filed for insolvency in 2001, and only in December 2005, the first manager was convicted for fraud, the last one in 2009.

West African Investment Trust

[r1348]

Because it takes a patent troll to scam a Nigerian prince.

Also Judge Gilstrap heard 39% of troll cases

[raymorris]

On a similar note, 39% of of cases by high volume plaintiffs were heard by Judge Gilstrap in the Eastern District of Texas. He had 24% of all patent cases in the country. In other words, Judge Gilstrap was 39% of the problem.

Last year, the Supreme Court held in TC Heartland that patent plaintiffs can't venue shop like they used to. Now,
  Gilstrap is down to only 9% of all patent filings and 15% of HVP filings.

That's a big improvement. Getting of Gilstrap would be a major win. He's one guy.

Re:Also Judge Gilstrap heard 39% of troll cases

[radarskiy]

That doesn't prove that he was part of the problem, just that he hears a lot of patent cases. What do his plaintiff vs. defendant rulings look like? Are the overturn rates different than for other judges.

People love to claim how East Texas is friendly towards patent plaintiffs, except that district doesn't actually have the highest rate of finding for patent plaintiffs.

Ps Judge Schroeder down to 3% from 19%

[raymorris]

Ps, while Gilsap previously had 39% of HVP filings, Judge Robert William Schroeder III, had 24%. That's 63% for just those two judges.

After TC Heartland, only 3% of filings go to Schroeder.

Some people think that to fix this we have to completely throw out the patent system. These two judges, two people, were 63% of the problem. Handle those two guys and you're most of the way there.

Re: Ps Judge Schroeder down to 3% from 19%

[Anonymous Coward]

So that rant suggests you're actually anti-patent rather than anti-patent-troll, a difference that matters to at least a few of us around here.

EDTX drew all those filings because EVERY serious patent holder, trolls included, wants a judge that actually takes the subject matter seriously and knows enough about patent law not to screw it up. I'm not exaggerating to say that my boss has had to explain the difference between a patent and trademark to individual federal judges in more than one district.

And that's completely beyond the fact that EDTX runs a seriously efficient docket- if/when one of *your* patents is infringed, you're going to wish to god you had a judge that was willing to keep defendants moving. Delay helps nobody but a determined or past infringer.

Blaming EDTX judges for whatever it is you don't like about patent trolls is about the most asinine thing I've read here today. That's why I suspect it's really patents in general you have a problem with.

Re:Ps Judge Schroeder down to 3% from 19%

[thegarbz]

Some people think that to fix this we have to completely throw out the patent system.

I don't think any sane person would suggest that. But an overhaul to prevent filing and granting of trivial non-inventions is none the less in order. If for no other reason than to reduce the backlog and cashflow of those who profit from an insane number of patent applications.

IBM filed for 9043 patents last year. Even if the troll littigation stops there are still legitimate problems with the patent system that rewards this behaviour.

Re:Ps Judge Schroeder down to 3% from 19%

[SCVonSteroids]

You need to make an example or someone else will just get bought.

Re:Ps Judge Schroeder down to 3% from 19%

[liquid_schwartz]

Ps, while Gilsap previously had 39% of HVP filings, Judge Robert William Schroeder III, had 24%. That's 63% for just those two judges.

After TC Heartland, only 3% of filings go to Schroeder.

Some people think that to fix this we have to completely throw out the patent system. These two judges, two people, were 63% of the problem. Handle those two guys and you're most of the way there.

So 2 bullets and a bit of gas money. This is not nearly as expensive as thought.

Re: Ps Judge Schroeder down to 3% from 19%

[HornWumpus]

We've been watching _idiotic_decisions_ come out of east Texas patent courts for decades. Sell your bullshit elsewhere.

These judges are selected by plaintiffs for their stupidity. That and the stupidity of the local jury pool. That's over, yeah!

Re: Ps Judge Schroeder down to 3% from 19%

[HiThere]

I don't know about you, but while I'm *really* anti-patent troll, I'm also anti-patents as implemented. Patents need to be a LOT narrower, and more narrowly interpreted. And current patent law needs to be totally thrown out and replaced by something simpler, clearer, and more limited. Also the requirement for a working model needs to be reinstated, if not for the issuance of the patent, at least such that you can't claim damages for any period prior to the presentation of the working model. And patents need to be explicit enough that one skilled in the art can build a working instance from them without any other information that isn't publicly accessible. And there should be a requirement that this be provable before any damages can be collected.

Re:Ps Judge Schroeder down to 3% from 19%

[HiThere]

You overestimate the effectiveness of examples. What is needed is that they system is repaired in such a way that these things either don't happen or are wildly unprofitable.

Not that I'm against making an example of those two bastards, just that I don't see that as even a step towards a real solution.

Re: Ps Judge Schroeder down to 3% from 19%

[Anonymous Coward]

You're on the side of bullshit here. Nobody selects individual judges- there are 7 judges in that district, not counting magistrate judges and those that have been assigned intercircuit. To the extent that you select a division to file in, even that doesn't guarantee you get the case in front of one of the judges in that division. See this order for example:

http://www.txed.uscourts.gov/sites/default/files/goFiles/GO-18-08.pdf

If plaintiffs had wanted stupid judges, they'd go somewhere where the words "Markman hearing" would seem like a foreign language, rather than a district where they have explicit rules about the process and a lets-get-this-done attitude. Claim construction is often the key issue in patent litigation, and because it's decided as a matter of law, there's no reason for the case to sit there for years before it happens. Oh, I guess you're in favor of the districts where defendants spend millions in discovery only to find out they've likely won or lost in a hearing that relied on practically none of that?

Plus, there's no "decades" involved here, again suggesting you don't actually know what you're talking about. 15 years, max, and if you can point to a specific judicial decision coming out of that district before 2008, I'll eat my hat.

I also like that you'll call an entire swath of Texas stupid. Oh, just the registered voters in that area, I guess. That's still a lot of people to be calling stupid that you don't know at all.

Re: Ps Judge Schroeder down to 3% from 19%

[HornWumpus]

Google 'East texas patent idiocy'.

Do it.

Re: Ps Judge Schroeder down to 3% from 19%

[Pseudonym]

I'm anti-patent-troll, and I'm also anti-current-US-patent-system. If we were designing an inventor protection system today, we would not invent this.

Having said that, we tend to notice here because of the way patents are used in the software industry. In most businesses, exactly the same "invention" isn't simultaneously "protected" by patent, trade secret, and copyright.

As much as we like to complain about people like Shkreli, patents as they are currently implemented seem to work reasonably well in the pharmaceutical industry. It'd work even better with some tweaking (e.g. public health emergency exceptions for developing countries with proportionate compensation), but most of the problems in that business are only tangentially related to patents.

Microtears

[Tablizer]

I'm patenting and playing a sub-millimeter violin.

Re: Four. Four big trolls

[JustAnotherOldGuy]

, or spending Christmas in Cambodia

I did that once...the Christmas music in the stores (in a country that's 99% Buddhist) saddened me.

The fact is that you could carpet bomb Cambodia from one end to the other and you wouldn't hit a Christian unless you were really lucky.

Now there are fucking Mormons there trying to spread their brand of noxious crap too. I throw shit at them if I go by them on a moto or in a tuk-tuk.

Seems legit

[reanjr]

West African Investment Trust based in Geneva, Switzerland. Seems legit.

Looks like

[Colourspace]

'West Africa Investment Trust' are going to be WAITing a long time for their money.

Portfolio value

[kbg]

It seems the original poster doesn't seem to understand why the portifolio is only valued at $2. The reason of course is so that the "Shipping & Transit LLC" company can sell the assets to a "new" company and continue with the patent litigations in a "new" company without any depts. Rinse and repeat.

Re:Portfolio value

[bobbied]

Which is why I think any patents held by a company in bankruptcy should be thrown into the public domain.

So I propose that we make it so patents either revert back to the original patent filers, or are assigned to the public domain should the current holder be forced into bankruptcy.

In addition, all patents must be "maintained" by paying a set of yearly fees to remain in force. The fees increase each year by adding 20% to last year's fees. Fees may be paid in advance at the current year's rate, but anytime the patent is re-assigned, any prepaid fees are forfeit and the new owner must pay fees at the current yearly rate.

So if you want patent protection, you will pay fees to keep it. If you cannot make money on the patent, then it reverts to the public domain.

Re:Portfolio value

[fustakrakich]

So if you want patent protection, you will pay fees to keep it.

Works out great for the people that can afford it.

Re:A patent troll you say?

[bobbied]

A company is worth more than a sum of its assets, there is also Good Will... oh wait...

I think the Good Will account is overdrawn by more than $2. Bankrupt!

Something tells me that those patents will be snapped up for more than $2 though.

DAMMIT. I want to buy them out

[TimothyHenderson]

I want to offer them something in the area of 300$ for their patent portfolio (a 150x valuation of their portfolio's value) and then join a consortium that shares patents with the entire industry.

Re:DAMMIT. I want to buy them out

[TimothyHenderson]

They don't have any contact information to arrange such a thing.

The West African Investment Trust is,

[sabbede]

if I'm not mistaken, a consortium founded by a group of exiled African princes who need help liberating confiscated funds.

Compare troll percentage vs total, picked him

[raymorris]

When plaintiffs could choose the judge, the picked Gilsap. Especially high volume plaintiffs (mostly trolls) picked Gilsap and Schroeder.

Why do *you* think trolls *chose* to file in Gilsap's court?

Already have the fees. Regarding bankruptcy ...

[raymorris]

They already have maintenance fees. Those fees make it harder for patent trolls.

Regarding bankruptcy:
  Suppose I invented a new tool to fix car engines without taking everything apart, so it makes repairs much quicker and cheaper. It's a great invention. You loan me $20,000 to try to build a business around making and selling thr invention.
I'm not the best business person in the world, I can't figure out how to best market the invention. I fail. My new tool company is bankrupt.

Snap-On offers $100,000 for the invention. You're excited - you can finally get back the $20,000 that you loaned me.
Then you realize you're never getting your money back because *you* decided that if the original inventor doesn't also happen to be a great business person and fails, the patent is invalidated. An inventor can't sell the patent to someone who can actually manufacture and market it if they fail to build a business around it.

Still seem like a great idea?

Re:Already have the fees. Regarding bankruptcy ...

[bobbied]

Remember, the patent rolls from the bankrupt company back to the original holder, which must be a person or their estate.

So in your example, if the business formed to market your new tool is assigned the patent and when it fails, the ownership of the patent simply rolls back to the original patent holder, who can then assign it to another company who's better at marketing.

So, when Snap-On offers $100K, it will be to the original patent holder (or their estate) and if they go bankrupt the whole cycle keeps going.

The point is to avoid patent trolls being viable by removing patents from being available for speculative investment from companies going bankrupt and making it expensive to have a patent change hands.

But I am obviously spit-balling here. I'm sure there are unintended side effects and likely better ways to do what I'm trying to do.

Re:Already have the fees. Regarding bankruptcy ...

[HornWumpus]

On what planet?

Not earth.

The patents will be liquidated by the receiver under judicial supervision. Along with the really valuable assets, a half finished roll of TP from the company bathroom.

Re:"Womp womp" meme.

[HornWumpus]

I believe the standard meme is 'sad trombone'.

Hopefully the scumbag owners will be forced to make their livings playing 'rusty trombones'.

First sentence of your post

[raymorris]

Your first sentence was:

--
  I think any patents held by a company in bankruptcy should be thrown into the public domain.
--

Did you forget what you said?

Re:Four. Four big trolls

[nasch]

To pretty much solve trolling, one only needs to study the business model of those few companies and figure out how to disrupt it, how to make it not profitable.

Hopefully that's true, and they can't come up with another patent trolling model.